The problems with education are two-fold: it saddles students with exorbitant debt, and the quality of education has suffered as a result. Let’s discuss the financial aspect first.
The government (and a few private lenders) holds $1.5 trillion in student loans. These currently cannot be discharged in bankruptcy. The government is clearly relying on this stream of cash flows. The solution? Make the loans defaultable, but tread carefully. Here is my proposal:
- Allow borrowers to gradually default on their debt. You could allow 10% of your outstanding student debt to be defaulted on every year, up to a limit of $10,000. This would put yearly defaults at under $150 billion.
- Offset this with tax credits the borrowers would otherwise receive.
- You would also need to adjust the tax rules on claimed exemptions on the W4 to avoid shenanigans.
I am sure there are other adjustments that would need to be made to the tax code in order to prevent crafty accountants from gaming the system, but the overall plan should work. The tax credit savings should more than offset the lost revenue stream. The other added benefit is that it would free up income for the borrowers, which should generate taxes from increased spending.
Now the government should realize it shouldn’t be in the student loan financing business. When you can’t force borrowers to pay indefinitely, underwriting is a thing and there is very little government expertise in that. Underwriting would fall back onto private lenders and most likely the schools themselves. Now that the lenders are facing real default risk, they will get much smarter about who they give money to. PhD’s in interpretive pottery will become a thing of the past. Fewer people will go to college, which is a good thing.
If people aren’t going to college, what will they be doing? More trades is the most likely answer. If you’ve ever needed a plumber or electrician, your know that these people can now charge fairly large sums of money, sometimes just for showing up. Use supply/demand mechanics and drive down the price of necessary maintenance.
Now the problem of quality of education. Let us assume that universities are fixed, and instead of stretching things out to graduate school, you get all you need in the bachelor’s time frame. That means you also need to improve the knowledge students receive through high school. The main problem with high school is that it tries to be everything to everyone. Instead, have a tiered system.
The first tier would be geared towards the top third of students, who are likely to go on to university and pursue studies in STEM, law, finance, etc. Their earning days are at least 4 years away and they are making a significant investment of time and money in their future vocation.
The second tier would be for students who know they don’t want to become white collar workers or go to university, but still want to do something technical, like electrician, plumber, etc. They won’t make a living right after high school, but it won’t be more than a couple of years.
The third tier would essentially be vocational schools, such as barbers, beauticians, sanitation workers, etc. High school graduates would come out with marketable skills, and be able to start working and making a decent living upon graduation.