There’s a story this morning about how the US Senate plans to lower the loan rates for students borrowing money to attend college:
“Under the deal, undergraduates this fall could borrow at a 3.9 percent interest rate. Graduate students would have access to loans at 5.4 percent, and parents would be able to borrow at 6.4 percent. Those rates would climb as the economy improves and it becomes more expensive for the government to borrow money.”
To me, that arrangement seems backward because the rates are tied to how well the economy in general is doing, rather than how reasonably an individual student can be expected to pay back her loan over the long run, a scenario which might not involve continued economic growth.
Instead I propose one of the following of these plans:
1. Privatize the college loan market to the extent that companies pay for students’ college educations in exchange for working at the company for a certain number of years after college, similar to the way the military will do so for its recruits. That way, students don’t have to graduate not knowing whether or not they’ll be able to find employment (AND PAY OFF THEIR LOAN), and may be more motivated to use the college experience in a way that maximizes their educational outcomes.
Downsides: Where will the English majors be hired? This plan would probably tend to encourage people to graduate in STEM fields which, while important, might lead to the decline of the humanities as a viable option for study. (Please await my future post(s) on redeveloping college curricula!) Were I to actually develop such a system, I would try hard to integrate a heavy emphasis on training teachers. (Please await my future post(s) on public education!)
2a. Create nonprofit lending agencies. (This is, at the moment, my umbrella solution to all of the world’s development issues, regardless of its feasibility.) These agencies would have no incentive to make lots of profit – no shareholders (assuming that’s a legitimate business structure) – so money could be lent at low rates because interest would only be used to provide more funding down the line.
Downsides: I know nothing about the 501(c)3 status of nonprofits and what laws govern the ability of nonprofits to lend money.
2b. Create crowdsourced (or distributed) lending agencies. People with some money to donate charitable could give to an organization that in turn funds college students’ tuition. By following the more-people-smaller-donations parallel processing route, loans could be provided in such a way as to encourage community investment in the future of the community. By giving charitably, in the mode of a donor advised fund, people would forgo expecting a short term return on their investment by instead expecting a long term investment in the form of broader economic and social development. It’s possible that such a scheme would be only able to provide partial loans to students, depending on the size of the pot available through donations, but some is better than nothing. Loan rates would be set at 2% because that seems reasonable to me.
What laws would need to change or be made to help these ideas work? Which option makes the most sense?
_____ I would _____ 