timbs4339 wrote:The higher education market is not broken because of government loans.
Correct. At least part of the reason is because of irrational
government loans. And by irrational I mean there is no consideration given to whether the loan will be paid back.
timbs4339 wrote: It is broken because large numbers of people are making stupid financial decisions because of cognitive bias, information asymmetry, and misguided social norms.
I would argue that people are entitled to their own financial stupidity, cognitive bias, and personal social norms as components of free will and liberty, as long as it doesn't drag everyone else down too much. As long as the fedgov is breaking even on the student loan transaction, this condition is met in my opinion.
With respect to information asymmetry, that is inherently present in most transactions, especially as between a large company/organization and many consumers. In my opinion this is properly an area to be addressed by consumer protection, false marketing, and fraud laws.
timbs4339 wrote:Remove the government loan guarantee and the loan terms would get more onerous- but this would not change consumer behavior because consumers are irrational about higher ed. It will take a generation suffering under student loan debt to bust the myth that education debt is good debt no matter how much, what program, what career goals.
I think most agree that, if students had to go through a private lender and additionally had bankruptcy protection, the terms of most student loans would deter many more students from attending.
Notwithstanding that, even assuming everyone continued to take out the worst kinds of loans for students, it is in my view a fundamental right to make irrational choices and be miserable. If one has been misled that is another matter, and they should sue the entity(ies) they think committed fraud.
timbs4339 wrote:What we really need is government caps on tuition like they have in Europe.
I strongly disagree. The is no one-size-fits-all solution. Not every school can operate under a cap, or should. If a market of informed consumers are able and willing to pay a very high price, that is okay. An arbitrary cap simply places the government's thumb on the scale and create market inefficiencies.
JCougar wrote:I still want schools themselves to be forced to underwrite a percentage of the debt they generate....
I have no idea what the optimal percentage would be. 20%? 50%? If you were concerned about this pushing out poorer families, there could be an adjustment for family income whereby the school could underwrite a lesser percentage if that student were from a low-income background.
The only way to do this without imposing blanket bureaucratic rules is to allocate some of the financial risk to the school itself.
Edit: this would keep tuition down as well, because the lower the tuition, the lower the risk.
One way to do it is to tie the cost of attendance to graduates' outcomes. Every graduate pays X% of their disposable income for Y years. The school certainly has a vested interest there, but perhaps too much of a vested interest in pushing students into traditional biglaw. You could specify a statutory maximum amount that largely removes the heavy incentive for biglaw and places the incentive on decent legal employment, so the maximum would be achievable by anyone making, say, $50k/year or something.
You could also simply reinstate bankruptcy protection for student debtors, force all student loans through the school, and prohibit the request of an applicant's financial situation (other than a basic credit check). I haven't thought about that much. Also:DO NOT GO TO INDIANA TECH FOR ANY REASON AT ALL. NOT BECAUSE YOU WANT TO LIVE AND WORK IN INDIANA. NOT BECAUSE IT'S FREE. NOT BECAUSE YOU HAVE A COST OF LIVING STIPEND. NO REASON. DO NOT GO TO INDIANA TECH.