Malay – When Congress passed the Higher Education Act of 1965, it established a system to fund higher education for low-income students through low-interest loans. I could already afford college.
But skyrocketing tuition costs over the past 40 years have reduced the number of families who can afford a college education, forcing more and more students to rely on student loans to pay for their studies.
Eran Guse, Ph.D., associate professor of economics at Murray State University, says the biggest problem with student loans and tuition is related to the education itself, not the benefits students receive from it.
“They have huge student loans that they can’t pay back because it was based on the education they received but turned out to be basically useless in the real world,” he said. “I wish all colleges had information like, ‘Here are all the degrees you can get from us, and the average starting salaries of past graduates.'” The information may be useful for students who are (selecting) from several different majors. “
Guse believes that many people struggling to pay off student loans were not given that information and thought a degree would lead to a well-paying job.
“That’s why they owe thousands of dollars in student loans,” he said. “Now when they graduate, there’s a lot of money that they have to pay each month. So they have to deal with that, and it’s hard.”
Several economists, including Guse, have proposed scrapping the student loan system altogether in favor of a model known as an Income Share Agreement (ISA).
“Cheap loans lead to more tuition fees, which leads to more loans and creates this huge problem for all these individuals who are paying for it. Don’t pay upfront, the great thing about income share agreements is that anyone can come here, you can be poor or you can be rich, and they don’t have to pay it upfront. There is none.”
In the ISA system, students do not pay tuition fees. Instead, upon graduation, the student enters into an agreement with the university to pay the university based on a specified percentage of their income for a specified period of time.
“It’s like buying a stock,” Guse explains. “You buy stocks to get a piece of the profit. Here, universities invest in students and give them the education they need to succeed in the market.”
As a result of growing concerns about funding, universities tend to focus too much on graduation rates rather than how students perform in society after graduation.
“We want them to succeed because we have[alumni]who come back and throw money our way. “If there is a direct reason to give these students the best possible job and the best possible education, it is If their college payments were determined by their income, it would provide an incentive for us to push them into the majors that make the most money.”
For Murray State University, Guse pointed out that state restrictions on tuition increases are the biggest cause of current budget problems.
“They said they could only raise tuition fees by 3% in the last two years. he said. “I think the state government really hurt colleges here in Kentucky by saying they can’t control tuition.”
Payouts are based on a percentage of alumni’s earnings using the ISA, so as your income increases, so will your payouts. In other words, colleges make more money as they progress in their careers. In addition, personal income tends to increase over time to account for inflation as most companies offer annual cost of living increases.
“With this income sharing agreement, the money coming in will be related to inflation and growth,” Guse advised. “
He recognizes that without student loans, low-income students will need scholarships to help pay for living while in school, but that’s a small price to pay in the grand scheme of things. Ultimately, Guse believes that universities could actually be strengthened through ISA. Because increased funding will facilitate the recruitment and retention of quality faculty, which in turn will attract more students and increase the competitiveness of the university as a whole.
However, a notable concern associated with the move to ISAs is that universities will be less inclined to offer programs in areas such as the arts that are certainly less profitable.
“Maybe we’re overinvesting in them,” Guse admitted. “Even my idea of providing income information to these students could lead to a decrease in demand for these particular jobs. If there’s no demand for it, that’s a problem.
But money should not be the only consideration when a student chooses a course of study. Career satisfaction remains important. You have to love what you do. For some, that means pursuing a career in the arts. Therefore, the demand for these programs will never go away.
The bottom line is that higher education is not sustainable at this cost, said Guse. Because it’s too expensive for them. I think an income share agreement will give these students more options. “
The economist’s advice on student loans
Elan Guse, associate professor of economics at Murray State University, is the father of three high school students. Here are some of the student loan advice he gives his own kids.
1. First and foremost, understand that you have to pay it back.
they are 18 years old. They don’t necessarily think like older people because they haven’t experienced life,” Guse said. “We have to teach them how to plan.”
2. Next, figure out what you want to do, but be mindful of your potential income from majors.
“I think a lot of students go to college. As a college professor, I see this. They go to college and say, ‘Oh, I liked ‘x’ in high school.’ So I’m going to major in this,” said Guse. “They don’t think about how many jobs there are out there: ‘Am I going to get a worthless degree and end up managing a fast food restaurant or something?'”
3. Money shouldn’t be the only factor, but it should be.
“You don’t want to go to college and live in poverty and be unemployed for the rest of your life,” says Guse. After you’ve laid it out, here’s how much you’re going to make. This is the amount you will have to pay with your student loans. do you really want to “
4. Read the fine print – Student loans aren’t forgiven in bankruptcy.
“When I took out student loans, I didn’t know that bankruptcy wouldn’t get rid of them,” Guse admitted. “They are filling out a ‘free money’ form. They are told they need to do it, either they don’t have enough money or their parents don’t have enough money so they have to do it to go to college so this They have to do it, so they don’t really read the fine print. “
5. Understand that tolerance has consequences.
“I don’t think they understand that they might decide on a moratorium even after they graduate. We are doing it,” said Guse. “People who are early in their careers and may not be able to afford it will put up with it and the future will be even more difficult.
“They say you have to go to college these days. “Many people are successful without going to college, which is actually good news.”