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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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