Political reality is that some bailout is inevitable. A partial bailout in return for getting the government out of the loan business completely would be a bargain.
Logical Seven Point solution to the student loan crisis:
- Write off 25%. This is a necessary concession to the debtors who, in many cases, were duped into taking out loans they couldn't afford.
- Return 75% to the institutions of origin for collection.
- Institutes get to keep 5% of the 75% for their trouble but must remit the 70% back to the government.
- They are free to hold up transcripts, cancel degrees and employ all the other measures they did to collect against the debtors as when they were students.
- If the institutions still cannot pay back the governement within the normal loan times, the government is free to attach their endowments, real estate and other assets.
- Government gets completely out of the loan business and encourages the institutions to line up their own lenders. If a tiny college like Hillsdale (Michigan) can do it, then there is no reason anyone else can't do the same.
Yes, the taxpayer takes a 30% hit up front to liquidate this crisis, but that is far better than continuing to grow this monster.
You’re solution is the most logical I have seen. Some here will insist that it all get paid back, but since that will never happen, get us out of the student loan business.
An interesting plan, and thanks for posting it. There is a fly in that ointment but maybe not enough to disqualify it: this turns the institutions in question into debt collection agencies, which means they'll have to add staff and other resources for that purpose, which will have to be paid for by (wait for it!) raising tuition.
That may not be a fatal problem, but it will happen. The cost of the loan programs will thus devolve onto the next generation of borrowers that way, but then the cost of any of the alternatives, including doing nothing at all, always devolves onto the next generation of borrowers anyway. That's how we got into this mess.
I'd love to see a further discussion of the plan.