Skin in the game. A number of economists have argued that the higher education sector’s largely non-profit set-up combined with heavy government subsidies induces colleges and universities to compete for prestige when they ought to be competing to provide students with knowledge and skills. Generation Opportunity has come along with an idea for encouraging institutions of higher education to refocus on serving the students:
“The new model would be simple: if former students default on their loans, the school would be responsible for a portion of the debt.
“There’s already proof that a system like this would work. During the subprime mortgage crisis, lenders with risk-sharing requirements saw fewer borrowers default than those who didn’t.
“Universities’ share of the repayment doesn’t even have to be big. In the subprime mortgage example, lenders on the hook for as little as three percent of the loan still performed better.
“With skin in the game, universities would have an added incentive to make sure their curriculum actually prepares students for life after college. Because students who drop out are more likely to fall behind on loan payments, colleges would also have added incentive to provide students the resources they need to succeed while in school.” [Generation Opportunity]
I would very much like to see private institutions be responsible for defaults, as well.