Student debt reduction

I pose 3 alternatives to help reduce student debt:

1. Every student loan that is funded through a nonbank lender (e.g. Sallie Mae) should be able to be repaid with pre tax dollars and should come straight out of a paycheck like health insurance or social security taxes. In this scenario, the borrower wouldn't feel as much pain (paying a dollar with a dollar feels better than paying a dollar with 60 cents) and they'd repay the debt quicker. If student debt were the systemic problem it's indicated to be and politicians were serious about solving it, they would also consider netting some of the principal portion against tax obligation as opposed to direct stimulus. This would also be more effective for the US Treasury as sending cash today is less favorable than forgiving a receivable tomorrow. It's also more effective for the borrower as they retain more of their income. As a 2nd option, borrowers should be able to net it against their tax refund. Early in earning history, when refunds are common, having the ability to reduce a significant portion of the principal each year would move the meter, and decrease the subsequent monthly payments.

2. There are peer to peer options for student loans that allow people to make bets on students' futures. If you're borrowing for an advanced professional degree (lawyer, doctor), this makes a ton of sense because there's a high probability of a robust future income stream. I'd think differently about this for undergraduate degrees or advanced degrees in non-professional fields because the risk profile is higher. This would optimize funding and decrease the amount of total applicants.

3. The universities should take more risk in the market. Just as car manufacturers provide financing, universities could as well. They have access to capital at a low cost in the form of endowments or state aid, they have access to all necessary financial information for applicants by virtue of the application to the school and they have the ability to maintain direct contact with the borrower in order to properly service the loan. By shifting the risk to the universities, they'd be able to make tradeoffs between providing financial aid and lending to prospective students.

Feeling Inspired?

Submit an Idea


There are no comments yet.
Please Login  to comment.