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Greg Ip (WSJ, Student Loans) 9.17.15

Sep 17, 2015|

Greg Ip (WSJ, Student Loans) 9.17.15 by The Financial Exchange

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Great yet is that chief economics commentator commentator for the Wall Street Journal is also the author of a book called foolproof. And he joins us now to talk about his article that got posted yesterday in the Wall Street Journal about student loans I don't Greg. Very good with so what's a book about it before we get into the student loans story. Welcome book about why we had things like put into crises forest fires and floods and it basically says. Has got a lot of these other result but trying to make the world more safe from disaster and it encourages people take more risk and Livan more dangerous places so we just end up with bigger disasters it's about the human condition. Good good and it is that Amazon. Yes you William pre order on Amazon or Barnes & Noble dot com or a bright spot a web site it'll be in stores on October to October 13. All right foolproof we'll have gone right before it goes be read before comes out as that I look at thank you let's talk what you student loan article. Her I read this morning and is around 530. And I said this guy's got it on the ball. One and things that you suggest. Is that student loans should be treated differently based on the college or university in the course of study that you're engaging. Yet the big part of trying to make here is that everybody paid exactly the same interest rate to get exactly the same treatment from the student loan program irrespective of was that what college at Christmas and ending what program that president attending or how well prepared that prisoners for college and that's the despite the fact that we know things to eat enormous amount of data including an excellent new study that just came out last week. But certain type of students and colleges have much higher default rate on those loans so now let's let's back up for a second. We have a government student loan program for reason which is that we know there's a lot of kids that there who would really benefit from going to college but they came from disadvantaged backgrounds they don't have the money. Where the family support to get ecology and make it through. And they deserve help. But we ended up with a program that basically has no market signals whatsoever that give. You know the colleges or between any intent is to give those kids in the program that they have a good chance of finishing and then going on to get good paying work from. Attorney. Greg when you look at this one of the questions that I have is let's say that you do go along and say okay we're gonna have different interest rates in different terms of payment depending on things like college major courses study and so forth. In doing that don't you inherently change the dynamic where you potentially over supply some of those majors that right now our productive and actually increase the default rates there. Well while we have right now is just the opposite essentially you can get exactly the same. Whether you're pursuing unity about a degree in engineering or bachelor's degree in art history you get the same amount of money. And it came interest rate depending on your personal characteristics even though we know that your income prospects are eggs are very very different from committing those two different majors. Now if you look from a relatively well lot background and you really just one. But this study what you want and that is completely your right and ought to be programmed it helped yet or not. But for a lot of these kids who do not have Stanley sport in our great risk of not personal. Hardship if they can't pay back those loans. It actually not doing him any favors to let them bury themselves in debt to pursue a program that has no hope of generating the income. I can pay that back so what we're asking what I'm suggesting here can be very simple is that. Perhaps with the federal government should actually take into account. The net income that the student hope you can composite which Spector earned from that program when deciding how much debt they should be. Allowed to take on. But secondly why not have the call to have some skin in the game. A bad throw that Ali great that's what I wanted to get ahead yeah you know these colleges. The especially law schools you know law schools now are recruiting kids and teaching them how to default on their student loans and that's wrong they should be they should have some skin in the game. And what we've seen is that for profit colleges have boomed in recent years and I don't want this to be of that criticism of for profit college of course they because they do a lot of good things. Through innovative. They were scared to admit students went and got Community Colleges didn't have enough room. And they serve and under and offered an underserved underprivileged population. You don't wanna crackdown and in a way again to cut off access to kids that really need to help the most. At the same time though. Creek instead of to that they are not trying to charge as much as decayed student at the borrowing capacity will bear and that he instead invite them to get beaten to. Finished the program and go on to good. 22 good paying work. What we can do that for example and determined that it doesn't want idea so it can make sure that like freaked out of the federal government only guarantees like I think eighty or 90% of the loan. Lone bright and ecology guarantees the other part and that leader in it together indicated default. That darn right. I look back. At the end of the whole article I think that was your best idea Greg. Yet economic upon final point here. A lot of people think if you charged market interest rates to people that'll be hardest on people who come from poor background because we know that they're gonna have a tougher time paying the money back. Aptly SharePoint we do not want to dissipate those people. So they economically more correctly be delighted to give them some money don't let it and give it to them okay that's the that is the duty of part of society to help those kids out. The problem the loan program that helps everybody at those who need the money goes we don't need the money and we're and I think at least deserving of all it's really the tonight in the colleges. Greg if this push is more people into areas such as it and engineering and so forth they're typically higher earning areas. The issue that you run into for the college though is those programs are typically more costly for them to administer. And a lot of cases you see programs like English departments that effectively subsidizing. Engineering students wouldn't this also have the effect of raising tuition and. Well it would be up to the colleges to determine what the correct tuition rates charged for various programs and honestly there ought to be a meeting of intended here where the students. Are willing to pay more for a program that yields a higher income afterwards and the college ought to be able to. I capture in the tuition. The cost of running that program. Do need to return to my original point there's currently nothing in that kind of for the student loan program that actually encourages. Now nine years you're you're absolutely right Greg and you gras brought forth some terrific ideas I wish some of the presidential candidates are paying attention to it. And willow dad to fund clinical instead there are a lot of people talking about this or an action Jeanne Shaheen Republican or Democrat and impose let there that would actually require. Call it happened skin in the game so there are some good ideas that they want looked into the. Very good thank you that's great appease the Wall Street Journal contributor. In an easy act chief economics commentator and author of the book it's called foolproof.