Good Idea: Slash Government-backed Student Loans

Why is the price of college going through the roof? They could be rising due to increased costs. Or they could be rising because that is what the market will bear.

Mark Cuban proposed this recently, and I think he’s right. The government keeps throwing more money to students. Awash with cash, those students then go to school and spend it. With plenty of eligible students, the schools simply raise rates, the government loans more, and the cycle repeats. Shall we stop the madness? Stop giving out massive government student loans and this problem could evaporate entirely.

Here’s a fun info-graphic about college loans.

And here’s Mark:

3. Limit the Size of Student Loans to $2,000 per year

Crazy ? Maybe, maybe not. What happened to the price of homes when the mortgage loan bubble popped ? They plummeted. If the size of student loans are capped at a low level, you know what will happen to the price of going to a college or university ? It will plummet. Colleges and universities will have to completely rethink what they are, what purpose they serve and who their customers will be. Will some go out of business ? Absolutely. That is real world. Will the quality of education suffer ? Given that TAs will still work for cheap, I doubt it.

Now some might argue that limiting student loans will limit the ability of lower income students to go to better schools. I say nonsense on two fronts. The only thing that allowing students to graduate with 50k , 80k or even more debt does is assure they will stay low income for a long, long time after they graduate ! The 2nd improvement will be that smart students will find the schools that adapt to the new rules and offer the best education they can afford. Just as they do now, but without loading up on debt.

The beauty of capitalism is that people like me will figure out new and better ways to create and operate for profit universities that educate as well or better as today’s state institutions, AND I have no doubt that the state colleges and universities will figure out how to adapt to the new world of limited student loans as well.

Finally, the impact on the overall economy will be ENORMOUS. There is more student loan debt than credit card debt outstanding today. By relieving this burden at graduation, students will be able to participate in the economy

2 thoughts on “Good Idea: Slash Government-backed Student Loans

  • October 16, 2011 at 10:59 am

    Mike, as a new grad, I must admit that when I saw the title of this post in my feed, I groaned because I essentially financed my education via scholarships, grants, and yes – government-backed loans. But the argument you lay out makes sense. I think the transition would need to happen gradually since most colleges are already very tight on money, so they’d need some time to scale back on spending.

    One point from Mark that stood out to me was, “By relieving this burden at graduation, students will be able to participate in the economy.” I was fortunate to obtain a fairly high-paying job after graduating, but since I’m ~$30k in debt, I’m paying financial institutions (and the government) $1750/mo. That’s well over the sum of the minimum payments, but since their interest rates are higher than what I’d likely make in the market, they get almost all my discretionary income. That’s $1750/mo that could otherwise be spent on investments or on goods/services.

    Anyway, thanks for writing. I’m a happy user of Chrome and I’m glad to see that SPDY is gaining some traction. Keep up the good work!

  • October 23, 2011 at 9:34 am

    I remember graduating from college was a big then; it meant something upon graduation. Today, employers think nothing of it, as they are now looking for MBA’s.

    Though I have a college education, NOTHING beats experience…nothing. College kids are sucked into the notion of graduate and get a good job, but no one ever mentions the responsibility of paying off the loans, etc.

    I too agree that limiting the loan cap would do a number of things…reduce tuition, reduce the number of bad debtors, and weed out those who are not mature enough for college. This will undoubtedly have an immediate impact, but something does need to change.

    It’s funny, after a college degree, etc., I find myseldf doing something that only requires hard work and energy to start…


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