Purdue University President on Student Debt Solutions
Purdue University President Mitch Daniels has vocalized his opinions on the growing debate on student debt reform.
In a recent CNBC interview he tells reporters these schemes are not a replacement, but how these new refinancing terms are a complimentary new option to include as part of a debt free education standard, shifting debt from the student to investors with the terms to be “shaken out in the market place.” In countries where these income based repayment plans are already in place, they see terms set at 5 to 10 percent on fixed rates. With the U.S. lagging behind other nations on such agreements, Daniels says he does not know what terms will be set at in the states. Currently, income based repayments are set up at 10 or 15 percent of income.
Student lending has been easy money and the educational institutions know this. These schools are making easy money by taking easy money allowing the cost of tuition to rise in order to make even more easy money.
Billionaire investor Mark Cuban mentioned earlier this year “At some point it’s going to pop.” According to Cuban, congress must pass a law capping the amount students are allowed to borrow in the private and public sector, forcing schools to reduce fees.
Daniels agreed with the idea saying, “We need educational reform of the complicated programs of today. They subsidize the wealthy and those who actually need it.”
The New York Fed produced data showing for every dollar given in student aid, and exorbitant 70 cents in the cost of tuition increases.
“Universities like ours should be partially at risk for the money their students do borrow,” Daniels told CNBC reporter.
A question was raised concerning a market based interest rate and its influence on the length of the term. Daniels answers in stating, “There is nothing market based about the interest rates of today.” He believes some students will pay more, keeping in mind that it is the students who will have fixed their obligations with the investors in advance at a manageable percentage. All the while, investors are the ones taking the greatest risk should life and career of the student not pan out as planned.
Daniels said for wiser students with a promising discipline this may be a complimentary method to “recapitalize themselves from debt to equity.”
These options have been especially appealing to students and can be viewed as an equity investment rather than debt financing of the college education.