@hebegebe good points, the insurance company example is particularly relevant.
And i am actually also against abundant availability of private loans. those are causing the runaway costs. Pell grants are too little in comparison to total college costs now. For example your pell is only approx 6,000 vs up to 30,000 in parent loans…
But in some places, that $6000 pell grant is enough to pay tuition. With work study, SEOG for those who are really needy, summer savings, the stafford loan, the student CAN make it by choosing the school wisely. Does the government increase food stamps because the recipient wants to shop at Whole Foods rather than Safeway? Pell is a government entitlement and the recipients should receive only enough to meet basic needs.
Should students who get scholarships not qualify for Pell? Should the student who stars in engineering or nursing have to pay back the loan immediate when he changes to Art History, or perhaps not get any more loans as a jr or senior because is is now over the limit for the new major?
Pell grants are a one size fits all product. You can change the size, but you can’t customize it by school or state or degree. That’s not the program. And how would you decide? Normally thing cost more in California than in other places, but that’s really not true for tuition. Rural Illinois is often not that expensive for cost of living, but the University if Illinois is, so how much does that student get? Is the Pell determined by where you live, or where you go to school? Upstate NY or NYC? Private school students get more? My daughter can live in a shared dorm for $2200 per semester but would rather live in the one for $4500. How much should she get?
I suggested that private loans should be made on the basis of commercial aspects - basically earnings capacity post graduation. And the govt. should have zero say in what a private loan company lends to a student. That is how an engineering student would get more in a loan, not through a bigger pell grant.
I never suggested that pell grants should vary based on college/major etc. However, pell grants should generically be much higher because they have not kept pace with college costs. Please read the article below:
http://www.huffingtonpost.com/2012/08/27/pell-grants-college-costs_n_1835081.html
The WSJ article all the republican establishment cites (and somehow has become common wisdom) about pell grants causing tuition increases is just flat out incorrect.
Also, every student who gets a scholarship should be able to apply it whichever way they deem fit, it should have zero impact on their pell grant.
The earning capacity of a history major at Yale likely outstrips the earning capacity of an accounting major at University of New Haven down the street. The earning capacity of a Political Science major at MIT outstrips the earning capacity of a nursing student at U Mass Boston.
Are you really going to argue that financing should be based on one’s major? Sheesh. The “high roller” cardiologist in my town was a music major; the big time lawyer majored in comparative literature.
How do you predict earnings capacity post graduation- except to discriminate against kids who end up in low advancement majors due to factors beyond their control (like crappy advising). Why else would poor students borrow to get a BA in early childhood education???
Well, there are always type I and type II errors - you choose a system and stick to it. As lender A i might choose majors, while my competitor Lender B might choose to emphasize colleges - so they might have a methodology that values graduating from Yale while mine might value majors over colleges. So all the compsi majors will gravitate to me and all the humanities majors at Ivies will approach lender B. And then there might be a lender C who chooses to blend our philosophies in their own proprietary unique algorithmic model for pricing loans.
And yes my methodology might discriminate against music or comparative literature undergraduate majors but others’ methodology might discriminate against a Jan Koum (dropped out of San Jose State) and co-founded and sold Whatsapp to Facebook for 19 billion. So what? Both of these are methodologies that base their philosophy of data instead of just handing out money equally to everyone. That was the point I was making, not stating that there are no adjustments to be made for value of college etc etc.
PS I actually know an unemployed Yale sociology graduate. Nothing is a guarantee for future success or failure but statistics gives you a methodology to employ on a large scale.
Yes- using statistics meant a whole lot of redlining and making sure that people who were Not White couldn’t get a mortgage.
I love numbers as much as the next person. But at least when a bank is evaluating a piece of property as collateral there are comps, there are sophisticated data-mining techniques to uncover the underlying risk and value of said property.
The evidence on a 17 year old is pretty thin comparatively.
You say “so what”. That’s the point- most of the people who now cannot pay back their college loans would have qualified under your scenario. The people with the solid HS records who got into a good college; then got into a good law school but decided they hated the law, so then got into a good whatever grad program. They owe $300K.
These aren’t delinquents (although they are quite literally delinquent).
Get rid of the government guarantee on private loans and the art history major will get exactly what the engineer will get - nothing. Private lenders only make the loans because of the protections of the federal government. If people have to qualify, no one would. Middle class or above who need to take private loans will do so with home equity loans or other secured borrowing. Banks dont make many non secured personal loans, which is what a student loan is. Credit worthy or not, banks just don’t make them except for credit cards and look at the rates on most of those.
The government has a say in private lending because the government regulates the bank. If there were no student loan program, the government would still have a say in the number of student loans made because the regulator, be it the fdic, the cfpb,the fed reserve, has a say in how much unsecured lending a bank can have and the risk level of the borrowers. If you want to go to a bank and get a loan for college without going under the federal student loan program, try it, see how many banks will lend to you just on the hope you may one day be an accountant or nurse. Even if you want a small business loan but don’t want to be under the SEA rules, see if you can find a bank to just give you unsecured or under secured loans.
If you don’t want the government running private student loans, find another lender.
The issue then is that govt. guarantees are what drive the private loan market, which creates a moral hazard. The private loan market instead should be the equivalent of credit card debt, and further secured by a floating lien on your future salaries and earnings. There could be limited govt. involvement - primarily through a loss-given-default floor, lending guidelines etc, restrictions on usury etc - but not much beyond that.
There are no govt. guarantees for unsecured credit card debt - and that business exists and is mature. The govt. does not regulate whom the banks offer unsecured credit lines to in the form of credit card debt on a individual by individual basis, only on an overall macro-exposure level basis. I also believe college debt should be considered as inviolable as tax liens. If you are not mature enough to make credit decisions, don’t borrow. A 4 year degree should require true commitment - if you are not ready go to your local community college till you are ready to commit and then transfer over, when you can.
A private lender might require you to maintain grades, control other forms of debt, need letters of support from your parents etc for credit enhancement and control and you have to be willing to adhere to those. If you can not, as I stated earlier, don’t borrow.
On a related point, very bluntly most US high school graduates are not prepared for 4 year college. Most of them should go to community colleges. Only those with the scores and grades to have a reasonable chance of graduating from 4 year colleges, in time and thereafter make decent income should get to go to 4 year colleges. Everyone has a right to dream but only those prepared should get the opportunity to follow their dream. Sorry if this sounds offensive but obviously there is an issue with underemployment, student debt levels and so on, maybe the system is wrong in pushing everyone through whether they are prepared or not.
Really? The student needs to send a report card to the bank? After the loan is already made? What good does that do.
Student loans are closed end credit. The terms are set when you borrow. The rate doesn’t change, there is no acceleration if you stop going to school, you just pay as agreed. Crédit cards, and it is rare to find one with a 4.6% rate which is the current rate of a stafford loan, are revolving. The terms do change. Miss a payment, your rate can jump from 15% to 29% for the next month. By making a purchase, you agree to that. It’s an ongoing relationship with the bank.
I agree that the government should get rid of private student loan programs. Let the banks make the loans on their on credit standards, underwrite the application, pull a credit check, let the loans go to bankruptcy just like all other consumer debt. I think you’ll find no student loan market very quickly, and the few banks that do it will have rates in the unsecured credit area of 10% or more likely 15%. It is a high man-hour loan product, and I can assure you they won’t be making the loans based on what your future career will be with the exception of medical school loans that a few banks specialize in.
I know that getting rid of private loans guaranteed by the government will mean many student can’t go to college, or can’t go to the expensive college they want to go to. Thats price to society I’m willing to pay because I think we need a nanny state on this one and I think we need to tell people, ‘sorry, it is not a good idea for you to borrow money for college except in the government programs.’ Others don’t agree with me, so we have private loans in a government backed program. When I’m King, I’m changing that.
Twoin- I don’t always agree with you, but now that I know you are running for King, I am prepared to be your campaign manager.
You rock.
Thats the point i am making, the structure of private sector student loans is wrong and is a reflection of the govt. guarantee. Absent this government guarantee, they would not be closed ended credit. In my opinion, the govt. should have a higher pell grant and exit the loan market except in an oversight/limited market support capacity.
Private student loans without government guarantees would instead be revolving lines of credit like a credit card, and terms would change with the student’s performance - a kid who graduates with high grades on or before time is a better credit than one graduating in 6 years with a low GPA. Also, some majors or degrees that have some consistency in forecasting future earnings are: Engineering, Medicine, MBAs, Architecture and similar professional qualifications. If a loan market away from these diminishes or is costlier, I would neither be surprised nor would I find it to be an issue since I firmly believe the markets should mold education - you go to college to earn more eventually, not to learn esoteric subjects with minimal practical value.
And no, as a bank, you do not need to spend too many man hours on each loan. This high man-hour work would be offloaded to the college administration system - they are already capturing grades and managing disbursements of internal merit scholarships besides pell grants etc - you don’t think they can manage your educational credit reporting and disbursements for private loans etc as well? Run it as pools of college specific loans. Finally, make the colleges to bear part of the burden of defaults. This needs to happen for this approach to work. The colleges will grumble but will have no choice but to go along in order to maintain the pipeline of applicants and students.
Remember, the FNMA pool mortgages are not the ones that created the mortgage crisis - it was the subprime borrower class. We should not have a subprime class in educational loans. The costs to the system of supporting defaults and over-investing in educating those that are unprepared are both direct and indirect.
No, I don’t think they can. The colleges aren’t making the loans currently, they are just disbursing the money. They aren’t checking credit, they aren’t assessing repayment ability, they aren’t even doing great fraud control as many loans are made to ‘students’ who register for a semester with a false SSN, take the loan and move on to another school the next year. All they do is make sure the student meets a minimum few requirements - SAP, total amount borrowed, full time or part time. They aren’t deciding if the physics major is doing better than the accounting major, or if physics major A is going to get a better job than B.
But what’s in it for the private lenders at that point? There is not a lot of money to be made on student loans. Discover and Sallie Mae do it and make some money, but for most banks there just isn’t enough return on such a high risk product. Now you want to move more of the work to the schools, who aren’t going to do it for free. The banks have no control, they have no government guarantees, they aren’t making much. Why exactly is it a good business plan? They are better off lending that money to small businesses, farmers, home equity customers.
I have a lot of issues with some of the proposals in here.
First of all, it’s not really as easy to predict future earnings from major as you might think. On average, salaries for engineering majors may be higher. But those are averages - not probabilities. That’s a common statistical fallacy. You have to take into account other factors - for example, are engineering majors more likely to drop out of college (because of the difficulty)? Take into account that if loans are higher for engineering majors more students, including more low-income and less well-prepared students, may major in it just so they can get enough money to begin college. Are engineering majors more likely to switch careers later? There’s a lot of evidence that the majority of science majors don’t actually stay in STEM jobs, and women engineering majors and computer science majors are very likely to leave the field altogether for a variety of factors. There are actuaries who do complex analyses for things that seem simple like who’s more likely to die early and who’s more likely to break their leg. It’s not as simple.
What? Why? Is GPA a predictor of future employment or earnings? There’s no evidence pointing to that, and actuarial tables and lending is based on things you can predict. You can have a 4.0 GPA but no internships or skills that make employers want to hire you. Graduating early is no indication of whether or not you can get a job.
Well, no, they don’t. I’ve already addressed engineering. An MBA doesn’t blanket confer higher salaries; it depends on where you go. The median salary of a University of Chicago MBA is $120K. But for a Texas Christian University MBA, it’s about $85K, and from Auburn, it’s $56K. So purely entering an MBA program doesn’t insulate you: it depends on where you go and what kind of work you were doing before you started. Architecture degrees can yield decent salaries (median is around $73K), but the unemployment rate for that major is also high.
The other thing is that the loan market is not some passive recipient of action; it’s an agent. Fund engineering majors at a higher rate and you get a glut of engineering majors, which drives down salaries. The thing is, you won’t notice the glut until 5-10 years later, when those people you lent $100K+ to are already out in the market making less than they thought they would. And also, nobody can predict the future. Do you think in 2000 anyone thought that lawyers would be scraping by doing document review and offered paralegal jobs for $15/hour? Yet here we are - with thousands of lawyers who went to third-rate law schools, borrowed hundreds of thousands, and can’t find jobs.
I don’t think you realize how much extra work this is. There are thousands of students at each school, with deals with dozens or potentially hundreds of different banks, credit unions, and loan corporations. They’d have to organize and disburse this information to each of those places accurately and quickly enough so that the students can get their money, and they’d have to do it every semester. They’d have to hire additional people to do that…which would drive up costs.
Debatable, actually. One could argue that if subprime lenders had never borrowed we wouldn’t have gotten into this mess, but someone else could argue that if the banks hadn’t gambled on lenders who maybe weren’t really fit to borrow money, we also would’ve never gotten into this mess.
Well, first of all, I reject that argument. College has only recently become partially vocational in nature; it used to be a place where a person could immerse themselves in the liberal arts and sciences. EMployers only started requiring it because it was a marker of status and class - and then later maybe because they realized the worth of critical thinkers in their workplaces.
But also, who gets to decide which subjects are “esoteric” subjects? There are some areas of theoretical math and chemistry and physics that are no less “esoteric” and “impractical” than some areas of art history or philosophy. And then there are some areas of the humanities and social sciences that are really directly applicable - like business anthropologists (who go into people’s homes and do fieldwork to figure out how they use products, to help businesses design their products and marketing more effectively), bioethicists (who do research and scholarship on what our standards should be in things like privacy of patients and biomedical research subjects), and psychological operations specialists (psychologists and sociologists who enter conflict zones and do reconnaissance on the enemy and on civilians to figure out how to turn the tide of the war with less violence). We need translators and security specialists, economists and political analysts. Not to mention that art and culture are part of what make our lives rich - there are things that are worth doing even if their practitioners don’t make a whole lot of money. What about museum curators and auctioneers at Christie’s and Sotheby’s who sell multimillion-dollar art pieces?
Who knows what the new hot field of the future will be? Can we predict what our needs will be 10-15 years down the line? No, we’re terrible at it. History has shown that.
what if you take out student loans b/c you are accepted into a v. prestigious, big-name school that also happens to be your dream? would anyone recommend that?
I just started a thread like this, for my own situation. I think it depends.
I’m going to live on-campus at my state school, it will be much better for me, academically (for personal reasons). After financial aid, I will only need about $3000 per year of extra student loans, which isn’t THAT bad. I would say yes, in the few situations like this.
But, the more common situation is a student taking out $50,000+ in Parent Plus loans, to attend an overpriced private school. No, I don’t think this is a reasonable decision.
The loan limits that we have for federal student loans are extremely reasonable and no one should go above them.
As someone who did take out almost the max student loans every year for what most would call a “useless” major, I do take issue with the idea that your major is somehow indicative of future earnings. (I make enough to pay loans, our mortgage, etc even with a “useless” major.)
Further, you never know how life will turn out. I am 25 and was just hit with a diagnosis of two major, lifelong illnesses that would severely impact my ability to work a typical 9-5 job. I’d probably be out of the workforce if that was the case regardless of the major. The reality is, these things happen out of the blue and there is no amount of statistical knowledge that will account for all the different variables.
I’m not a fan of some group of bureaucrats who get paid very well to work only 100ish days a year deciding what is a “worthy” major. Nope, sorry. Keep the limits where they’re at for everyone.
If the colleges themselves had to lend THEIR OWN MONEY, they wouldn’t just lend it out to any student for any major.
I don’t know where these LAC people got the idea that STEM the most logical majors going can’t think or that we don’t know how to solve problems and deal with change! What a joke.
Love the studious rating score. It would probably just lead to more grade inflation, but I love the idea.
@biggestbooklover, it depends on how many student loans we’re talking about. I think taking the Stafford loans and making sure you graduate in four years or fewer is a reasonable approach. If it’s really a “v. prestigious, big-name school,” it should also be meeting your family’s need, so those Stafford loans should do the trick.
If, OTOH, your parents are refusing to pay for college and you’re own your own to cover anywhere near full cost, I’d tread v.v. cautiously and look for a school that awards you merit money for your stats. Prestige doesn’t pay the bills and dreams are better delayed than smashed. And big debt will smash them as fast as anything.
And how do you tell someone else that their dream is a bad bet? I know families for whom Villanova is the prestigious, big name school. Not worth a lot of debt in my opinion, especially when the kids in question have cheaper and more prestigious offers (some folks think Villanova is the be-all and end all; other people see it as a four year country club with nice looking preppy kids who couldn’t get into Georgetown).
So there’s always a YMMV quality to “dream school”.