Colleges should share student loan risk

Fix student loans by giving colleges “skin the game,” writes Alex Pollack in The American.

(Colleges) are the effective originators, the promoters, and the chief financial beneficiaries of student loans. It is their rising costs which result in ever more debt and more risk of default for student borrowers and for taxpayers.

The federal student loan program should make colleges share the risk of bad loans, Pollack writes. Colleges would have an incentive to avoid charging more than students will be able to repay.

 

About Joanne

Comments

  1. This will never happen as long as they are pushing universal college…the biggest factor in loan repayment is future employment, and if colleges had to bear the burden a lot of applicants wouldn’t find a school.
    This and the community center push are just more examples of half-baked ideas from the current admin…all flash and no substance.

  2. George Larson says:

    Wouldn’t assuming this risk just raise tuition costs more?

    • As proposed, yes. Schools would find ways to raise tuition or fees to cover their share of the projected default rate, and business would go on as usual. State schools and community colleges would likely face the greatest difficulty, as they’re often under threat of a loss of state and local funding if they can’t limit tuition increases. Meanwhile, private diploma mills, the worst offenders, would adapt quite easily – and students would effectively borrow the 10% “penalty” in their own names, on the school’s behalf.

      A better solution would be simply to require colleges to bear or share the cost of insuring loans, setting premiums based on performance.
      http://thestoppedclock.blogspot.com/2010/10/how-about-insuring-student-loans.html

  3. Why should colleges be responsible for the students decisions on financing? Didn’t the federal gov’t take over the college loan industry?

  4. Actually, a much easier solution would be to make student loans riskier to lenders. It might, God forbid, get them to think about whom they’re lending to and for what purpose.