

Fixing Student Loans: Let’s Give Colleges Some ‘Skin in the Game’ - cwan
http://www.american.com/archive/2012/january/fixing-student-loans-lets-give-the-colleges-some-skin-in-the-game

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probonogeek
The comparison with mortgages is fallacious. A mortgage is for a material good
which can be repossessed and has an intrinsic value independent of its current
owner. An education has neither of those properties. And as has already been
mentioned, students loans carry zero risk for the lenders, because the debt
cannot be discharged by bankruptcy. One way or another, the lender will get
that money back, even if they have to wait for your take your estate when you
die.

I agree that the current educational debt levels present sustainability
problems... but trying to compare apples to oranges only leads to worse public
policy than we already have.

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jeffool
Interesting, but I have to question just how much skin those giving the loans
have in the game, given a large and growing part of student loans aren't
public and subsidized by taxpayers, but private. And they can't be dropped by
bankruptcy.

Up until a few years ago only government education loans were exempt from
bankruptcy. I assume private education loans were added to encourage loans...
I wonder if the tradeoff was worth it, going by the numbers.

Though in all fairness I say this as someone about to default later today
(Saturday) to Sallie Mae because I can't come up with the required amount by
noon. Of course, having my wages garnished likely means AES will follow. Yay.

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forrestthewoods
Makes me think of this article: [http://www.petapixel.com/2011/09/02/us-gov-
sues-the-art-inst...](http://www.petapixel.com/2011/09/02/us-gov-sues-the-art-
institutes-for-11-billion-fraud/)

"Last month, the US Department of Justice filed a massive lawsuit against the
company behind the schools, Education Management Corporation, accusing it of
fraudulently collecting $11 billion in government aid by recruiting low-income
students for the purpose of collecting student aid money. Whistleblowers claim
that students graduate loaded with debt and without the means to pay off the
loans, which are then paid for with taxpayer dollars."

Are government guaranteed loans simply a bad idea for student loans? Seems
like schools will simply charge as much as the government will guarantee. Why
wouldn't they? It's free money!

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shareme
The problem is the economic game of getting a college org stable.

In the USA that missing budget shortfall that states do not fund for a college
is made up by the college raising their prices to students. Considering most
state's income taxes are lower than the fed gov's the Fed must have skin in
the game by funding ,more of that budget shortfall directly rather than the
edu loan charades.

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chiaro
I believe the system we have in Australia works decently. The government
discounts 10% for those who pay upfront, or you can take out a loan against
the government (called HECS). No payments need to be made on this loan until
you reach a certain level of income upon which it is taken out as an addition
to your taxes. There's also no real interest, as it's set to the inflation
rate.

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stephen_g
I think so too. Not to mention that in Australia, university fees seem to be a
lot lower than in the US. For instance, my four year B. Engineering (Hons)
from one of Australia's top five universities will have cost me about $25,000
when I finish it at the end of the year...

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seanmcq
Why wouldn't universities just rase rates 10% to cover their projected
liability?

This would obviously only exacerbate the problem and hasten the fall, but that
does appear to be how independent actors work.

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bjornsing
Exactly my thought. This is a huge difference compared to mortgages; with
mortgages the originator gets perhaps 2%(?) of a good loan but with student
loans the "originator" gets a very large share.

The skin in the game effective tells a mortgage originator that if one loan in
five goes bad they lose all their revenue(!) but the same message to
universities would be that if one loan in five goes bad they have to raise
their prices by 2% to compensate.

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tyw
What's the split of student loan debt between public and private universities?
In the case of public universities having some 'skin in the game', isn't that
still essentially the taxpayers?

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luckyisgood
The industry of selling education is ready for disruption by the digital
revolution. It happened to many classic business models (book publishers,
movie industry, music industry), it will happen to colleges as well. In the
coming years, I predict a stronger rise of online education (Bill Gates is
already investing a lot of his money into it), and I expect the classic
education industry proponents to kick and scream themselves into oblivion.
They will not go down without a fight, but it's a battle they lost in advance.
It won't happen overnight, but it will happen, it is unstoppable.

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CHsurfer
I would propose an equity model instead. If a student can't afford tuition,
then he/she can sell a portion of the future earnings to the education
provider. This equity stake can be bought out at a fixed price at any time in
the future.

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guynamedloren
That's pretty much what student loans are..

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soc88
Am I the only one thinking that charging huge amount of money for education is
a net loss for society?

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JumpCrisscross
Professors need to be paid, buildings maintained. Historically, Western
educational institutions had no state support.

