I admire your faith in students. I suspect the students who would pay attention to the details in your scenario are the same students who are already doing everything they can to minimize their student loans. I hope I’m wrong.
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But it was more selective. Most people attended to hard science, but nowaday, a majority of students study in pseudo-science and couldn’t find a job after graduation.
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Seems like the ISA agreement is a much better deal for the school than the student. You have less time to repay it with a higher monthly payment, but it costs almost as much as the other two loans which have lower interest rates and longer payback periods. Do the students have the opportunity to prepay the ISA from the school or are they stuck with the payments for the full period? I didn’t read the exact terms of the ISA agreement, but from the example on the Purdue website, the student is paying something like 15% or more in interest compared to the other options which are also the most expensive loans available (no mention of Stafford).
Of course, this doesn’t take into account the students who make below average salaries (or well above average), but we are back to the same problem of the successful students paying for the unsuccessful ones if you want to look at it that way.
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I think this is where it tries to tackle one of the main parts of the problem which is how to handle students who do not graduate so they have the loans but not the higher income that usually comes with having a college degree. If you look at default rates, they are much higher for those who did not graduate even if their balances are lower than those who graduated.
So you are totally correct that there is a transfer from those who are successful to those who are not. But defaults are not any different. I just don’t think you can find any system that will basically help out those who don’t graduate (or graduate with a nearly useless degree due to specific majors) without having some form of wealth redistribution from those who extracted the most benefits from their college education.
As far as whether ISA are good for all students, I’m sure they are not. If you’re planning to be a teacher or someone in government who can have a chance to get their debt forgiven, it’s obviously not a good deal. Same if you’re going to earn high incomes. On the flip side, if you have someone whom you’re not sure is student material but are determined to go through college with loans, it may provide some kind of downside insurance if things don’t pan out. For low-income prospect majors, it may also work out.
But my intuition is that ISAs will become a system where only those who stand to benefit compared to taking regular loans participate, a bit like high-risk pools for health insurance so interest rates will rise too much to compensate and still won’t solve the issue of defaults.
Ultimately, I don’t think the solution will be found among financing options. Rather it has to start with controlling of costs first.
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Yes, this is very important. There is an inherent incentive to increase tuition, room/board prices when the government is there to back up loans. There should be a reasonable ceiling on how much the government backs up.
Another issue is that some schools (for-profit type) give admission to students that have little real chance of either graduating or being truly employable upon graduation. Those abuses should be prevented by placing the onus on the schools themselves.
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I can’t see how that is remotely the case. The government already funds too much for secondary education, which is the problem. Universities see what is available from the government and set their prices accordingly. If the funding dried up, the universities would have to find ways to make it affordable for students to show up. Student loan balances are high because there is a lot of money available and pretty much anyone qualifies. Bottom line. If they wanted to help, they would stop the bleeding and put in limits on students loans. Sure, here is the top end of what we offer, but you have to show that your tuition is at least 90% of this.
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I think this theory doesn’t stand inspection. State and local funding has decreased across the board in recent years (outside of a couple of states) in inflation-adjusted dollars. From 2008 to 2018, funding decreased on average 16% nationally. I don’t think college has become more affordable lately though so I think that reducing funding and expecting college costs to decrease is just wishful thinking. In fact there was a study correlating by how many dollars college costs increase per $1000 decrease in state funding. I think it was around $320 so not a total pass-through but still clearly a significant increase in college cost for students to bear.
If it were only this simple. As someone who considered staying in academia and went to industry instead, labor costs are an issue that’s not going away. Why would I go teach in college for longer hours and less pay? It did not make sense 20 years ago and despite universities trying to catch up but there’s still a large gap in per hour compensation. And universities do not have to cut costs that much as long as demand is still high (although it is dropping somewhat now). For them defaults are irrelevant because they got paid already and the problem is now between student and lender.
This I somewhat agree on depending on implementation. It’s temping to think that if you’re getting need-based financial aid, there should be lower limits on how much you are offered. Yes it could reduce your options for college but beggars cannot be choosers after all. But those limits should also be aligned with income prospects. It would not make sense to enforce the same limits for med school grads vs humanities majors since their ability to repay are not going to be the same.
There are many different aspects to funding. Some of that is directly to universities (state schools), some of that is via financial aid (state or federal grants). So, it is hard to say how that hits tuition.
However, universities have tons of costs outside of salaries for faculty. Just because funding is reduced doesn’t mean faculty pay must be reduced. In addition, there are ways to reduce faculty pay beyond asking them to continue to work for less pay. For instance, less faculty. Or, you lose faculty through attrition (retirement, typically) and replace with lower paid faculty up to and including adjunct faculty that costs less overall.
Another aspect that I have been advocating is that community colleges lower rates by eliminating facilities. From a taxpayer’s perspective, I don’t think community colleges should have their own facilities, at all. They already do this, to a degree, where I live but there are still plenty of buildings that they own and operate. They can offer classes in facilities from other institutions, like high schools (either for high school students during the day, or adult learners in the evenings). Also, they could have classes at state universities. This would reduce the overall buildings required by all institutions. For studies that require labs, they could partner with organizations to co-locate, like hospitals.
This is even easier with online courses. A university could easily reduce facilities costs by requiring X% of courses be online. They could do that by choosing the best courses for that delivery mechanism or say that each school should come up with a common course that should be online.
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You have good suggestions for cutting costs but honestly I don’t think community colleges is where most fat can be trimmed. Take facilities for example. Wherever they’re gonna be, somebody is gonna pay for them. At least where we are, the high-school do not have that much space to accommodate college students. There’s also the issue of mixing two different populations on one campus. But anyway, if they held classes in high-schools, you’re gonna need bigger high schools (or additional ones). Either way, somebody is gonna pay for those facilities. I’d rather have it be the students who are using them than the communities personally but that’s debatable. The online path is more interesting though. Seeing my kids take online classes during the summer at a fraction of the cost of in-classroom ones convinced me of that much: health class was $115 online with no hand-holding or $325 at the high-school with some hand-holding but they both got validated through a final exam in classroom for the same exact credit. But anyway, I think for-profit and private colleges would be my first targets personally.
Perception is another. Going two years at community college then going on to get degree from traditional 4-yr university is viewed as a solution for losers. When I mentioned it at a parent meeting, some mentioned it nearly verbatim.
The problem about labor costs is not as easy to solve as that. Class size is now well documented. So is ratio of students per professor. Colleges with high ratio and class sizes are viewed negatively when students shop for colleges because of the biased perception that higher class size means lower quality education. Since colleges compete for students on that front, it’s a bit of who’s gonna blink first on that metric. Probably the same with the optics of replacing your teaching corps with lower paid second rate faculties. Not going to be a student magnet. Although it’d make sense that you don’t need to be top notch to teach first year classes in many majors.
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I don’t think that true according to the data I seen. For one, this “getting an English degree then flip burger” thing is nothing new. The proportion of college students major in STEM is actually higher than when I graduated nearly 30 years ago.
the biggest difference is that back in the days, one can actually handle the loan payment with a crappy job. I know many people who did it and didn’t have to default and that includes myself for the first few years out of college.
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There are ways to get them forgiven if employed by government or for a lot of teachers. That often goes in exchange for 10-15 years of service, can get denied for bogus reason if your servicer is shit (Navient say), and comes at the cost of lower pay during that time. But it’s likely the more realistic option for most.
Aside from those, dying is a sure fire way to get them discharged. But just short of that, total and permanent disability would be another way. Without committing fraud to qualify for these conditions, somehow most people do not find either option very palatable.
Now they could be discharged in bankruptcy but only for “undue hardship” which is generally a pretty high bar to clear considering how tempting it’d be to go bankrupt when you’re just starting out. Now the requirements for undue hardship may get easier to meet as student loan balances keep increasing but it’s not a very viable option currently.
I’m not sure about this but expatriating and possibly renouncing your citizenship might do it too. It’d sure be more complicated to garnish your wages if you’re overseas I imagine.
Other than those, maybe hope that elected officials ever get some student loan forgiveness in the laws but I seriously doubt it, no matter how many empty campaign promises they make. Plus that’s not very easily actionable, at least on an individual basis.
Make the minimum payment.
Wait for student loan bailout.
Profit… 
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The other issue is that finding a creative way to default on student loan and sharing it freely are too things very much antagonistic.
Exhibit A of this is the guardianship transfer trick. Now that enough people have done it, it’s scrutinized so if one knew of a creative way to default, they’d likely milk it and not share it for free anywhere. Like that Chicago law firm which set it up for their clients. But once it gets shared and used a bunch of time, it gets known and the gig is up.
Exhibit B could be MS schemes. They only work while they stay under the radar. Once they’re shared, too many people use it to not get it noticed.
So, should anyone here know of a clever trick to strategically default on student loans, would they post it freely or would they first make sure their entire family milks the process for as long as they can while setting up a LLC to help others do it in exchange for considerable fees?
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But isn’t that also related to how big of a loan you take?
I see two big differences between today and 40 years ago:
- The availability of money - it is much more free flowing today.
- The course catalog size - reducing that will cut labor costs and facilities fees. Additionally, it may reduce the default rates for your graduates.
I think that cutting back on the availability of funds will allow the latter to be better rewarded for making good choices and working hard. It may also make a four year degree mean a little more than it does now, but that may just be wishful thinking.
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I definitely agree that they have to be paid for. However, I think it would be cheaper for the CC to not own buildings and just pay to be in other facilities. Also, I think those institutions, local school districts and universities would then have that money as a source of revenue which is a win-win.
With respect to the perception thing… folks need to get over that. Of course, it isn’t just the perception as a student, but the perception of admissions and others for advanced programs (like graduate schools).
That is my main point. Don’t let folks go nuts on the loans. It does everyone a better service by restricting it. The schools have to take things more seriously and manage their costs better because they can’t just expect a rush of students with tons of available debt. The students have to be more mindful and maybe they don’t just hastily get involved in school.
My daughter was flipping out because she had to pay for some of her school. My wife kept telling her that we were just going to pay for it and I had been saying that wasn’t happening since the beginning. Nobody paid for our school other than tuition reimbursement from our employers (me more so than my wife). I told my daughter during her junior year of high school that she needed to keep her grades up so she could qualify for some of the easy in-state scholarships that merely required a 3.5 GPA. She didn’t take it seriously and only had a 3.48 GPA.
We made her basically pay the difference as the slight bump in GPA would have netted a 1/3 discount.
She started going crazy (she is dramatic) and I sat her down and showed her that it equated to about $75 per week for her to cover it. Easy enough to handle. We cover the remainder and pass it through our 529 as we get a 20% state tax credit, up to $1000 in benefit. I am hoping she can qualify for a scholarship soon (just started her sophomore year of college).
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That story rings very true. It was a very difficult battle with our first kid to get her to care about test scores. What we ended up doing is tell her we’ll pay a fixed amount of money for her college education (basically 4.5 years of room&board + tuition at best in-state flagship university). If it ends up costing less, we’ll give her the remaining money. If it costs more, she pays it somehow (scholarships, work, or loans).
With her AP classes, her GPA was fine (4+) but getting her to actually study to raise her ACT from 28 to 34 took a lot of doing. Showing her the merit scholarship amounts difference at some of her target schools was definitely a factor but she still had trouble putting it in perspective. Until she worked at a local grocery store for $9/hr. That studying 50 hours for SAT/ACT tests could result in a difference of $20k in merit scholarship which is equivalent to earning $400/hr pay, finally got her to stop dragging her feet. But for us, it felt like moving a mountain. The prospect of having to do this for two more kids is depressing though.
But back on topic, I think that kids, especially in high-school, have a tough time grasping how their actions at the time make a difference in outcomes in cost of college. There’s not enough emphasis on this in high-school. They focus more of finding the “right fit” college based on other factors than cost where IMO the impact of college education costs on their future lifestyle should be emphasized way more.
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I think one of the best learning tools out there is to have your 16 year old get a minimum wage job for 2 years (at least in summer time). I flipped burgers, took out garbage/recycling at a printing press and did data entry/scanning docs. That is what really motivated me through college. Recognizing what you don’t want to do is the first step in figuring out what you do want to do!
Having a grasp on what it actually takes to pay back those many thousands in student loans though, that really is a tough concept for young adults going through college, even if they do work early on.
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Speaking of student loans, here’s something I was wondering. Is there any downside to taking out student loans to pay for college even if you (or your relatives) have the money to pay it outright?
There are a lot of proposals (pandering as it may be) especially from Democrats that involve some form of student loan forgiveness. As someone who painfully saved to pay fully the college education for our 3 kids, I’m kinda bummed to think about potentially being the sucker here.
The obvious caveat is that you cannot use money from a 529 plan to pay off student loans since those are not strictly student expense. So that’d be (currently) non-qualified distributions so taxed on earnings + 10% penalty. On the positive side, you can still claim the american opportunity or lifetime learning tax credits if you paid via student loans.
Otherwise, taking out student loans rather than paying out of pocket should allow you to collect interest on the float, not pay a dime in interest if paying before the repayment grace period is over, and partake in the irresponsible bailout should it ever materialize.
Any downside to this strategy?
Only thing I can think of is if you have funds to pay for college already, then those funds will show up in your expected family contribution and will reduce your financial need. With a low financial needs, you will probably only be offered the unsubsidized loans which immediately start accruing interest even though you are allowed to defer the payment on them.
I guess that would still work if you were able to get a better (greater than 6%) return on your other funds, but doesn’t seem worth it to me for the chance they might get some sort of bailout which I think is unlikely or will be so limited/targeted that it doesn’t really affect many people.
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