How to Fix the Student Loan Mess

[Muda69]

https://reason.com/2019/10/23/how-to-fix-the-student-loan-mess/

Quote

Student loan debt keeps growing.

There is a better solution than the ones politicians offer, which stick the taxpayer or the loan lenders with the whole bill.

It's called an "income share agreement."

Investors give money to a college, and the college then gives a free or partially free education to some students. When those students graduate, they pay the college a certain percentage of their future income.

It's a way "for the school to say to students, 'You're only going to pay us if we help you succeed,'" explains Beth Akers, co-author of the book Game of Loans.

Andrew Hoyler was thrilled when Purdue University got him an ISA loan. Now he's a professional pilot, and he'll pay Purdue 8 percent of his income for 104 months.

"After that 104-month term ends, if you still owe money, it's forgiven, forgotten, you don't owe another penny," he says in my latest video. "Now, if I find myself in a six-figure job tomorrow, there's a chance that I'll pay back far more than I took out."

Hoyler wouldn't mind that, he says, because of "the security of knowing that I'll never (have to) pay back more than I can afford."

What students pay depends partly on what they study.

On a $10,000 ISA, English majors must pay 4.58 percent of their income for 116 months. Math majors, because they are more likely to get higher-paying jobs, pay just 3.96 percent for 96 months.

"It conveys information to the student about how lucrative a different major's going to be," says Akers. "Some think that's unfair, but really that's just a way (investors) can recapture the money that they've put up."

"It may also sway students away from majors that don't have job prospects," says Hoyler. ISA recipients learn "not only what a career may pay, but how stable it may be, what the future is like."

"We should invest in students the same way that we invest in startups," says Akers. "Share equity."

With one difference: The college picks the student, so investors don't have a direct relationship with the student.

Purdue ISA recipient Paul Larora told me, "We don't know who the investor is, but I'd love to give him a hug or buy him a beer!"

"The institutions are saying, 'If I'm operating as the middleman, I can make sure that no one's taking advantage of my students,'" explains Akers.

Sadly, many politicians would rather have the government handle student loans and charge all students the same rate.

President Barack Obama signed a student debt relief bill that he claimed would "cut out private middlemen," meaning banks. He said that "would save taxpayers $68 billion!" It didn't. Costs to taxpayers increased.

Some politicians are so clueless that they still blame banks.

In one hearing, Rep. Maxine Waters (D–Calif.), chair of the House Financial Services Committee, demanded JPMorgan Chase CEO Jamie Dimon tell her, "What are you guys doing to help us with this student loan debt?"

"We stopped doing all student lending," responded Dimon, pointing out that "the government took over student lending in 2010."

Instead of forcing banks out of the loan business, we should get government out of it. Banks are in the business of assessing loan risk.

If actual private lenders, people with skin in the game, made loans, then they'd care about being paid back.

They'd tell students which majors might lead to higher-paying careers and warn them that studying sociology, art history, or gender studies may make it tough to get out of debt.

But with the government charging the same rate to everyone, students don't have much incentive to think about that.

The Brookings Institution found that 28 percent of students don't even know they have a loan.

The market would make better judgments and stop students from starting their adult lives under a burden they may never escape.

Yet some people still call ISAs "predatory" because investors hope for profit. They say ISA makes students "indentured servants."

Larora had a good answer to that, which is also serious advice: "If you don't have a job, you're not paying anything! Where's the servitude in that?"

Agreed.  We need to get the federal government out of the student loan business entirely.  It's been nothing but a huge bust.

 

[DanteEstonia]

5 hours ago, Muda69 said:

Agreed.  We need to get the federal government out of the student loan business entirely.  It's been nothing but a huge bust.

 

We need to get rid of student loans, period.

[Muda69]

16 hours ago, DanteEstonia said:

We need to get rid of student loans, period.

Using what mechanism, Dante?  "Free College" for all courtesy of the U.S. taxpayer?

[DanteEstonia]

1 hour ago, Muda69 said:

Using what mechanism, Dante?  "Free College" for all courtesy of the U.S. taxpayer?

Nevada has the Millennium Scholarship for qualifying students.

[Muda69]

37 minutes ago, DanteEstonia said:

Nevada has the Millennium Scholarship for qualifying students.

So that is for two, count them two, students each year who are majoring in elementary or secondary education with the intent of teaching in Nevada.   

Nice example for a national program, Dante.

 

[Muda69]

Why 'Free College' Is a Terrible Idea: https://reason.com/video/why-free-college-is-a-terrible-idea/

Quote

Michael Gamez, 22, has wanted to work on cars since he was a kid, just like his father and grandfather. He fixed up and sold his first used car when he was 14. "It felt really good to build something up and sell it for a profit," says Gamez.

But his teachers conditioned him to equate a college degree with success. So he enrolled at the University of California, Irvine, with a plan to major in mechanical engineering. During his sophomore year, Gamez dropped out because he realized that he was on the wrong path.

Sen. Bernie Sanders (I–Vt.)and Sen. Elizabeth Warren (D–Mass.) have promised that, if elected, they'll make public college tuition-free and wipe clear federal student loan debt, which in the U.S. tops $1.5 trillion. Their claim is that making college universal will lead to higher productivity and more economic opportunity for people like Gamez.

"If you make college free, then there's going to be so many [degrees] floating around that if you want to get a better job, then you're going to need to go and get some supplemental degree," says Bryan Caplan, an economist at George Mason University and author of The Case Against Education. He's skeptical that professors like him have much to offer most students.

"We're spending too much time and money on education because most of what you learn in school you will never use after the final exam," says Caplan. "If you just calmly compare what we're studying to what we really do, the connection is shockingly weak."

Caplan says that most people attend college as a way to signal to prospective employers that they're reasonably intelligent, conscientious, and conformist.

"The signaling story is mostly that our society says that you're supposed to graduate, and if you're supposed to graduate, the failure to graduate signals non-conformity," says Caplan. "People that are willing to just bite their tongues and suffer through it are the ones who are also going to be good at doing that once they get a job."

Caplan's case rests partly on the so-called sheepskin effect, named for the material on which diplomas were once printed.

Studies of the earnings of college graduates reveal that the average salary increase for completing the last year of college is on average more than double that of completing the first three, implying that it's the fortitude to obtain the degree—not the knowledge gained—that explains the boost in compensation.

"The usual view, called the human capital view, says that basically all of what's going on in schools, is that they are pouring useful skills into you," says Caplan. "What I'm saying is the main payoff you're getting from school is that you're getting certified, you're getting stamped. You are, in other words, getting what you need to convince employers that you are a good bet."

Instead of college, Leah Wilczewski, 21, enrolled in Praxis, a one-year job skills program focusing on communication, marketing, and other jobs. It cost $12,000 but included a 6-month paid apprenticeship worth $16,000, meaning she'll finish the program $4,000 in the black.

Wilczewski is in the middle of her apprenticeship at Impossible Foods, the Bay Area company that sells a meatless hamburger.

"I feel as if being in Praxis and being able to nail a job that typically requires four years of school, if not more…it's like, okay, with that knowledge, what else can I do?" says Wilczewski.

After Michael Gamez dropped out of UC Irvine, he enrolled in an auto mechanic trade school while also working at Pep Boys. Then he applied for and received a $12,400 scholarship from Mike Rowe Works, which helps young people looking to enter the skilled trades

From there, he entered a three-month training program with BMW and a day after finishing began his job as a high-level technician at BMW of Beverly Hills.

"Now that I work with cars…I get excited to go to work," says Gamez. "I feel like a lot of people, they get surprised when I tell them the amount of money that a mechanic or a technician can make at a dealership."

Even though it's possible to acquire the necessary skills to make a good living without attending college, enrollment at 4-year universities has stayed steady for the past 10 years, and an Economics of Education Review study by Nicholas Turner found that every dollar of federal aid spending crowds out about 83 cents of institutional aid. Such trends leave Caplan skeptical that enrollment will fall anytime soon despite the increasing availability of online alternatives.

"If you've got that kind of guaranteed customer base where the taxpayers have no choice in whether or not the money's going to be spent and the government hands it over to you, then you're going to be fine," says Caplan.

As for Wilczewski, she has two more months left in her apprenticeship and is hopeful that Impossible Foods will keep her on in the sales department. Gamez hopes that working for BMW is a first step towards eventually owning his own shop.

 

[DanteEstonia]

32 minutes ago, Muda69 said:

So that is for two, count them two, students each year who are majoring in elementary or secondary education with the intent of teaching in Nevada.   

Nice example for a national program, Dante.

 

That’s the MEMORIAL Scholarship.

[Muda69]

1 hour ago, DanteEstonia said:

That’s the MEMORIAL Scholarship.

Ahh,  nothing like a government bureaucracy to makes things confusing.    Anyway I assume then you are talking about this?:  http://www.nevadatreasurer.gov/uploadedFiles/nevadatreasurergov/content/GGMS/Forms/Doc-FactSheet.pdf

 

[DanteEstonia]

3 hours ago, Muda69 said:

Ahh,  nothing like a government bureaucracy to makes things confusing.    Anyway I assume then you are talking about this?:  http://www.nevadatreasurer.gov/uploadedFiles/nevadatreasurergov/content/GGMS/Forms/Doc-FactSheet.pdf

 

Yup.