Is There An Alternative to Student Loans?

January 31st, 2013 by 

You know we here at DQYDJ love to try to raise your hackles every once and a while, and there's no surer way to offend a lot of people than talking about college.  The last time we visited the land of student loans, we asked you if Arts and Psychology Majors should pay higher rates on their student loans, to make up for diminished employment prospects.  This will raise them too: a discussion about an alternative to student loans.

It's true: certain Majors have a higher payoff in career earnings than others.  Will a Communications Major out-earn a Pharmacist?  Perhaps - but, if so, it's the exception that proves the rule.  Which is why we've got a few interesting developments to share with you on the student debt front.

Don't say we didn't warn you!

Making Some Majors Cost Less as an Alternative to Student Loans...

Florida, in the past, actually made some noise when it came to degree pricing at public schools.

The cheaper majors?  Science, Technology, Engineering, and Math, the unholy quadrality of "Major Categories" which so happen to be in greater demand today.  Florida's plan wasn't to increase tuition in aggregate while increasing STEM tuition at a slower rate, it was literally to give STEM a break.

Florida had an ulterior motive, of course.  More of those STEM Majors would stay in the state after graduation, and, by the way, they tend to pay more in taxes (Florida has no income tax, but that doesn't make them 'tax free').  Some of the majors who would 'suffer', disproportionately?  "...those majoring in psychology, political science anthropology and performing arts."  Indeed.

Revolutionary?  Of course - and at the margins, your would probably see more students attempting the harder majors.  Or, you know, going to school in another state.  Is varied pricing a good idea or a good alternative to student loans?  You tell me.

IPOs Become SPOs?

In an Initial Public Offering, a previously private companies sells an ownership stake to an adoring public - common stock is, literally, a partial claim on future earnings.  So... why not Student Public Offerings?

The linked article explains the motivation behind the start-up Pave, a site where investors can literally invest in people instead of companies.  This is some early stage stuff, of course (and not really laser-focused on college) - but, conceptually, the process works just like the stock of a company.  You put money in people you believe in, and if they succeed... expect a huge payoff.  It sure beats that anachronistic 'loan' stuff, right?

Sound a bit like indentured servitude?  Well, you tell me - how would it be any worse than the system we have today? A system which the government slowly expanded access to creating the largest middle class entitlement not-called-housing.  A system the government threw ungodly amounts of money at, then scoffed when costs grew out of control (in a world where the number of people with degrees continues hitting new highs).  A system where the government removed the ability to discharge loans in bankruptcy, then seized almost the entire student loan lending industry in 2010.  And, of course, a system where the Government can successfully collect 80 cents on the dollar for bad debt, versus only 20 cents in the private sector.

You're right.  This SPO plan is downright Dickensian!  But, then again, so is the current system, or so says Dick Durbin, anyway.

May you live in interesting times!



PK started DQYDJ in 2009 to research and discuss finance and investing and help answer financial questions. He's expanded DQYDJ to build visualizations, calculators, and interactive tools.

PK is in his mid-30s and works and lives in the Bay Area with his wife, two kids, and dog.

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