Earlier quoted context omitted.
The loans are exactly why the colleges were able to continue jacking up the prices. As with homes, people will pay as much as institutions are willing to loan them. In both cases the currently low interest rates allow the loan principal to be much higher (given that folks calculate cost based on recurring payments). If you remove the student loan system then tuition would become cheaper. However that does unfairly im…
That completely shifts the blame to bureaucracies, and that isn't fair. Loans are where they are because students prefer newer dorms, amenities, programs, and research opportunities. Student competition leads to prestige, leads to demand from employers for graduates from a specific institution. It is a self-reinforcing dynamic. The fact student loads have special bankruptcy treatment is bad. But absent Sallie Mae (or…
It doesn't really matter what students "prefer", if a bank doesn't do their due diligence and a student isn't able to repay their loan, then the bank should be losing that money as a bad investment. They won't give a $1M mortgage loan to buy a 50k lot, and likewise won't give it to someone that doesn't seem like they could pay it back. I do think there's value in people getting degrees that don't pay well - but then you shouldn't be getting a loan to do so.
> students would be paying whatever Harvard or Stanford asked
I don't think this is true - people simply can't go to a school they can't afford and people don't have infinite money. We gave the banks the freedom to tell children that they will indeed be able to pay back loans that they often cannot, so it's the bad actions of one organization(banks) enabling another(school). Ivy league schools may be like Veblen goods where increased prices also increase demand - but that can't be true for all schools and we've seen tuition increases across the board.
The solution that seems best to me is to first fix the bankruptcy issue - if someone can't pay back a loan that is a risk the bank is accepting by giving the loan, just like any other loan. I think that alone would probably have enough of a chilling effect that way less people would be able to attend colleges at first and they would be forced to lower tuition rates. That would correct the market going forward, but it doesn't really help people that already fell victim to this system. That seems like it could be remedied by either making interest rates 0 or capping total interest to some amount relative to the principal (e.g. the total amount can never grow to more than 110% of the principal).
Similar to healthcare, I don't think education shouldn't be profitable in the short term - it's a long term investment a society has to make in itself so you can't really track it as an individual investment in any one person. If someone else becomes a doctor I'm still benefitting from that so it makes sense that I'd pay into some of the cost to educate that person. Unfortunately in the US at least we seem to be totally unable to do anything without a short-term and concrete path to profit regardless of the amount of good it would do.