Student Funding Ideas

By KyleH Comments (12) / Email this page » / Leave a comment »

So Democrats are proposing to cut interest on student loans. Color me unimpressed. It is just another way for them to throw money at a problem. What we need is a conservative, market-based solution. We already have half in place through student loans. Those loans, however, need to be tied to results. The federal government can still guarantee that students will get loans and interest rates can be lower than other loans, but the interest should be tied to loan repayment rates of each individual university and (possibly) majors at each institution. This will give feedback to students and should weed out the weaker educational establishments. Another idea for student funding would follow a familiar business practice: the stock market. Student stocks will be sold again based on university and major. We could even have mutual funds for the ivy league or groups of majors like engineering. In return for funding students would be required to pay a percentage of their earnings (based on gross income in tax returns) for a specified number of years back to the stock holders. This dividend is payable whether their job is based on their education or not. Students would not have to worry about being dragged into debt because it is based on earnings, not anything they "owe". Of course there are a lot of details to be worked out, but the market would only be regulated by the government and not funded by it.

If I were in industry, I would love this. It requires two things from a school so that they develop a good fund track record.

a) The students can get jobs in well-paying firms.
b) They succeed there.

I actually just thought of another reason to like this. Who in the heck would buy stock in a Diversity Studies or Peace Studies Department?

I thought of a good reason to detest it as well. Who would ever buy stock in a music or philosophy department either?

2006 is done, 2008 is another day and another fight

"I thought of a good reason to detest it as well. Who would ever buy stock in a music or philosophy department either?"

People could use the market as a way to support "unprofitable" majors, or they could just set up good old fashion scholarships. This is an additional way of funding, not the only way.

My father believed in education. With life insurance, personal property, and various investments he checked out with an estate of something over half a mil. He also had about 40 descendants.

Rather than cutting us all checks, which most of us would have wasted, he set up a trust fund to pay for post-secondary education. But having tried to put his children through school, he had learned something important: the kids did a lot better when it was their own money on the line.

So he set up his trust fund as a reimbursement: The student (and not a parent) must save up, or borrow for the first semester. Upon successful completion (D or above), the trust repays the student, who can then use the reimbursement to pay the next semester. On graduation (or the last successful semester), the student keeps the reimbursement, or uses it to pay off that one-semester loan.

The trust reimburses tuition, books, and basic living and shcool expenses. It doesn't pay for transportation or entertainment, both of which Dad considered immoral wastes of time for students.


Evil men hide from the truth, but good men stand upon it.

My parents' attitude was, "It's your education; you pay for it." Of course we knew that if things got really tight, they would step in. I only took them up on it once in my four years, and then it was just enough for some new jeans. The four of us kids made it through by part-time jobs, savings, scholarships, student loans, and (in the case of one brother) Air Force ROTC. (He is career Air Force and would have gone that route anyway.) We ended up with a computer programmer, industrial engineer, B-1 pilot (with computer programming skills), and a Ph.D. physicist working in biomedical engineering.

Assuming the feds have to be in the business of funding education at all, which unfortunately seems like it will be the case from here until eternity, market pricing based on area of study would be a massive improvement.
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"I am a great believer in luck. The harder I work, the more I have of it." -- Thomas Jefferson

cutting the interest rate for student loans equate to "throwing more money at a problem"?

Who do you think pays for that subsidy? If they were left to the market the rates would have to be much, much higher because the fundamentals of the loan are extremely risky. To test this out, go to the bank and tell them you want to borrow $50,000 without collateral that you plan to blow without accumulating any assets. Then tell them you don't want to make any payments for several years and see what kind of interest rate they want... if they'll even give you the loan.
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"I am a great believer in luck. The harder I work, the more I have of it." -- Thomas Jefferson

if that were how student loans work. Federal student loans are disbursed at the beginning of each semester. The funds are directly transferred to the school. If there are funds in excess of tuition, rare to never, those funds are put into the student account.

Stafford loans are unsubsidized. The Perkins loans, which are targeted to the most needy are subsidized, but it seems like a good investment, certainly compared to alot of other things the federal government spends our money on.

Here's a link for more info on the loans.
http://www.finaid.org/loans/studentloan.phtml

Federal student loans are disbursed at the beginning of each semester. The funds are directly transferred to the school.

And what's your point? You are still blowing those funds on something that cannot be repossessed should you fail to get a job with your brand new Peace Studies degree (or even worse, an uncompleted Peace Studies degree) and are unable to make payments on the loan.

Stafford loans are unsubsidized.

The fact that they further subsidize the rates on some loans doesn't make the other ones unsubsidized. You aren't getting a rate several points under prime on a loan that most definitely isn't even close to prime quality just because the banks are feeling charitable. And it isn't the same rate at every bank because they all happened to decide on the same rate. It's because the market isn't setting the rate. The government is. And guess who has to make up the difference between the market rate and the set rate? The taxpayers.

The Perkins loans, which are targeted to the most needy are subsidized, but it seems like a good investment,

Government spending isn't an investment. It's spending. And I'm still looking for where this is laid out in the constitution as a responsibility of the Federal government.
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"I am a great believer in luck. The harder I work, the more I have of it." -- Thomas Jefferson

to my mind. Especially considering some of the other things our government chooses to "invest" in.

A lot of the money being spent in education is not well spent. Have you seen the types of courses some of these colleges and universities are offering? Some of the people going into college shouldn't be there. They would be better off doing an apprentiship in a manual skill instead of wasting four years learning things that do not suite their talents. And then there are the diploma mills that leave students in debt without a job after four or five years of junk classes.

Until we cut the subsidies, prices will only go up. As Reagan reminded us: If you want more of something, subsidize it. Right now, all these loans and grant reduce or eliminate the need for a student to shop on price, and therefore drastically reduce any price competition among schools.

'Need-based' financial aid in fact only exacerbates the problem. After all, the higher the cost, the more you 'need,' and therefore the more government money the school gets!

We're in the same bind with college education that we're in with medical care. Subsidies have dug us into a deep hole with respect to a functioning market, so our only hope is to gradually climb our way out by gradually reducing the subsidies.
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It is much more important to kill bad bills than to pass good ones. -- Calvin Coolidge

 
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