Do We Need More Student Loans or Less?

What colleges need, though they'd never admit it, is: Less taxpayer-funded aid. Especially guaranteed student loans should be eliminated or at least severely curtailed.

Very few organizations are able to control costs when nearly unlimited funding is available. And when unemployed 19 year olds, who would be turned down for a $2,000 car loan are suddenly able to borrow tens of thousands per year to learn the intricacies of Art History.

The problem is that colleges today are dependent on the fact that people of that age are known to be financially unstable. They tend to spend without worrying about the fact that the money will have to be paid back. They encourage kids-in-adult-bodies to borrow enough to much more than they would be able to borrow if the market was allowed to decide on the financial risk involved. And especially tragic is they don't have the honesty to tell kids that aren't going to graduate the facts of life. Financially they can't tell the failing kid that it's not a good idea to go further in debt.

Nothing good happens when an industry bases it's well being on the profligacy and borrowing power of children in adult bodies. And then discard those bodies when they wise up to the disaster their debt infused life has become.

No loan in this country has ever been specifically stripped of bankruptcy protections until Congress removed them from student loans without good reason. Also removed were statutes of limitations, truth in lending laws, Fair Debt Collection laws, and even state usury laws. Bankruptcy was the most significant, of course, but they are all important. Important also, are the draconian collection powers that were given uniquely to the student lending system and no other. The combination has created an environment where all the lending elements (Servicers, guarantors, collection companies, federal government) clearly make more on defaults than healthy loans.

Full Stop. This is intolerable, and indefensible. The problem began with the removal of bankruptcy protections. The solution, similarly, starts with the return of the same. No fix, patch, or workaround- no matter how well designed or intended- will have any significant, desired effect until this is so.

On a positive note: When the Government once again has skin in the game for the students, instead of against them, we will see the whip cracked on the universities to provide a high quality education at a low cost via the freezing- or even lowering of federal loan limits, and other long overdue remedies that have been MIA for so long.

I think the easiest way to solve the student debt problem is to not charge tuition. There was a model proposed I believe at the University of California that students would not pay up front tuition, but would instead pay a percentage of wages earned after graduation for a set number of years. No debt for students. The college can still get the funding it needs.

With computers, the internet, economies of scale, etc, shouldn't colleges be much more cost efficient then they were 100 years ago?

In 1914, a blue-collar worker in Henry Ford's factory made $5 a day. That same year, a year of tuition at Yale cost $155.

In other words, in 1914--before government-backed student loans--it took a blue collar worker 31 days of labor to afford 1 year at Yale (a private school!). Fast forward 100 years, and it will take that same Ford worker at least a YEAR of labor to afford the same thing.

What one change would I make in our system of college financial aid?

Get rid of it.

Colleges will be forced to either go out of business, or else rediscover the long-lost secrets of cost-control that the people running Yale knew in 1914.

With all those really smart people up in the ivory tower, I'm sure they'll be able to figure that one out.

Meanwhile, students need to be told that there is more than one way to happiness and financial success. If college is too expensive, they should seek out something else instead. For example, instead of paying for 4 years of school, get paid for 4 years as an electrical apprentice. Electricians make $60k a year on average, which is more than the average college graduate earns.

How about a discussion about interest rates. I'll take a second to gripe about my own situation: I borrowed about 60k in federal Stafford loans which I'm a few years into paying off on a ten year schedule. Right now I'm paying 6.8% interest, if I consolidated the loans the rate would actually go up. This is federally guaranteed debt and as of a few minutes ago ten year T-Bills were yielding something like 2%. Even if you add a point or two for administrative expenses it still seems like people who take out student loans are being gauged, or is there something that I'm missing here?

People need to realize that college is not meant to be a trade school. Over half of all majors are for "personal enrichment" and were never meant to lead to employment. Not even all science degrees lead to employment and few of the ones in the arts. If a teenager really wants a job after graduation, and most do, they should enroll in one of the engineering fields, a business related major, a pre-med program or something where they have researched that there are jobs after they graduate.

There are far too many people who select a major because it seems easier that the above and involves little or no math. But really, before you take a History or Anthropology degree one should really consider trade school if they want to be more than a really well educated car salesperson.

In my case, I took engineering and my daughter took economics and is getting a PhD in Civil Engineering. The family invested over $125,000 in her education , of which we borrowed $30,000 but she has offers in the $100K range.

Unfortunately too many other kids do not plan ahead.

It is a shame that the resources that colleges devote to each major are proportioned out by the demand of teenagers. The demand of people too young to have a beer legally are who drive the demand for various majors.

To solve this mess, the state schools should strictly ration their spaces in the humanities so supply meets the demand and only the true elite can get into those programs. Leave it to private liberal arts colleges to continue to allocate spaces by the demand of teenagers. State institutions should concentrate in proportioning spaces for those majors in the fields that will do the industries and services in their state the most good with at least one national center of excellence in some field or another.