The president of the New York Fed, William Dudley, firmly questioned the riskiness – as well as the effectiveness – of the current program of government backed student loans. Dudley finds fault with the status quo lending practice in a number of areas. The current method assigns a fixed rate to all student borrowers, with no consideration to their course of study or intended career. This increases both the risk profile of outstanding debt and encourages some students to take out lofty loans with no hope of repayment. For those students, Dudley claims, returns on the investment in college “may be negative.” In the end, the burden falls on the U.S. taxpayer.
Does anyone have any thoughts on alternative student loan programs? Perhaps one that is centralized around universities themselves – who might be able to better evaluate repayment prospects based on the student’s major and performance?