We know that students and parents value degrees irrationally. We also know lenders have a lesser propensity to make the same mistake.
By introducing market forces on the lender's side we are side-stepping educating high school students and their parents about the returns on education and instead making the lenders be the bad cop who says "no, you're not walking out with $200k debt and an art history degree".
This should, in theory, reduce demand for university degrees in preference of community college or trade school certification, a system that has shown its merits in Deutschland.
It may also be useful for schools to own a portion of the credit risk of its students. The stick approach to this would be having schools buy a tranche of the loans each semester. The carrot would be the lender offering the school a small payment each year after graduation that the loan is paid on time, or alternatively, a larger payment if the loan hasn't defaulted in 6 and 10 years.
Schools will happily agree to 20% of an engineer's future output, guaranteed enforcement by the government under threat of imprisonment.
You know what would be better? Go back a few decades and make student loans dischargeable in bankruptcy. No one will lend students $150,000 that they can discharge immediately after graduation. The school will realize that crazy debt levels will backfire on them.
By introducing market forces on the lender's side we are side-stepping educating high school students and their parents about the returns on education and instead making the lenders be the bad cop who says "no, you're not walking out with $200k debt and an art history degree".
This should, in theory, reduce demand for university degrees in preference of community college or trade school certification, a system that has shown its merits in Deutschland.
It may also be useful for schools to own a portion of the credit risk of its students. The stick approach to this would be having schools buy a tranche of the loans each semester. The carrot would be the lender offering the school a small payment each year after graduation that the loan is paid on time, or alternatively, a larger payment if the loan hasn't defaulted in 6 and 10 years.