Universities engaged in unnecessary and inefficient spending which they paid for by jacking up tuition to sky-high levels, knowing full well that this was conditional on the federal-backed student-loan edifice. Through their unsustainable spending decisions, they made themselves dependent on the federal government. And now they shall reap.
Why not simplify the issue by making loans only in an amount that salaries resulting from completion of specific degrees from specific universities? Fining universities is unlikely to accomplish anything other than further increases in fees and tuition to cover said fines. The real issue here is encouraging loans in amounts that can not be repaid based on potential earnings of the studies in question.
Good idea but we can’t have it. It does not have enough unintended consequences and it really might address the problem. Fining Universities makes it unnecessary to admit that different acedemic programs have different results in the working world.
You write, “a simple roll-back of student loan largesse would solve the problem much more efficiently and elegantly”.
Certainly, there would be objections from colleges that do give students skills commensurate with the tuition they charge. But more of a problem would be that going to college would become tightly dependent on one’s parents being at least somewhat affluent.
Making student loans non-dischargeable in bankruptcy seemed like a good idea at the time because of the widespread abuses that easy bankruptcy allowed. However, this created forms of moral hazard: schools raising tuitions and giving students lots of federal-subsidized loans to pay the higher tuition. The schools don’t care about whether the student can pay the loan or not because they aren’t responsible. The lending institutions don’t care either because the federal government is on the hook or because the loan term is effectively for the lifetime of the student, which gives them a long time to recover the debt. The students don’t care because they have no understanding of what it means to finish school at age 21 with a house-mortgage-sized debt and no means to pay it off.
The Democrats’ proposal is on the right track but fatally flawed for the reasons others have given. My suggestion is this: make student loans (both private and federal) dischargeable in bankruptcy after 10 years. The 10-year waiting period will give the student plenty of incentive to pay the loan off and the eventual possibility of bankruptcy discharge will focus the lender’s attention on the student’s prospects for repayment. In addition, I would make the school contingently liable to the lender for some percentage of whatever amount of debt is discharged in the bankruptcy – say 25%. That would give the school a powerful incentive not to load unpayable debt onto unsuitable students. The schools are in some ways the best position to make this judgment – certainly they have better information than the lenders – and so it would be efficient to shift this burden to them.