Fall is back and so is the college loan crisis. In the USA it is predicted to be the next home mortgage crisis. For those outside the US, remember how the US home mortgage crisis affected the whole planet?
The problem: 70% of students graduate with an average student loan debt of about $30,000. Inflation adjusted that's double what it was 20 years ago. Note that's the average, that means half the students have more debt than that. The aggregate is over a trillion dollars and the default rate is about 10-15%.
1. College costs are increasing drastically about twice the rate of inflation for the past 30 years. The majority of the money has gone to increased administrative costs not to instruction.
2. College freshmen are only 18 years old and let's face it an awful lot of 18 year olds don't have the best long term judgement. Fortunately most of these guys have parents who do, but for those who don't we're all picking up the bill in loan defaults.
- For example while not the norm there are people who rack up $200000 majoring in social work or graphic art etc. Those people will NEVER earn enough to pay back the loans
3. General financial illiteracy on the part of way too many Americans
4. Dropouts with student loans don't have the extra income from the degree to pay it off and thus default more frequently i.e. we the taxpayers pay for it.
Solutions
1. Better information
1a. Easily understood information on the student loan docs, similar to that now required credit cards in clear and easily understandable English including what the payment will be and how long it will take to pay off the loan. Make it clear that the money will be owed even if the student does not graduate.
1b. Add the following questions to the census
- College graduated from if any
- College Major
- For those who graduated College are you
a. Employed in your major
b. Employed outside your major
c. Not employed
Once the census has obtained the information combine it with salary data and supply it to the universities. Require the universities to make public for each individual major 1. The % of individuals employed in that major, the percent employed outside of the major and the % not employed. 2. The average salary of that major for the first 10 years post graduation
Require student loan applicants to handwrite the following "My major is x, I expect to make a salary of [insert average salary for the first 10 years from census here]. My annual student loan payment from this loan will be [insert info for loan applying for here] and [insert info for existing loans here] for a total annual payment of [insert total]."
A bit of a pain for those who are financially literate but at least it will ensure that the even the stupidest 18 year old knows what they are getting into.
Plus it will shine the light of day on some of these programs universities are convincing gullible students to major in.
1c. Require a course in financial literacy for any student loan recipient.
1d. Also require colleges to publicly post graduation percentages in an easily accessible location!
2. Reform bankruptcy laws to make private student loans dischargeable by bankruptcy. Student loans are not dischargeable by bankruptcy not even private student loans from private banks! That makes some sense for the Federal loans but the private banks are having a field day! There is no cap on the interest and penalties the private banks can charge. Financially savvy parents won't let students sign the bad loans but for 18 year olds without financially savvy parents it can be the start of a long nightmare. But if the banks know that the students can file for bankruptcy to get out from under these bad loans, they will be less likely to issue them in the first place and they will never agree to lend $200000 to a social work major!
3. Death of recipient voids the loan. A lot of these loans are co-signed by parents who are still responsible for the full amount even if the student dies.
4. Limit how much money the Feds are providing. Part of the increase in costs is driven by the availability of money. If the Feds will loan the kids more money, the colleges will raise tuition to match. Stop the increases and limit future increases to the inflation rate (the regular one not the 2x college one).
5. Make the colleges have skin in the game regarding federal loan defaults. If a student from the college defaults the college should have to pay back 50% of the money to the Federal loan program.
6. I hate to say it but some more regulation is in order to keep tuition costs down in the first place. I'm not exactly a fan of regulation but sometimes it is needed.
For colleges who receive federal financial aid
a. No more than 25% of the university's budget from all sources including athletic contracts and research grants on administration
b. No more than 10% of the university's budget from tuition and student fees on athletics including coaches salaries (not including money raised from alumni specifically designated for sports and maintained in a separate account or money received from TV rights etc. Actually for Division I schools it might be simpler to have the athletic budget run as a self funding stand alone)
c. A minimum of 50% of the university's budget from tuition and student fees spent on salaries of the faculty actually teaching the courses (salaries of professors who spend most of their time on research should be funded through research grants)
d. Routine audits conducted by 3rd party auditors selected by regulators and released to the public
e. Set standards for drop out rates of student loan recipients i.e. dropout factories should not be eligible for federal student loans
7. Keep parents in the loop! Due to privacy regulations parents are not entitled to see the grades and classes the student is taking unless the student chooses to share that information. Those regulations should be changed. A parent who is either paying for tuition or co-signing student loans should be sent a copy of the student's class schedule and grades directly. This will help parents head off trouble earlier, by actions such as refusing to co-sign loans if academic performance is subpar (a leading risk for drop out and leaving them stuck with loans but no degree). Students who are paying their own way should of course be entitled to their privacy and grades should not be distributed to their parents unless requested by the student.
