Fixing student loans: let's give the colleges some skin in the game
Alex J. Pollock | The American
January 26, 2012
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  • Due to the guarantees by the gov't, will #student #loans create something similar to the #housing #bubble ?

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  • Colleges should place some of the risk of loans on themselves before placing them on #taxpayers

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  • "Skin in the game": If the originator retains some #credit risk, we can control excess #debt expansion

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There are provocative parallels between student loans and the mortgages that created the disastrous housing bubble. In both cases, the government promoted plausible goals- higher education and home ownership-to excess, through the overexpansion of debt to levels beyond the repayment ability of a large percentage of borrowers. In both cases, the government guaranteed much of the credit, putting the ultimate risk of bad debts on taxpayers. In both cases, debt expansion drove the price of the object being financed (colleges and houses) to heights sustainable only if debt could always be increasing. In mortgages, it could not, and the subsequent collapse raises the question: will there be a similar outcome with student loans?

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Alex J. Pollock is a resident fellow at AEI

About the Author

 

Alex J.
Pollock
  • Alex Pollock joined AEI in 2004 after thirty-five years in banking. He was president and chief executive officer of the Federal Home Loan Bank of Chicago from 1991 to 2004. He is the author of numerous articles on financial systems and the organizer of the “Deflating Bubble” series of AEI conferences. In 2007, he developed a one-page mortgage form to help borrowers understand their mortgage obligations. At AEI, he focuses on financial policy issues, including housing finance, government-sponsored enterprises, retirement finance, corporate governance, accounting standards, and the banking system. He is a director of the CME Group, the Great Lakes Higher Education Corporation, the International Union for Housing Finance, and the chairman of the board of the Great Books Foundation.

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  • Phone: 2028627190
    Email: apollock@aei.org
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