A policy where U.S. colleges and universities must self-finance student loans using - or underwritten by - their endowments, while prohibiting the federal government from issuing, securing or underwriting student loans.
By shifting the financial burden of student loans away from the government, the policy injects market discipline into higher education financing. Institutions become more responsible for the return on investment (ROI) they offer, leading to more efficient pricing and improved educational outcomes as well as meaningful, longstanding employment outcomes.
Shifting the financing burden onto colleges could create more competition between schools, leading them to focus more on the long-term success of their students. Institutions might lower tuition rates to attract students or invest more in career services and job placement initiatives.
Wealthier schools with large endowments could increase their capacity to finance loans and possibly lower tuition, while smaller institutions would be forced to innovate or merge to stay competitive. The policy could also encourage the growth of alternative education pathways, such as vocational training or online programs.
Such a policy would move the U.S. higher education system toward a more market-driven model and curtail today’s perverse incentives for universities to raise tuition without improving quality.