I think we can all agree that our current student loan situation is unsustainable, right? Since I’ve recently gotten into the business of playing Build-A-Nation, I’d like to propose a few solutions to the problem. Of course, the problem is a multi-variable one, and hence no single solution is a magic cure-all; you should be skeptical of anyone who tries to convince you otherwise. Naturally, these solutions can be applied in a vacuum or in some combination with one another.
One key tactic towards reducing the amount of student loan debt in our country is a simple yet uncomfortable one; admit less students. I’ll explain as soon as you put down the torches and pitchforks. Okay, ready? As an aggregate, universities are clustering around a 50% or higher acceptance rate all the while actual graduation rates hover around 60%. Therefore, one solution is for public universities to admit students who are likely to finish their degrees by accepting only those who finished in the top one-third to one-quarter of their graduating class in high school, with private universities being able to accept whomever they’d like, at their own financial risk. The nationwide statistics also align with what I-and assuredly others-have experienced back in college; there were quite a few of my fellow students that frankly didn’t belong there. Fewer indebted dropouts bodes well for society, seeing how nationwide the loan balance is a whopping 1.7 trillion and roughly 33 million borrowers are not in active repayment. Limiting the number of people who take on debt in the first place would surely make a dent.
Similarly, we should not give loans to those students who do not meet the “top-third” standard; they’re unlikely to finish and hence are a poor financial bet. Also, absolutely no loans to anyone attending a private university; they willingly chose to not participate in the government-funded higher ed infrastructure and should bear the consequences of that decision.
While I’m certainly not the first one to recommend this, we can get federal money out of education funding altogether. Currently, universities do not have to compete with each other on cost-so let’s make them do that. Universities also have no risk when a graduate defaults, since they get that sweet, juicy federal loan money paying their tuition anyways. “Dan, that’s not a particularly nuanced take either! Give us something spicy!”. Alright, we can make the universities themselves as the lenders. Yes, they can afford it, especially if they are only accepting the top one-third to one-quarter of students. This will shift the risk of default onto the universities. This will force the schools to be much more selective in to whom-and how much-they lend. Lending $60,000 to an electrical engineering major is a better bet for repayment than lending the same amount to a sociology major. In this new model the sociology major would be lent less due to their lower projected earnings. Lending availability and interest rates would become new areas where universities need to compete with each other on. Currently rent-to-own furniture stores and car dealerships follow this same model, so why not make the Education Industrial Complex (and yes, it is an industrial complex) do the same? This also presents some work-study opportunities for finance and data-science/statistics students as well; the universities could use some of these finance and statistics majors as loan officers; parsing this much data and making accurate financial predictions would certainly bolster their resumes.
“Dan, this will mean that cuts would have to be made!”. Why yes, yes indeed. As much as I like D1 football, this is a want and not a need for a university. Hey, we agreed to put down the torches and pitchforks! Frankly, sports are a colossal money pit for universities, generally speaking. “But The University of Texas can profitably run it’s program, so they should keep it!” I agree completely, however I doubt Kansas State can say the same. Something has gone amiss when most of the largest stadiums in the country are on college campuses yet student loan debt is skyrocketing; be profitable or close, period. “But Dan, what about donors?” Donors may make up the shortfall if they choose to do so, or they can find corporate sponsors to put their name and logo on the jerseys-just like the NBA already does. If nobody is willing to pony up the cash, then that’s a really good sign that maybe the program shouldn’t exist. But hey, what do I know? It’s not like professional sports believe in capitalism anyways.
Let’s shift gears before I have a full-blown lynch mob kicking down my front door; if nothing else is going to change, we can at least overhaul the interest we charge on federal student loans. Ideally, interest rates would simply be pegged to inflation; that ensures the federal government doesn’t lose money on the deal. However, federal student loan rates can reach 7.5%. At 7.5%, the motive is clear; profit. The federal government doesn’t have this motive for other programs, such as the post office, so why is this the intended revenue source? The federal government is not in the business of making a profit, and even if they were, they clearly suck at it. To even further solve the problem, capping the interest rates to inflation can be done for existing loans, as well as new ones. Solutions that address only existing loans will not prevent re-occurrence, however people who have already borrowed need some reform too.
I owe a debt of gratitude to those who made it this far without rioting, just as long as that debt isn’t at 7.5%…
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