As is normal with government, they make changes to how things have been done in the past, throw some money at it, and when those changes backfire they simply throw more taxpayer money at the problem without getting to the root of the problem and fixing it. The student loan issue is just such an issue.
The current status
The U.S. Supreme Court ruled that the Biden administration’s attempt to cancel all or a portion of the debt owed on student loans was unconstitutional. Yet Mr. Biden is trying a new approach to circumvent that decision, ignoring future recurrence of this fiasco. Since there is an absence of common sense in D.C., perhaps our legislators would be open to some suggestions.
Reducing the Amount of Loans to Ensure Repayment
To purchase a house with a loan, I have to deal with a lender that is subject to government regulations. An appraisal of the house is required in order to meet those regulations. as well as certain qualifications to ensure that I will be able to repay the loan.. If it is some kind of government backed loan, the government is not guaranteeing the loan, just the portion that cannot be recovered through a foreclosure process. They want to know that the house and the borrower will support the loan amount.
When I find a house to buy and it is appraised at $400,000 with a conventional loan requiring 20% down, and I am qualified financially to afford it, the maximum loan that I can obtain would be $320,000. If another buyer is offering $440,000, I will need to come up with an additional $40,000 out of my pocket. The lender will not offer to cover $32,000 of that difference, and I will need to make it up myself.
Furthermore, the fact that I want to live in Beverly Hills instead of Culver City has a bearing on the price of homes. Beverly Hills will necessarily be more expensive, with more prestige, but the houses serve the same function: shelter.
Apply Qualification Determination to Student Loans
Now, let’s take this analogy and compare it to colleges and universities and their costs. The government should require an “appraisal” to determine the viability of repayment of the student loan based upon the major or program that the student is undertaking. Insurance companies do actuarial research in order to determine what to charge for life insurance. A degree in archeology doesn’t have the same value as one in computer engineering. Whereas, there are many analysis that have been prepared estimating the level of income that can be expected from specific majors or programs. These information must be taken into account for qualification and loan amount purposes.
The location or prestige of the school could also be considered in determining the maximum amount of a loan. The reality is that they all serve the function on providing an education to students. The actuarial analysis can the difference of potential incomes for graduates in the same major or program between Harvard vs. UCLA vs. Cal State Chico. Colleges and universities must adjust their tuition to reflect the ability of students to repay the loans based on potential income. If they refuse, then it will be up to the student and his or her parents to make up the difference.
Conclusion
The colleges and universities will either adjust their tuitions, or have fewer students. It’s commonly referred to as the law of supply and demand, which only gets broken by the government. Undoubtedly by using taxpayers’ money. Provide your comments below.
