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Curbing College Costs and Skyrocketing Student Loans

Unlike loans taken to capitalize a small business or buy a house, student loans are not dischargeable in bankruptcy, and stories abound of folks in their forties and fifties still saddled with onerous debt and the elderly with garnisheed Social Security benefits.

Colleges and universities do not furnish families with the information necessary to make sound choices -- the probability a student will complete a degree in four years, the full cost of completing a degree, and the likely salaries and prospects for repaying loans, especially according to major and for those students that only attend a few years and do not complete a degree.

University presidents are like the bankers who wrote the bad mortgages during the housing boom -- they admit students, facilitate lots of borrowing, and pay themselves well but don't have much skin in the game.

For their students to qualify for both government-sponsored and private bank loans, universities should be compelled to provide audited information about the likely time required and the cost of obtaining degrees in various majors, salaries graduates earn the first years after graduation, and the resulting repayment burdens -- and similar data for those who attend less than four years. Like CEOs of corporations who must now attest to the accuracy of financial statements, university presidents should be required to do the same, and be subject to similar legal penalties for failure.

Student loans should be dischargeable in bankruptcy when these investments don't work out -- otherwise, we will continue to create a Dickens-era debtors' life for many victims of the higher education system -- and universities should be on the hook for a significant share of defaulted loans -- perhaps, 25% to 50%.

Well-run institutions would get their costs and tuition under control, seriously evaluate and become transparent about the prospects for a decent enough paying job after majoring in art history vs. mechanical engineering, and have little problem lining up private investors to insure their share of prospective default liabilities.

Schools that take students money and deliver too little for it, would go the way of Circuit City and the St. Louis Browns, and stop blighting the futures of young people.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Professor Peter Morici, of the Robert H. Smith School of Business at the University of Maryland, is a recognized expert on economic policy and international economics. Prior to joining the university, he served as director of the Office of Economics at the U.S. International Trade Commission. He is the author of 18 books and monographs and has published widely in leading public policy and business journals, including the Harvard Business Review and Foreign Policy. Morici has lectured and offered executive programs at more than 100 institutions, including Columbia University, the Harvard Business School and Oxford University. His views are frequently featured on CNN, CBS, BBC, FOX, ABC, CNBC, NPR, NPB and national broadcast networks around the world.
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