A recent discussion in these pages got me thinking about student loans; specifically, how those loans are approved and sourced, and how risk of possible default comes into the equation (clue: it doesn’t.) So, for the purposes of discussion, let’s consider two students applying for student loans. This being the Utopia of the Animalverse, there are no Imperially subsidized student loans, and so the prospective students have to go to a lending institution and apply for their money, just as they would when buying a house or car.
Student One enters the lending institution with a packet of papers and takes a seat in front of the loan officer. “I just graduated high school with a 3.8 grade average. Here are my SAT scores. I’ve been accepted to Cal Tech, and I’m going to major in software engineering.”
Student Two enters the lending institution with a similar packet of papers, and likewise sits down in front of a loan officer. “I graduated high school with a 3.8 grade average. Here are my SAT scores. I’ve been accepted to Oberlin College, and I’m going to major in Gender Studies.”
Now, consider these two students. Their grades from high school are identical, and for the purposes of this argument we will postulate that their SAT scores were likewise identical. Here’s the question: Which student represents a greater risk of default on their student loans?
If you said Student One, go back to the end of the line and start again.
Student Two, assuming a successful completion of the stated goal, will attain a degree in Gender Studies – and be effectively unemployable. On the other hand, Student One will be very likely to find gainful employment. Student Two will be an near-certain default on their student loans. Student One will be very likely to be able to repay those loans.
In a free market for educational loans, it is inconceivable that Student Two’s nitwittery in pursuing a useless bullshit degree should be subsidized by the far more prudent Student A by an arbitrary leveling of student loan interest rates – which is precisely the situation forced on borrowers by the Imperial subsidy of student loans. In any sane world, the dunderheaded Student Two, who is pursuing a useless, bullshit degree, should bear the greatly increased risk of default by paying a higher interest rate.
But where the financing of higher education is concerned, we live in a world that is anything but sane.