Should All Federal Student Loan Borrowers Have Credit Ratings?
Is a potential solution to many of the problems in higher education, namely that of student indebtedness, a risk-based pricing of federal student loans?
According to Michael Simkovic, Associate Professor of Law at Seton Hall University School of Law, a risk-based pricing model would (1) Send important price signals to potential borrowers about the prospects of certain majors, and (2) Send price signals to the university about the needs for and prospects of certain degree programs.
Giving everyone the same rate regardless of what they study is like assuming that there aren’t different risks involved with certain courses of study, or for example, that the prospects of a student who pays full tuition and studies art history is just as likely to pay back their loan as the student who has a half scholarship and studies Economics.
The main problem with such a model is that it runs counter to the idea that everyone in America should access higher education.
A risk-based pricing model would deter some students from entering college if doing so meant taking on a loan with an excessively high rate. I should say, some, might see this as a problem, while others would think this is certainly a good thing. This after all, is how most credit markets work–investors get compensated for risk, and borrowers borrow at a rate that reflects their creditworthiness.
So what do you think? Should college students have credit ratings?
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1941070#captchaSecti…
the idea that everyone should access higher education is retarded.
It just illustrates the flawed and superficial thinking of policy makers. Policy maker sees people with university degrees getting good jobs and reasons to himself that if everyone has a university degree, everyone will get a good job, which is incorrect.
Credit ratings are a great idea, people are dumb as shit when they chose their college and their major, pricing will guide people and punish stupidity.
Bro you can't even subdivide people based on their employment status when it comes to assessing credit worthiness; there is no way something like this would ever happen especially after they passed they CARD and Fair Lending Acts.
That being said, it makes complete sense.
Yes, college students should have credit ratings. No, it won't ever happen because the ability to pay back loans will start broaching topics no one wants to talk about (ie: certain people are far better investments than others).
The problem behind "higher education for all" is that it turns higher education into a requirement, which turns the industries supporting it (textbook publishers, education loan companies) into predatory agents due to the huge market created for their products.
Instead of publishing good books and competing to sell their product, publishers can now negotiate with schools for lower prices since the top-notch stuff will be more expensive. Similarly, loans no longer require a credit score to be approved, it's just a matter of getting it and being subject to the interest rates (which are variable in terms of inflation, but not any potential deflation, interestingly enough).
In short, the government needs to stay the fuck out of private industries and in this case, consumers (read: college students) definitely should have credit ratings.
The textbook publishers are the real winners. It costs almost nothing to print a textbook or run an online program, while they have an absolute monopoly in a class.
Then they reprint a new edition every couple of years to "update" the book. Had a lit class with exactly the same stories and excerpts, in a different order. Had a marketing class with the EXACT SAME CHAPTERS as the old edition with different questions at the end.
It's a shame Apollo owns Mcgraw-Hill or it would present an excellent investment opportunity. Margins must be absolutely fantastic.
People shouldn't taken out loans they know they can't pay back. That goes for any kind of loan, including education and home loans.
Oh, you're going to pay $50k a year to study gender studies? Don't borrow cauz you won't be able to pay it back.
Oh, you earn $30k a year and you want a 95% LTV sub-prime mortgage on a $1.5 million dollar home? Don't - you'll just screw yourself.
That being said, I do believe that every citizen should have a certain level of education. Today's education is tomorrow's economy. An educated population is necessary for any world power.
I'm sure I'm going to be in the extreme minority in this forum with my position, but I actually don't think this is a good idea because higher education isn't strictly a business. There is way too much access to higher education but we shouldn't neglect supporting subjects that carry a significant social importance without providing the economic benefit necessary to sustain themselves without subsidization, in this case in the form of equal debt pricing.
Almost half of all college graduates hold some sort of business certificate/diploma.. is that really the trend you want to continue? My biggest argument against this is: go to your average community college (no offense to anyone here if you went to a community college there are obviously exceptions). Would you really rather support the average dipshit sitting in that class than an art history major at an Ivy League? Sure art history isn't very useful but it's fucking important to maintain it at a high level. Not all higher education should viewed as an investment for the sake of financial returns, though in certain cases, I'm sure economic goals might align as they do occasionally with corporate social responsibility.
I feel I should disclose that I went to a state school, triple majored in business degrees and had about a third paid in scholarships so I'm pretty lower/middle of the road as far as how this personally would have affected me.
i fully agree that this is far from likely to be implemented, but it seems to me, to be by far the best solution to the federal loan glut. I'm kind of surprised that it hasn't gotten more press, but I guess I shouldn't be given the resistance from the "college for all" camp. Also, this seems to be one of those issues that politicians simply can't say too much about for fear of voter-loss. I also think an interesting byproduct of such a system might force colleges to reconsider some of the price-tags that they put on their degree programs as there would likely be less money to go around.
What would you guys base credit worthiness on? Does a dumb kid with rich parents get the same credit rating as a poor genius?
Unfortunately this would seem to be another, somewhat ethical problem with such a model. The rich kid would probably get the better credit rating. Despite the poor kid's career prospects, dumb-kid always has the bank of daddy to bail him out--i.e., no risk of default.
You would have to look at the following;
1 - University's overall academic standing 2- University's overall ability to have students land jobs after school 3- Student body's overall default rate 4- Default rate of students at the University in each major 5- The borrower's high school performance, including SAT or ACT scores 6- Borrower's current financial income and obligations 7- How much the borrower wants to be loaned 8- Does the borrower have a co-signer
Then this leads me to wonder what if the kid wants to change majors. Lets say he was a Engineering major when he took the loan out, but found himself and wants to become an Art major? How would that effect the loan? Would he even be able to switch majors?
The real problem with credit evaluation in this country is that we've become so PC that firms are no longer allowed to channel the significant intellect and capital they have to truly match consumers with the proper credit offering. Period.
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