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We need the interest rate on loans to vary based on the probability of payback. If you are an english major at a no-name college, you should pay an 18% interest rate. If you are a computer science major from MIT, you should have a 3% interest rate. We need to set up a structure so that student loan interest rates manage the inherent risk of the loan.
We don't give mortgages to people with poor credit scores, why should we give student loans to people with a high risk of default?
Because most 18 year olds starting college have no credit history. Credit history is one of the most importants input in to the probability of payback, and therefore the interest rate you would charge.
For example, someone with a lower income but excellent credit will get a better rate on a car loan or mortgage than someone with higher income but terrible credit. Same thing with your example - some grads with a low income will do whatever it takes to pay their loans. Other people will get a high-paying job but choose an even higher lifestyle and end up defaulting on their student loans. Just knowing that someone is in a degree program that offers the likelihood of a higher paying job isn't enough to predict the risk of whether they will pay back their loan.
Not to mention the fact that if most students apparently don't even "understand the basic terms of a student loan," then they will continue to borrow at 18% and not worry about payback just like they do at 6.8% now.
There are a lot of problems with the current system, and it could certainly be improved. But taking the government completely out of the student loan business is only going to raise borrowing costs and make higher education even less accessible than it is.
Because most 18 year olds starting college have no credit history. Credit history is one of the most importants input in to the probability of payback, and therefore the interest rate you would charge.
For example, someone with a lower income but excellent credit will get a better rate on a car loan or mortgage than someone with higher income but terrible credit. Same thing with your example - some grads with a low income will do whatever it takes to pay their loans. Other people will get a high-paying job but choose an even higher lifestyle and end up defaulting on their student loans. Just knowing that someone is in a degree program that offers the likelihood of a higher paying job isn't enough to predict the risk of whether they will pay back their loan.
Not to mention the fact that if most students apparently don't even "understand the basic terms of a student loan," then they will continue to borrow at 18% and not worry about payback just like they do at 6.8% now.
There are a lot of problems with the current system, and it could certainly be improved. But taking the government completely out of the student loan business is only going to raise borrowing costs and make higher education even less accessible than it is.
You completely missed my point. If it is statistically more likely that someone with a liberal arts degree graduating from a school in the midwest that is ranked tier-three nationally (to make up an example) has a 25% default rate on student loans, the interest rate on loans to students that fall into that bucket should increase.
And if a person chooses to borrow at a high rate (or if a parents chooses to let their child borrow at a high rate) then they will have to live with those consequences of a poor decision.
You completely missed my point. If it is statistically more likely that someone with a liberal arts degree graduating from a school in the midwest that is ranked tier-three nationally (to make up an example) has a 25% default rate on student loans, the interest rate on loans to students that fall into that bucket should increase.
And if a person chooses to borrow at a high rate (or if a parents chooses to let their child borrow at a high rate) then they will have to live with those consequences of a poor decision.
Your idea would be more necessary if loans could be discharged.
It has changed in the last few years, but nobody was considering the costs associated with college back in the early to mid 00s. It was completely off everyone's radar. There was a general feeling of "do what you like" and "go to the college you like the best". The financial aspects of things were never even discussed.
QUOTED for truth, you were just told to submit FASFAs and then told if you cannot get aid through that, get a loan and the banks didn't care what your major was because most companies were hiring grads left and right.
I wish more practical living courses were offered to students. These used to be Home Economics if I remember correctly. Thought outdated by most, we learned to write checks and balance the account, cook simple meals, sew a little, shopping lists and price comparisons, and basic home decorating/cleaning, planting seeds. This was back in the late 1960's, middle school. By high school that stuff was all gone in my district and forget it being at college....it was sexist since boys didn't take this class. But I think everyone should know a little of everything, boys and girls, including how to deal with basic car maintenance and other "boy" things. Life skills are hard to come by these days but a curriculum for modern times wouldn't be hard to create or take much time away from other academics either. Beats some of the crap courses they offer nowadays.
I wish more practical living courses were offered to students. These used to be Home Economics if I remember correctly. Thought outdated by most, we learned to write checks and balance the account, cook simple meals, sew a little, shopping lists and price comparisons, and basic home decorating/cleaning, planting seeds. This was back in the late 1960's, middle school. By high school that stuff was all gone in my district and forget it being at college....it was sexist since boys didn't take this class. But I think everyone should know a little of everything, boys and girls, including how to deal with basic car maintenance and other "boy" things. Life skills are hard to come by these days but a curriculum for modern times wouldn't be hard to create or take much time away from other academics either. Beats some of the crap courses they offer nowadays.
I went through a semester and one half of home economics in 7th and 8th grade only in the late 90's, early 20's and the same with wood shop. That's right, just middle/jr. high school. In home economics we learned to cook, sew (I was terrible at it by the way) and it wasn't until the second one that was more entrepreneurial that we learned to write checks. Everything else it seems you have to learn on your own or at home. I wasn't as bad with shop though from experience in boy scouts through various things like Pinewood derbies (like I would say with other things more than school.)
I agree, it would not be hard to do any of this. I even had a mental lists (before we had smart phone aps) and tried to budget money (minus tax which is often nebulous) when I would shop on my own. If you know simple math (multiplication, addition, subtraction and maybe division for price comparisons) you are able to get the list and prices and expect how much to pay.
I wish more practical living courses were offered to students. These used to be Home Economics if I remember correctly. Thought outdated by most, we learned to write checks and balance the account, cook simple meals, sew a little, shopping lists and price comparisons, and basic home decorating/cleaning, planting seeds. This was back in the late 1960's, middle school. By high school that stuff was all gone in my district and forget it being at college....it was sexist since boys didn't take this class. But I think everyone should know a little of everything, boys and girls, including how to deal with basic car maintenance and other "boy" things. Life skills are hard to come by these days but a curriculum for modern times wouldn't be hard to create or take much time away from other academics either. Beats some of the crap courses they offer nowadays.
A basic financial class would be fine and could be a class on its own . No one is bringing back sewing and cooking.
It has changed in the last few years, but nobody was considering the costs associated with college back in the early to mid 00s. It was completely off everyone's radar. There was a general feeling of "do what you like" and "go to the college you like the best". The financial aspects of things were never even discussed.
That's interesting. In my family and social circle, it was always about "choose the right major" and "go to the right school" for as long as I can remember.
A basic financial class would be fine and could be a class on its own . No one is bringing back sewing and cooking.
What? Cooking is a very important skill to know. I've been cooking and baking since I was 7. You have no idea how much money these abilities save my family. We pretty much never go out to eat because I can honestly make whatever it is better at home for far cheaper.
I can't sew to save my life, but I did learn at least how to sew buttons in my home ec class so I could repair some of my clothes. No point in throwing a perfectly good shirt or set of dress pants away just because a button fell off.
I wasn't a big fan of industrial tech in junior high, but I see where it had its place.
I took a class called independent living as a junior in high school that taught me how to get an apartment, make a budget, write resume/cover letters/interview, how to shop for value, how to read financial statements. I also took business law and that class was a literal godsend. Every student should take that. But they didn't and when I was in high school only lower rung students not going to college were put in those classes. I don't know what the assumption was. That the college bound already knew these things or wouldn't need these skills or what. But it seems obvious from threads like this one more college students could have used a few practical life skills courses in high school.
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