Posted on 07/23/2019 10:03:57 AM PDT by SeekAndFind
The Democrats are in the middle of a presidential primary and the Republicans are not, so lefty ideas about how to fix student debt — i.e., throwing taxpayer money at borrowers — have gotten a lot of media coverage. Less noted have been numerous better ideas emanating from the right.
As I argued at length in a print piece earlier this month, while the “crisis” here is overblown and massive new taxpayer handouts wholly unjustified, the system does need reform. Specifically, we need to do two things: (1) provide worthy students a way to fund their education without crippling their finances, but also without dumping their costs on everyone else; and (2) give colleges incentives to control their costs and stop admitting students who won’t benefit, and who might well drop out and/or end up defaulting on their loans.
Two recent papers from the Manhattan Institute nicely illustrate conservative ways of approaching these issues. And each touts an idea with some support in Congress.
The first, written by Jason Delisle and released today, makes the case for “income-share agreements.” Under these arrangements, a lender pays for a student’s education, and in return the student pays a set percentage of his income for a set number of years. This way, students pay for their education during the years when they’re benefiting from it the most — the years when their earnings are high — and are protected against big bills when they’re struggling.
Delisle’s proposal is to take this as a model for the entire student-loan program. The rule is simple: You can borrow up to $50,000, and for every $10,000 you borrow, you owe 1 percent of your earnings for the next 25 years (unless you first hit the repayment cap of 1.75 times the amount of the loan). If you get married, you pay for your ISA based on half the household income. If you make less than $12,000 or receive the earned-income tax credit, your payments are reduced or eliminated.
Everyone is entitled to nearly twice as much money as the typical four-year student borrows today, and no one ever loses more than 5 percent of his income repaying it. Further, collections are handled through the existing income-tax system, streamlining the process.
I might be inclined to expand students’ options beyond what Delisle offers. Students should be able to pick higher payments in exchange for shorter loans so they’re not still paying in their 40s, and to reduce their obligations by making extra payments. But the proposal is elegant and simple, showing how workable ISAs could be if we could build up political support for them. One bill in Congress would start the process of doing this by cleaning up some of the legal technicalities surrounding them, while another would give students a new option that’s fairly similar to an ISA, but we need some far more aggressive ideas like Delisle’s.
ISAs put the focus on how students pay, rather than putting colleges on the hook for helping students run up debts they can’t pay off. For that we can turn to another recent Manhattan Institute paper, by Beth Akers.
Akers promotes the concept of a “money-back guarantee.” It turns out that more than 100 colleges already have arrangements in which students get help paying off their loans if they end up not making very much money. In other words, these colleges voluntarily shoulder some of the risk that a student’s degree won’t pay off.
In this case it’s Congress that has the most aggressive proposal. Senator Josh Hawley has introduced a bill requiring colleges to pay off half the loans of students who default. This is a good idea, though, as I noted last week, the bill includes an odd provision trying to stop colleges from raising prices to cover this new liability, which is both practically challenging and economically questionable. (If a college hikes tuition so it can shoulder this new liability without changing anything else, it effectively “prices in” half the risk of default for its students, which is not the worst thing in the world. Ideally most colleges should cut costs instead, but it’s folly to try to mandate this across the board.)
ISAs and money-back guarantees are two different options, but they both aim to make college affordable without spending lots of taxpayer money on a disproportionately wealthy chunk of the population. Indeed, it would be possible to combine them: Loans could be provided through ISAs, and schools could be required to pitch in when their students aren’t paying those loans back.
That makes a lot more sense than taking hundreds of billions of taxpayer dollars and handing them over to some of the country’s most fortunate individuals.
No thanks. Feds shouldn’t be involved in student loans at all
1) Don't help people with the dumb decisions they made in the past, including running up a bunch of student loan debt that apparently either didn't help them get a high enough income to pay it off, or didn't teach them the financial responsibility required to pay it off. Helping people after they make bad decisions like that only encourages future bad decisions and prevents them from learning life lessons to mature.
2) Get the federal government out of the college/university business. If different states want to do it, that's between the states and their constituents. But the federal government's massive money infusion into higher education is what has made tuition balloon like it has. The two things government "helps" us with most are college and healthcare -- which by no coincidence are the two things with the highest inflation rates.
End result: the only people in the future who go to college will be people who'll either pay for it out of pocket or have a creditor who's not as forgiving as the government, certainly not one that allows such low pre-payments during the early years. That'll make sure that the only people who go to college are the ones who'll actually get their money's worth out of it, in part by bring college tuition and books down. (If tuition doesn't actually go down, it'll at least quit going up for a while until normal inflation catches up.)
Limit the number of degrees in any field to a government estimate of the number of jobs that will require said degree. In other words, if the projection is that America will only have a need for another 1000 basket weavers next year, the limit would be maybe 1200 basket weaving degrees nationwide could be issued, and the universities would have to vie to get some of that allocation. If a degree does not have any viable career path, then the allocation would be zero, and the university would have to drop the program. Make the Dept of Education actually do something and run the analysis of the need by degree and run the lottery for the universities.
We do that with crop subsidies. You want a subsidy you have to grow what the government/business wants/needs.
You want a worthless degree pay for it yourself and then go work at Walmart.
No more loans for Liberal Arts majors.
The problem demonstrates overspending in the education department.
Slash gov subsidies and only provide loans for paying degrees.
how about don’t borrow what straps you too far down to make the investment worth it..
old timey translation..live in our means..
Too simple no room for graft
Restore debtor’s prison for student loan defaults.
“to a government estimate”
I’ll bet you that will be accurate.
What is wrong with allowing self study? If I can demonstrate competency through whatever tests I must pass, it shouldn’t matter how I acquired the information.
1. Stop lending money to people who are pursuing degrees in useless liberal ideological disciplines (yes, I shouldn't use the word discipline in that context). They can never pay $200k back working as a bank teller.
2. Only lend money to people pursuing degrees in engineering, etc. who have the potential to pay it back.
RE: What is wrong with allowing self study? If I can demonstrate competency through whatever tests I must pass, it shouldn’t matter how I acquired the information.
That is what Arizona State Univerity’s Online Degree Programs are doing:
One idea that I’ve found interesting regarding this is after a person has worked for an employer for a set amount of time (perhaps a year), the employer can make loan payments for the employee. The employer can write off the sum for tax purposes and the employee doesn’t have to count the payment as income.
It would be voluntary on the employers behalf. If he or she is looking to keep a valued employee, this could be a hook to do so. I’m sure this set up has some flaws, but it was the most interesting solution that I’ve run across.
Absolutely, the feds need get out of the loan guarantee market. When the available funds dry up, the demand for ridicules degrees will vanish. Simple econ 101, less demand, supply stays same, prices drop. I would not lose a seconds sleep thinking of a bunch of unemployed formerly paid 200K professors out of lauding about positions.
Any partial bailout (which is likely politically inevitable) must be accompanied by a complete divestiture of Fedzilla from the system. Sell the loans to so many different banks and institutions that it will be nearly impossible to collect them back again.
Those which cannot be sold become the responsibility of the college to collect. Most of them have sufficient endowments to liquidate those loans. Those which do not maybe shouldn't be in the college business or the business of passing out unmarketable degrees.
There are at least two plans already in operation which work well:
There is no reason any other college in the country can not emulate one of these proven models or come up with their own.
How about one idea ..... get the government out of the business, which is what it has become, and let folks fend for themselves.
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