US government lending to students enables colleges to raise tuition and boost spending. Costs have been rising faster than the rate of inflation for decades. Time to put an end to it. Steve Cohen says make colleges the conduit for lending.
Instead of lending money to students and their families, Congress should lend money to colleges and universities. In turn, the schools would lend it to students and parents, with repayment going back to the school. In this way, colleges would have an incentive to limit tuition hikes—and thus how much students needed to borrow. Colleges might think twice before increasing tuition with this debt overhang and its credit-rating implications.
Imagine what this would do to colleges with low quality students who drop out at low rates and pursue economically useless majors. The colleges would have high default rates and go bankrupt. That market discipline would work wonders. Sure, the US government would lose some money. But the financial losses would decline with time as more low ranked colleges go out of business and other colleges raise their admissions criteria, steer their students into more useful courses of study, and cut back lending to unpromising students.
The fraction of students finishing their college courses is shrinking year after year. The colleges are recruiting lower quality students while charging them more money. A rising number of colleges are in a death spiral of shrinking enrollments and rising deficits.
The college market bubble has popped. Time to make colleges much more cost effective and more efficient.
|Share |||By Randall Parker at 2015 December 06 12:17 PM|