Opinion: Cap college loans based on how much grads likely to earn in their field

A college student puts a job plea on his graduation cap. (AJC file.)

John Konop is a 25 year financial services industry veteran who was part of an executive management team that built six consecutive successful businesses. A Woodstock resident, Konop graduated from University of Cincinnati School of Planning.

There is now close to $2 trillion and counting in government-backed student loans. In November 2016, the Obama administration announced a $108 billion (with a b) write down, which means those loans are never going to be repaid. $100 billion would have paid for a lot of much-needed infrastructure projects — and that write-down is only the beginning.

The vast majority of student loans are government-backed. We, the taxpayers, eat the cost of non-paying loans. Today, 40 percent of government-backed student loans are behind on the payments.

College costs are out of control

Here’s a simple table comparing college costs and first-year salaries across two time periods (estimates include room and board and are for four years at a major public university, such as the University of Georgia or Ohio State University).

konop-chart

That’s a huge reversal. Four years of college used to cost about 60 percent of a graduate’s first-year salary ($12,000/$20,000). Now, school costs roughly 260 percent of their first-year salary ($130,000/$50,000).

You used to be able to work your way through college and/or pay off your loans while you were still young. Not so easy now. The numbers are even uglier for more expensive schools and for degrees with lower-paying job prospects.

What’s going on?

Several factors are driving this increase, including lower education subsidies from states. But the biggest driver is the availability of unlimited student loan money. Students can borrow whatever the schools charge, which means schools have no incentive to control costs. How would you like to run a business where your customers were willing to pay almost any price increase? Sign me up!

Proposal for rational cost control

We must change the incentive structure of our government-backed student loan program. I propose the following:

Degree-based loan caps: Students may not borrow more than a 150 percent of the average wage for the degree they are majoring in. For instance, if the first-year salaries for your degree is estimated to be $40,000, you cannot get a student loan in the government program for more than $60,000.

This proposal has three main benefits:

  • Forces universities to provide an education at a cost that graduates can comfortably repay
  • Forces students to think about the earning prospects of their degree
  • Dramatically reduces the amount of student loan defaults that taxpayers must absorb

Again, this would only apply to government-backed loans; not regular, private loans. Please share this with your friends and family, we must demand your congress person enact a bill that puts controls in place.

 

Reader Comments 0

18 comments
JKonop
JKonop

This is not to attack one party, only  to point out, that many in both parties, are also profiting from this on our dime!  NBC: ...................But Trump isn't the only one who has profited. Over five years, former president Bill Clinton earned $17.6 million from the world's largest for-profit education company, Laureate Education, Inc. In his role as "honorary chancellor," Clinton has traveled the world on Laureate's behalf, extolling the virtues of the school.


And some two dozen former and current students at Laureate's flagship school in the U.S. — an online, for-profit school called Walden University — told NBC News they feel victimized by the kind of practices Clinton has promised to fight. A 2015 study found Walden students had one of the highest debt loads of any school in the U.S. "We pursued [our degrees] because we wanted to be successful and not be put in poverty," said Sondra Beall-Davis, a current PhD candidate at Walden and a former corporate consultant, who now owes over $200,000 in student loan debt http://www.nbcnews.com/news/us-news/hillary-blasts-profit-colleges-bill-took-millions-one-n636786

ChessMaster
ChessMaster

For undeclared majors, how about limiting the loan amount to a percentage (90%?) of the amount required to attend the state's flagship school? This would put downward pressure on the expensive private schools while helping to control their overall debt.

liberal4life
liberal4life

I don't have any statistics, but a good portion of first-year students (at 4-year colleges) are "undecided" about their majors. In addition, many students change their majors - often multiple times.

dcdcdc
dcdcdc

At this point, the colleges/universities get all the money, and have zero responsibility for it getting paid back. The student is responsible, and failing that, the taxpayers get screwed.

Simple solution to help keep this from becoming an even bigger problem. Put the colleges on the hook for some portion of any student loan defaults. That way, they will stop accepting students into bogus "degrees" that dont' help people get real jobs.

This change alone will start resolving the issue now - and keep paying dividends, as college administrations realize they actually have responsibility - and don't just get "no questions asked" money

liberal4life
liberal4life

@dcdcdc 

I'm not sure how to put colleges on the hook without that cost being shifted to future students. On the other hand, something like limiting the number of students who can get federally backed student loans based on default rates may be an OK idea.

historydawg
historydawg

This defies the historical purposes of college education, but I am certain the author did not learn much about the human experience at the Cincy School of Planning. Job training, as the author wants, is only one part of a college education. Folks who serve the community, make the world a better place--whether through art, music, teaching, social work, etc--do not deserve to be punished because they see and pursue value other than an economic impulse. We must make policy that sees the value in talents, knowledge, and skills in fields that don't equate to economic opportunity, or even better, why can't we construct an economy that values humanity or at least a higher education funding model that makes folks like the author accept their responsibilities to posterity?

AlreadySheared
AlreadySheared

@historydawg


"We must make policy that sees the value in talents, knowledge, and skills in fields that don't equate to economic opportunity, or even better, why can't we construct an economy that values humanity"


What a lovely way to say 'I want everyone to subsidize stuff that I think is important.'


MaryElizabethSings
MaryElizabethSings

We must be perpetually aware if we are creating a world based on an egalitarian understanding of humankind or a hierarchical and class-based understanding of humankind based on power instead of based on love and equality. One view leads to destruction of us all and the other leads to peace and redemption.

We are slowly but surely creating the kind of world that our progeny will inherit tomorrow by our seemingly mundane choices today.

AlreadySheared
AlreadySheared

@MaryElizabethSings "From each according to his ability, to each according to his needs."

Talk about love and equality - any society that follows the above dictum should be a paradise on earth, right?


Queen of Ctown
Queen of Ctown

Wonderful ideas.    I've been glad to see that some of the worthless for-profit "schools" are finally being called to account and even being closed.   This should also be done to the so called non-profits.  They're not really non-profit when those in charge are draining millions in salaries and perks.

Infraredguy
Infraredguy

Who cares, the Nation needs all the psychology majors it can get, they make good waiters and bartenders

Ychromosome
Ychromosome

Your government owns the debt. See the problem?

JKonop
JKonop

...........Among the 4,000 colleges and universities in the federal database, the Creative Center in Omaha, Neb., a for-profit school that offers a three-year bachelor's in fine arts, had the highest average debt load, at $52,035. Median pay for graduates of the school with five or fewer years' experience is $31,400, according to payscale. http://www.wsj.com/articles/SB10001424127887324432004578306610055834952

Ychromosome
Ychromosome

This is not a bad idea. It would also be beneficial to eliminate the tax credit for tuition paid for by using student loans. As things now stand, a student can borrow and get a sizable tax credit for paying the cost of education, even though the only payments they have made are from loans. Some students see this as a windfall - they're paying nothing for college and they're getting hard cash from Uncle Sam at tax time. If we are going to give tax credits, then give them as the money is paid back. It's a bit sad to see a student getting thousands in cash from the government for being enrolled in some for-profit school with zero career opportunities, all the while knowing that the same student will be tens of thousands in debt for years (perhaps forever) and may well have any future tax refunds withheld and their wages garnished. 

JKonop
JKonop

FYI you might find this interesting! FROM HP: ..........That is, until Uncle Sam knocked on my door wanting his money back...


Between my bachelors in communications and what eventually became two masters degrees - and two small kids in tow - I was up the creek in debt with student loans at a heart attack amount of over $109,000! When I realized how much money I owed the Department of Education, I pulled a Fred Sanford, clinched my bosom and started hollering for some broad named “Elizabeth.”
My self-entrapment in my  fantasy of a great job and a great life simply because I got some nonsense masters degree on my resume was hands down the dumbest, I ever got myself into. I didn’t want to have financial set backs like my parents and here I am hoping to hit the lottery or nail a generous sugar daddy..................http://www.huffingtonpost.com/monica-leftwich/100k-student-loans_b_7968752.html

Lexi3
Lexi3

The enormous rate of increase in the cost of tuition is directly a function of government efforts to "make college affordable." capping government guaranteed loans is a good way to slow the rate of increase, though the real increases will only slow significantly when access to unqualified students is curtailed.