Basic decision making and investment ROI should be covered in HS, or at least by peoples parents. 50k for a 1 year degree when you are already in debt isn't insurmountable but it is significant.
The "a member of my family once said I deserved student loan debt because I chose the unrealistic field of history" comment reminds me of friends. They're smart. But they came from families that didn't teach ROI. (Their high schools didn't offer , they pursued majors that they found interesting. Nobody offer economics in a remotely-useful form, either.) Nobody told them to consider job-placement frequencies and mean exit salaries. (Let alone where to find these data.) So they didn't.
It's difficult to fault them. Their adolescent brains were given insufficient information (or, in some cases wrong information) for a series of huge decisions. They are now left with the consequences of those decisions for life.
The only way to fix this is to let loans be wiped out in bankruptcy (i.e. give lenders skin in the game). We probably also need to let lenders vary interest rates by institution and major. (The latter to give borrowers an early price signal around their choices.)
Make non-dischargeable student loans only repayable at all when your taxable income is above $50k (or some number keyed to official stats), capped at 15% of income, and written off after 20 years. And let the interest rate, and amount offered, vary with major, school, SAT score, everything.
This will provided a vivid picture to 17-year olds of what their choices mean. Taking a 4-year all-inclusive resort holiday should be expensive, maybe it's a nice gift to buy your kids, but nobody should stumble into it thinking they are getting job training. (But the same major at a more selective school may actually have great outcomes -- it doesn't have to be direct job training.) And this way there's no need for a committee to identify which programs do or don't fall into this category, the bankers are free to gamble as they wish.
I like your idea. I'd edit $50k to some fraction of the median wage (or multiple of the poverty line) and revise 15% of income to a higher fraction of after-tax income after housing, food, childcare, healthcare and other essential costs. (We already have fraction of discretionary income based repayment programs. Shouldn't be hard to borrow that definition.)
However, I disagree that we should let lenders vary interest rates by institution and major. Our premise was that these students didn't understand the full picture of what they were getting into. I'm not sure complicating that picture by varying interest rates is going to make the situation better overall.
As the article illustrates, complexity isn't the core problem. College applications, student aid and education loans are already complicated.
The problem is critical information is not being presented to students at the right time. One way to solve this would be mandatory disclosures when (a) schools or lenders send out any marketing materials, (b) admissions or loan applications are received, and (c) school or loan acceptance letters are sent out. (I think this should happen.)
Unfortunately, simple disclosure is only a first step. Incorporating the disclosed information into pricing ensures it's received.
Also, if we're going to force lenders to bear the risk of default, we should give them a way to manage it. Forcing a single market rate subsidies students pursuing uneconomic majors at the expense of those pursuing economic ones.
Going to college is a financial investment, so I see the logic in this: just make it a flat "fee" and let the student decide what to study to make it worth it. I'm not sure what the ramifications of this might be, though. I can imagine there might be some unintended consequences.
Someone turning 18...
- can join the military
- enter contracts
- get a credit card or loan
- decide not to go to college
Obviously, I don't share that belief....
In Germany, the mentality is different: school is for becoming well-rounded (that is why one has to attend many obligatory subjects from different areas) and university is for specializing into some area in which you will probably work for the rest of your life.
People are always going to think that they're going to be the one to break through--to rise above the mean ROI. That's why you get so many people trying to become actors or musicians or athletes or even startup founders. The high-end returns are so distracting that people forget about the mean ROI.
- "Schools should be required to teach $R, and not graduate a student that hasn't learned it!"
- "The evil school wouldn't graduate my snowflake merely because s/he couldn't pass the standardized test for $R!"
Hence there is a tension between "graduation rates" and "adding more things-schools-have-to-teach", and yes, probably a lot of people who don't see the contradiction (between hate for standardized tests and demands that schools teach $R) as clearly as I've laid it out here.
I've seen arguments that the government not allowing these debts to be discharged through bankruptcy was a major cause of the problem. Do we want more market manipulation, or should we start teaching students that because the government has allowed for a trap even bankruptcy cannot escape, you need to learn how to avoid it?