[Coding_Cat]

There is a rather simple way of stopping the ever growing tuition bubble, one that is employed in the Netherland, but I feel like it won't be popular in the US: Cap the tuition a college is allowed to charge and restrict them from charging additional fees.

[ashelmire]

Actually, the simplest way to put downward pressure on tuition in the US is to allow the loans to be dischargeable in bankruptcy.

[TheSoftwareGuy]

Maybe make them dischargeable 10 years after graduation/disbursement? This might help avoid people from planning to declare bankruptcy immediately out of college to get rid of the debt, and 10 years later most people would have some assets to go after during bankruptcy proceedings

The upside is that lenders would still have to consider whether the borrower is actually likely to be able to pay back their loan

[TrinaryWorksToo]

Won't people then plan to go bankrupt? Although perhaps that will allow a better equilibrium.

[iguy]

Here's another idea for a better equilibrium: Cap non-dischargeable loan payments at (say) 15% of taxable income, written off after 20 years. Then they can never become an impossible burden, and lenders will become very picky about what kinds of study they wish to fund. Which will in turn provide more useful information to those applying, instead of just glossy brochures.

[ashelmire]

Yes, which is exactly the point; so banks/gov will lend less, to people they think will pay it back. Which means schools will have to charge less, particularly for non-profitable majors.

[hn_throwaway_99]

No, being bankrupt is definitely not an enjoyable state to be in, even is your debts are discharged, though.

What is does mean, however, is that no sane entity will then continue giving out loans for someone to go $75k in debt to go to cooking school.

[hobo_mark]

You mean culinary science !

[rjf72]

Like you mention it'd simply create an equilibrium. People would declare bankruptcy when the discomfort of repaying the loans exceeded the discomfort of declaring bankruptcy. If I lend you an unsecured $10 which you then expend on something personal and materially intangible (such as an education) you're not going to declare bankruptcy to get rid of that $10 debt. If I lend you an unsecured $1,000,000, you almost certainly would declare bankruptcy to get rid of that debt. So we can say that my risk (as a lender) in lending you $10 would be 0%, while my risk in lending you $1,000,000 would be 100%. There's some curve there where I maximize my profit:risk in the middle that depends on the specifics. Like any loan it now becomes the job of the lender to assess that risk, determine eligibility, and profit off sound financial decisions - or, themselves, go bankrupt with poor financial decisions.

I think this would be a vastly better scenario simply because all interests would be aligned. Universities would have an incentive to keep prices reasonable because lenders would want to keep the total amount lent per individual relatively low. Universities would also have an incentive to ensure students would be likely to be able to comfortably provide for themselves after graduation because, once again, lenders would have an incentive to ensure that the people they're lending to will be able to comfortably pay back their loan once they graduate. And so forth and so on. In the end, we'd likely reach a scenario where it'd be relatively easy to obtain loans for majors likely to improve your ability to comfortably provide for yourself, and relatively difficult to obtain loans for majors likely to leave you with difficulties providing for yourself.

A world where anyone could pursue education, on public dollar, on any topic they'd like, is an interesting idea. I look forward to seeing the outcomes now that such systems are truly starting to be put to the test. Many nations are facing substantial pressures on their social systems such as aging populations, increasing costs of medical care, reduced fertility rates, immigration of lower earning individuals, etc. At the same time, the face of the job market is constantly changing such that an ever larger share of all desirable careers require some degree of educational specialization to even get your foot in the door. These are relatively new problems and I'm not entirely convinced that utopic ideas of decades past will remain viable in the decades to come - though I certainly hope to be proven wrong!

[iguy]

The problem IMHO is that the "discomfort of declaring bankruptcy" is hard to predict. Right now it caries some social stigma I believe, but that could change. I don't think that's a great mechanism for deciding who pays back the loan and who doesn't... and my suggestion in all such threads is that this should be tied to future income, which the lender will then become very interested in predicting.

[TrinaryWorksToo]

Does declaring bankruptcy increase interest rates for the debtor? That could be enough incentive for it to be discomfortable

[iguy]

That's a point. I bet it does right now.

But if it became commonly done after graduating, then I imagine it would not predict much about whether you will pay the mortgage on your house (which is anyway secured by the house) and so lenders would soon not care.

[AngryData]

It works for our president, maybe the government will learn something when not only the wealthy can get away with it.

[sillyguy123]

Probably - it would change the dynamics between pricing , companies providing the financing and universities.

How I’ve no idea. Right now it’s kinda risk free to give loans out so that would change. Maybe then less cash is made available and universities have extra capacity.

[groestl]

Yes, or, if you want to go even further, introduce a special bankruptcy after X years, just for tuition debts. Which is effectively the idea of the IBR (income-based repayment) scheme, as I understand it (I'm not US-American).

[p1esk]

Why?

[ashelmire]

See the other comment:

Banks will lend less, to people they think will pay it back. Which means schools will have to charge less, particularly for non-profitable majors.

[prklmn]

The govnement is the creditor, not the banks like they would be for a traditional loan.

[ashelmire]

Hmm, I didn't realize that federal loans were the overwhelming majority of the student loans (I guess the pseudo-governmental status of Sallie Mae and getting federal loans serviced by banks was a bit confusing). That does complicate matters, and suggests that universities are enjoying the government guarantee of funding to increase costs. Making them dischargeable in bankruptcy would mean the programs would have to change.

[jogjayr]

I agree, but I don't think it should be retroactive i.e. only new loans are covered. Banks will start pricing them like personal loans if they're dischargeable in bankruptcy, so it would not be fair that people with more favorable terms obtained earlier are able to take advantage.

[wutbrodo]

I think part of the reason that the US is hesitant to take approaches that constrain universities' ability to operate based on other countries' actions is that no country has as many universities of as high quality as the US does, to the massive benefit of both the country and the world.

There's undoubtedly tons of waste in universities' functioning, but I don't blame policymakers for treading lightly when it comes to constraining their operations in any significant way for fear of killing the goose that lays the golden eggs, as opposed to simply the baseline ideological skew towards less direct regulation of businesses.