Two Conservative Ideas for Fixing Student Loans

National Review ^ | 07/23/2019 | Robert Verbruggen

[SeekAndFind]

The Democrats are in the middle of a presidential primary and the Republicans are not, so lefty ideas about how to fix student debt — i.e., throwing taxpayer money at borrowers — have gotten a lot of media coverage. Less noted have been numerous better ideas emanating from the right.

As I argued at length in a print piece earlier this month, while the “crisis” here is overblown and massive new taxpayer handouts wholly unjustified, the system does need reform. Specifically, we need to do two things: (1) provide worthy students a way to fund their education without crippling their finances, but also without dumping their costs on everyone else; and (2) give colleges incentives to control their costs and stop admitting students who won’t benefit, and who might well drop out and/or end up defaulting on their loans.

Two recent papers from the Manhattan Institute nicely illustrate conservative ways of approaching these issues. And each touts an idea with some support in Congress.

The first, written by Jason Delisle and released today, makes the case for “income-share agreements.” Under these arrangements, a lender pays for a student’s education, and in return the student pays a set percentage of his income for a set number of years. This way, students pay for their education during the years when they’re benefiting from it the most — the years when their earnings are high — and are protected against big bills when they’re struggling.

Delisle’s proposal is to take this as a model for the entire student-loan program. The rule is simple: You can borrow up to $50,000, and for every $10,000 you borrow, you owe 1 percent of your earnings for the next 25 years (unless you first hit the repayment cap of 1.75 times the amount of the loan). If you get married, you pay for your ISA based on half the household income. If you make less than $12,000 or receive the earned-income tax credit, your payments are reduced or eliminated.

Everyone is entitled to nearly twice as much money as the typical four-year student borrows today, and no one ever loses more than 5 percent of his income repaying it. Further, collections are handled through the existing income-tax system, streamlining the process.

I might be inclined to expand students’ options beyond what Delisle offers. Students should be able to pick higher payments in exchange for shorter loans so they’re not still paying in their 40s, and to reduce their obligations by making extra payments. But the proposal is elegant and simple, showing how workable ISAs could be if we could build up political support for them. One bill in Congress would start the process of doing this by cleaning up some of the legal technicalities surrounding them, while another would give students a new option that’s fairly similar to an ISA, but we need some far more aggressive ideas like Delisle’s.

ISAs put the focus on how students pay, rather than putting colleges on the hook for helping students run up debts they can’t pay off. For that we can turn to another recent Manhattan Institute paper, by Beth Akers.

Akers promotes the concept of a “money-back guarantee.” It turns out that more than 100 colleges already have arrangements in which students get help paying off their loans if they end up not making very much money. In other words, these colleges voluntarily shoulder some of the risk that a student’s degree won’t pay off.

In this case it’s Congress that has the most aggressive proposal. Senator Josh Hawley has introduced a bill requiring colleges to pay off half the loans of students who default. This is a good idea, though, as I noted last week, the bill includes an odd provision trying to stop colleges from raising prices to cover this new liability, which is both practically challenging and economically questionable. (If a college hikes tuition so it can shoulder this new liability without changing anything else, it effectively “prices in” half the risk of default for its students, which is not the worst thing in the world. Ideally most colleges should cut costs instead, but it’s folly to try to mandate this across the board.)

ISAs and money-back guarantees are two different options, but they both aim to make college affordable without spending lots of taxpayer money on a disproportionately wealthy chunk of the population. Indeed, it would be possible to combine them: Loans could be provided through ISAs, and schools could be required to pitch in when their students aren’t paying those loans back.

That makes a lot more sense than taking hundreds of billions of taxpayer dollars and handing them over to some of the country’s most fortunate individuals.

[Reily]

Co-signing by colleges\universities would probably cut the number of loans immediately by half. These institutions have a good idea of the student quality they are admitting. Half easily shouldn’t be coming so if these institutions are forced to have some skin in the game. They will cut the numbers they let in to reduce their risk.

The problem will be the racial & sex demographic ratios!

[Brian Griffin]

Something does need to get done by August 16th.

Warren and Sanders are probably creating a much bigger mess.

My preference is college (and holding company) co-signing of all new student loans.

[Hoffer Rand]

If you make less than $12,000 or receive the earned-income tax credit, your payments are reduced or eliminated.

How long does somebody need to fit into this category to have their entire loan eliminated? What could possibly go wrong? Just graduate, move back with the parents for a year, sit in the basement and play video games. File tax forms showing minimal income and qualification for earned income credit. Viola! Debt forgiven. Then go out and get a job and get on with your life.

[Brian Griffin]

“Co-signing by colleges\universities would probably cut the number of loans immediately by half. These institutions have a good idea of the student quality they are admitting. Half easily shouldn’t be coming so if these institutions are forced to have some skin in the game. They will cut the numbers they let in to reduce their risk.”

The marginal cost of a college education is very cheap.

The college won’t refuse students and lose out on say $1 million in tuition simply because it might have to take a $400,000 lose on co-signing costs.

Getting $1 million in additional tuition and then losing $400,000 still puts the college $600,000 ahead.

[Reily]

I guess you’re right.
I should have thought it through more.

I was jumping on the idea it would cut the numbers. Which would put pressure on institutions to cut the nonsense curriculum, reduce administrative staff and put pressure on (particularly state!) institutions how they spend their money.

[Kickass Conservative]

Here’s are my two fixes, shut up and pay your Debts.

Problem solved.

[tbw2]

A better solution - press colleges to defund the programs and actively discourage anyone from studying the programs.

You can fight on a college by college basis and make progress long before there’s a national, top decision like Poland’s.

You can cut off funding and support for the programs by not letting your kids study this and discouraging others from studying it.

Also tell colleges you will NOT donate to them after political suppression on campus and explain that is why you will not give them money. Example - alumni of a school telling the school they won’t donate because the school police did nothing while liberal bullies ripped up crosses set up by pro-lifers or permitted someone to deny others their free speech rights via cow bells, shouting and air horns.

[tbw2]

A better solution - press colleges to defund the programs and actively discourage anyone from studying the programs.

You can fight on a college by college basis and make progress long before there’s a national, top decision like Poland’s.

You can cut off funding and support for the programs by not letting your kids study this and discouraging others from studying it.

Also tell colleges you will NOT donate to them after political suppression on campus and explain that is why you will not give them money. Example - alumni of a school telling the school they won’t donate because the school police did nothing while liberal bullies ripped up crosses set up by pro-lifers or permitted someone to deny others their free speech rights via cow bells, shouting and air horns.

[tbw2]

No. Then the government can say you can’t study religious ministry or Christian counseling.

[tbw2]

A better solution - press colleges to defund the programs and actively discourage anyone from studying the programs.

You can fight on a college by college basis and make progress long before there’s a national, top decision like Poland’s.

You can cut off funding and support for the programs by not letting your kids study this and discouraging others from studying it.

Also tell colleges you will NOT donate to them after political suppression on campus and explain that is why you will not give them money. Example - alumni of a school telling the school they won’t donate because the school police did nothing while liberal bullies ripped up crosses set up by pro-lifers or permitted someone to deny others their free speech rights via cow bells, shouting and air horns.

[Nifster]

That ship hasn’t sailed. We do need to take it back from The mutineers

[Tell It Right]

I think you have the right idea as far as practical education and usefulness goes. But I think you and I have different perspectives of just how perverse a government program can become, including one that seems to be as stripped down as the one you propose. For example, I'm assuming every time you use the word "allowed" you meant that it gets federal subsidies/loans, not meaning that it's permitted or not permitted to be taught at all. And that very grammar use illustrates my point: we're in a society where government funding has the ability to almost completely turn on or turn off a product or service simply because we have too much of our society geared to be dependent on government funding. In your example, though your metrics of recent employment per course/major sounds good, it's still comes down to the government's metrics determining whether or not a course exists (at least in practical terms, since as you say it can exist for the very few who can afford college degrees for non-income-building purposes). As long as we give the government the authority to turn on or off things available to an otherwise free society, just a slight change in the metrics gives government more control over us.

But in a society I propose where tuition will be way down (or at least stays flat for many years allowing inflation to catch up, thereby in effect tuition has fallen way down), then I'd argue anybody who wants college for income advancement can afford to go if they want.

Exhibit A: I had hardly any debt when I finished college (BS in computer science) in large part because I worked full time the entire time I was in college. I also took courses in a cheaper junior college along the way. I was also driven to go to college to be a programmer and make a nice income (I'm a software engineer now), therefore I didn't change majors many times and I studied and was committed to completing my many software and math assignments on time. I saw all of my college as the means to achieving the high income end...not as an excuse to party like it's 1999 or as a crutch to postpone working a full time job like adults who weren't in college had to work. Because the money was coming out of my pocket, I made sure that money was well spent in achieving the intended goal. If the college had seemed free to me (like student loans often do since the main payback times are way off in the future) I might have not been as productive (in other words, I might have been like most students).

[wintertime]

We already have free ( or nearly free) education via the Internet. Used textbooks cost pennies. The **only** piece missing is certified testing.

[Richard Kimball]

Couple of random thoughts on this.

The last three generations have been raised on "you have to go to college," and they believed their parents, teachers and counselors.

Very few students have the financial acumen to make long-term financial decisions.

Example: one local private college has a degree in education, basically to teach school, grades K-12. Starting salary $45,000, normally. Annual tuition, room and board is $60,000. That does not include books and personal expenses. So, figure around $260,000 for four years, including books & personal expenses. There's no way that fiscally makes sense.

Since the students don't have to make payments immediately, they see the payback as somewhere off in the far future, and quite a few students see college as a four year country club. In order to compete for students, a lot of colleges have become insanely opulent. Here's the LSU swimming pool.

On the "free college," more accurately, taxpayer funded college, currently, a significant number of students are spending their first year in college taking remedial courses, which means they didn't learn what they were supposed to learn in high school.

Making four year college taxpayer supported would be another money pit, with students who have no interest in education killing time in a college to avoid entering the workforce.

Final point: State Universities are taxpayer funded. The reason the tuition keeps going up is because of student loans. The colleges have not had to restrain spending because the student loans have allowed students to take on tuition debt, so they can afford tuition rates. While it's true that computers and automation have increased the cost of education (you can't train someone on using an MRI machine without an MRI machine,) expenses are WAY out of control, including the salaries of tenured professors and the infamous "professors emeritus."

[Buckeye McFrog]

Limit the number of degrees in any field to a government estimate of the number of jobs that will require said degree.

The government has a really crappy track record of predicting what jobs will be in demand 5 to 8 years out. They are almost never right.

[Buckeye McFrog]

LSU is a school that was founded by Huey Long, who wanted to give college educations (and pretty much everything else) away for free.

Irony: The Mark of Quality Literature.

[Reily]

Head Start (if it still exists!) was/is a primary example of preparing people for jobs of the previous era!

[Brian Griffin]

“Delisle’s proposal...You can borrow up to $50,000, and for every $10,000 you borrow, you owe 1 percent of your earnings for the next 25 years....

“Everyone is entitled to nearly twice as much money as the typical four-year student borrows today, and no one ever loses more than 5 percent of his income repaying it.”

Basically he is proposing to make the problem bigger and kick the problem 25 years into the future.

[i_robot73]

Ah, the typical ‘small govt’ party *solutions*: “We can run ‘em better than the Left.”

Constitution? WHAT Constitution?!

[Phlyer]

But in a society I propose where tuition will be way down . . .

I guess I just don't see how your proposal would drive tuition down, unless you get the same sort of intrusive 'rules' that 'allow' only certain behavior on the part of the states. Right now, the states get block grants for education from the federal government and can steer it toward college students. We can agree that federal block grants are wrong, too, but that's just another 'loophole' that would have to be addressed before your 'rules' could actually reduce tuition.

I don't want the federal government meddling in everything any more than you do, but it's there. It's the elephant in the room. There needs to be a way to transition off that addiction before the problem is truly solved. Other methods, such as fixing the tuition per credit hour rate, with different allowable rates for STEM courses than for basket-weaving, would have direct effect on tuition while reducing the total federal subsidy - but, as I'm sure you see, that's just another form of federal intrusion.

I worked my butt off in high school and got scholarships that covered all of my tuition, and about half my room and board. I worked summers to make up the difference, but busted my butt during the school year to get decent grades in a worthwhile field (degrees in Physics and Aerospace Engineering). As a result, I didn't have a lot of student loan debt when I graduated either. But tuition was a lot less then.

I really want to see the leftist domination of academia reduced, and I truly think the best way to do that is to limit the number of students in meaningless courses. Those students, and those courses, provide the funding for all the anti-American educrats, because the useful courses require professors who can actually think logically. So I still maintain that reducing the number of students in useless degree fields is the best way to improve tuition and the value of a college education. And if it takes the heavy hand of federal meddling - which is already so entangled that the surgery to remove it would be fatal to the patient - then that's a price I'd pay to get education back on track.

My bottom line is: One problem at a time. Get rid of the basket-weaving degrees and their associated anti-American educrats. After that, see how much of a problem there is with student loans and high tuition.