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Higher Education Watch
One Step Toward Fixing Student Loans

The major cause of America’s student debt bubble is structural: College costs too much, due to excessive subsidies, an anti-competitive accreditation system, guild protections, and crony regulations. But it doesn’t help that, in addition, students taking out loans are totally ignorant about the process of repaying them. Bloomberg reports on new research by LendEDU, “a company that provides information about loan refinancing options”:

When Lendedu talked to 477 undergraduate and graduate students at three Bay Area campuses, it found that just 6 percent of them knew how long they would be repaying the debt. Only 8 percent knew the interest rate on their loan.

. . . More than 90 percent of the students did not know which type of loans accumulate interest during school and which do not. Seventy three percent thought that Sallie Mae, which for years collected federal student debt, was a person rather than a company.

This alarming data points to one badly needed reform for student loan programs: We should require any college that wants to qualify for federal loans to mandate that all first-year students take—and pass—a course in personal finance that includes information about the process of borrowing money, repayment costs, the institutions involved, and so on. It should also include information about post-college financial management, like taxes, retirement saving, and personal investment. Alternatively, colleges participating in the federal loan program could require incoming students to demonstrate mastery of basic financial topics in high school. Indeed, this kind of information should really be taught to every 17-year-old before that 18th birthday.

The government has a clear interest in making sure college students understand these topics, and in a world where job-hopping is the norm and defined benefit pensions are on the way out, it’s increasingly important that workers be better equipped to take charge of their own financial fate. Implementing such a program wouldn’t fix the student loan disaster, but it could make some meaningful progress on the margins.

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  • rheddles

    Yi, yi, yi, yi, yi,! The structural problem is that the federal government has taken over the student loan business and will not allow their discharge in bankruptcy. If this lending were left to the private market, where it properly belongs, far, far fewer loans would be granted, fewer would go to college and costs would decline.Government has created this problem just as it has created the housing problem and the health care problem. When government puts its thumb on the scale, resources are misallocated.

  • Clayton Holbrook

    And will the tuition for this financial literacy course be paid by even more loans? Hopefully, it would pay off. But you’ll have to pardon me for being a little cynical about this “fix”.

  • Gerald

    I don’t think colleges should be involved in student loans at all – neither advocating nor advising. Their participation is simply one more way to support increased tuition and fees. Likewise, governmental agencies should not be involved, as they have no expertise nor any reason to guarantee loans. When I applied for a college loan of a whopping $1000 to finish my last two quarters of Engineering School, I had to provide assurances from my school that I was likely to graduate after said two quarters and assurances that I already had job offers that would provide income adequate to repay my loan on a two year installment plan. That worked for me and the bank making the loan. The current process of making loans regardless of likelihood of repayment is ridiculous. Also, I have yet to see very many colleges that understand and could convey principles of financial literacy. If they really understand finance and were literate in same, we would not have the situation we are it with large loans without reasonable expectation of repayment.

    • Jim__L

      Colleges should definitely be involved in student loans. They should have to co-sign them, and if the student declares bankruptcy, the college should be on the hook to pay off the loan.

      THAT would provide colleges incentive to reduce their prices and cut down on non-value-add “services” very quickly.

      • Gene

        Yes. Skin in the game focuses the mind beautifully.

  • johngbarker

    You really expect colleges to give the students (suckers) an even break?

  • FriendlyGoat

    Real and meaningful training in personal economics is very hard to teach in high school. Not only are teachers in the awkward position of highlighting the differences in wealth and lifestyle between the families of individual students, but they are in the even-more awkward position of arguing against businesses in their communities—–Rent-a-Center, payday lenders, new and used car dealers, furniture stores with financing, even credit-card-issuing banks. Beyond that, talking to non-college-bound kids about realistic post-high-school budgets is an easy-to-imagine disaster. When a teacher tells the kids that they will need to purchase realistic rent or house payments, utilities, a car to get around in, car insurance for the law, health insurance to protect themselves, plus a TON of savings for retirement starting from day one, it adds up to significantly more than the wages any non-college person can reasonably anticipate—-never mind food, clothes, furniture and such.
    When the teacher is asked why we have this mismatch and how to cope with it—–there is no possible answer but “go to college and get better jobs.” Even this is not appreciated by local employers who don’t want kids told that their non-college wages are “bad” because they do not add up to realistic budgets.

    When kids ask how to go to college, they are told there are some grants, some scholarships—–AND—-student loans.

    • Anthony
      • FriendlyGoat

        Speaking to the last sentence of that article, the more they are educated, the more they will be heard.

    • qet

      First, Venezuela had a political revolution–leftward. You and the Chavezistas keep forgetting that in order to redistribute wealth, it must first be produced. Venezuela shifted consumption taxes to luxury items because those are things the 1% buy; and they also taxed the heck out of Big Oil to redistribute. See how all that social justice has turned out. Sanders is not Chavez but “young people” are supporting him for the same reasons. Remind me: how did Einstein define insanity? Or is your view the one that Frank Zappa mocked so mercilessly on Freak Out!: it can’t happen here. The issue is one of supply and demand: with the supply (of “decent paying” jobs) rapidly shrinking. No leftward revolution is going to magically create all those jobs. And it has already been established anyway that raising taxes on the Waltons (and don’t forget the Soros’ and the Zuckerbergs and the Brins and the Clinton Foundation!!!) won’t deflect all of these problems by one minute of angle.

      Second, your Micawberian analysis appears to have been tailored only to the plight of the young peoples in the Blue heavens of San Fran, NYC, Boston, Seattle, Portland, where costs of living have been taking performance-enhancing drugs for years while the League looks the other way. Plenty of kids can afford life on a vo-tech path elsewhere in the country. That it is hard does not therefore somehow disqualify it or transform it into an injustice. And you might consider, in your list of expenses, those imposed by the state: occupational licensing fees; self-employment taxes; sales and use taxes; taxes and fees built into utility payments; penalties on early withdrawals of 401(k) and IRA savings. On a Micawberian analysis, removal of these could mean the difference between result: happiness and result: misery for the non-college folks.

      • FriendlyGoat

        I don’t guess you know that there are almost no counties anywhere in the United States where 30% of the earnings on a minimum-wage job will cover the monthly rent on a market-rate apartment in the area—-no matter how tiny an apartment you talk about

        • qet

          Not having a college diploma does not automatically consign you to minimum wage. However, as far as that goes, I grant that it is insufficient of itself to cover all of the bases you mentioned. Socialist luminaries like Milton Friedman and FA Hayek supported the idea of a “guaranteed basic income,” and so I, too, am receptive to the idea. But it would need to be in lieu of, and not in addition to, all (or certainly most) of the other welfare available.

          • FriendlyGoat

            Somehow, given the crazy tone of your initial tangents on Venezuela, San Francisco, performance-enhancing drugs, taxes and welfare, MAYBE you are suddenly backing up to START thinking and talking about the article’s actual subject and my post’s actual subject. Or maybe not.

          • qet

            One man’s tangent is another man’s secant. A point made without rhetoric is no point at all. And the points are valid in rebuttal to the assumptions packed inside your “political revolution–leftward” comment and your remark about the motivations for supporting Sanders. Your argument is that lectures on personal finance as college loan debtors will avail little if there are no ready alternatives to a college diploma for a reasonable income. I argued (with rhetorical flair, I might add) that vocational training in lieu of college can result in a good income, income which would be even better if the government stopped hiding fees and charges in its regulatory regime like you deplore the payday lenders and credit card companies for doing.

          • FriendlyGoat

            You let me know when “vocational training” has fixed life for people in retail, food service, hospitality, agricultural labor and everything else under $15/hour, okay?

            When I speak of “political revolution”, I do not mean Venezuela. I mean kids being educated to the point they can recognize American conservative political rhetoric as the “empty suit” it is. Then they don’t vote for the older generations’ veneers of anti-abortion, anti-gay and guns anymore—BECAUSE THEY KNOW BETTER THAN TO BE “HAD” IN THEIR REAL-LIFE FINANCES by the Republican hoodoo.. That’s the risk of personal economics education to high-schoolers, and one of the reasons it is not done so much.

    • Gene

      Nice job loading up all your political prejudices and hobby horses into one post. What most of it has to do with common-sense money management training is a mystery.

      • FriendlyGoat

        Only to you. It’s not a mystery to me. That’s why I wrote it. The only “common sense” for most young people is to aspire to go to college and get a better job. Nothing else “works” when a thoughtful 18-year-old really looks at real-world numbers. The PROBLEM is we’re loading young people up with debt to train for jobs which do not necessarily exist. We need to make some kind of an economic model actually work for those who are going to end up doing our food service, car service, building service, agricultural service and all the rest of the non-college jobs—–including actual plausible plans for health care and modest retirement. You didn’t address that because you either just won’t or just can’t—-I think it’s BOTH with you right-wingers. You guys have gotten to the point that you no longer recognize actual “family values” and the requirements which must be in place in order for young people to practice them.

    • Andrew Allison

      I stopped reading at “Not only are teachers in the awkward position of highlighting the differences in wealth and lifestyle between the families of individual students,” Teaching “retail” economics does not highlight the differences in wealth and lifestyle any more than home economics does. In fact, it provides a way to reduce those differences (careless spending and use of credit are a major cause of the differences).

      • FriendlyGoat

        Except for the fact you are replying, I would more likely believe you stopped reading at “FriendlyGoat” in blue print.

        TAI is well aware that “home economics” was taught a long time ago, and so were basic “general math” skills like balancing a checkbook. It was asking for high school and college kids to be taught a lot more about personal finance. I just pointed out why such courses (especially in high school) are unlikely to get anywhere near the rubber meeting the road. We all think it’s a dandy idea for kids to get a grasp of the truth—-EXCEPT that much truth is too awkward for the adults to approach without upsetting parents, local businesses, the school board and political parties. Sex education has a similar (but not exactly the same) problem.

        • Andrew Allison

          I always read your comments. It’s just your replies to mine that I (usually) skip [grin]

          • FriendlyGoat

            And I work so HARD on those. For naught? Grin

    • f1b0nacc1

      By and large (with some obvious exceptions), I think that this is quite a solid bit of commentary. Let me suggest, however, that perhaps teaching some/most of those kids that college isn’t a necessary (or even in many cases desirable) choice might be a good way to begin. Talk about different opportunities, teach about how to evaluate options and risks….this wouldn’t hurt a bit.

      • FriendlyGoat

        Okay, I’d be for that as a start. And thanks for the reasonable tone.

  • Jacksonian_Libertarian

    The Federal Government was never granted any authority to pay for, regulate, provide grants, or insure loans for any level of education in the US Constitution. And that is where the problem lies. Education should be at most a State or local government responsibility, but would work best if at the private level. Vouchers for K-12 and privately funded for higher education. This would ensure the highest Quality, Service, and Price of education. Having the Government Monopoly do anything except those tasks only a Government can do (Defense, Justice, Foreign Relations) has always been a recipe for inefficiency, waste, corruption, and irresponsibility. In addition, social safety nets if even needed, should be funded and administered at a state or local level, as they too are unauthorized by the US Constitution.

  • qet

    It seems a bit “barn door after the horse” to teach them all this only AFTER they have incurred a loan to begin college.

  • Andrew Allison

    We should require students to demonstrate mastery of basic financial topics in high school in order to graduate. Period. I could write an essay on why, but it should be self-evident.

    • f1b0nacc1

      These days, I would settle for basic reading skills

      • Andrew Allison

        We should settle for nothing less that what used to be secondary education, a function now performed at great expense by colleges.

        • f1b0nacc1

          In principle, I agree….but we both know that isn’t going to happen.

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