College Affordability and the Student Loan fiasco

The cost of a college education continues to increase, at a pace twice or more than inflation, thus inciting another crisis--the affordability of college. Even at state supported public colleges, the annual tab for tuition plus room and board regularly exceeds $13-15K thus making a four year education cost nearly $60K . This is beyond the means for most lower and middle class Americans. The only way they have been financing their education is through multiple student loans; many students now graduate with tens of thousands of student loans, a huge obligation for one just starting out. What to do? Congress in their infinite wisdom of looking to act when citizens are upset are investigating the rise and proposing modest changes to the student loan program. these efforts look fine but do not deal with the larger issue. This is one of Congress' modus operandi: work on the small problems and the big ones will work themselves out eventually.

My proposal:
Revolutionary times call for revolutionary ideas. It is time the government got out of the student loan and education business. Let the private sector in . . . and I am not talking about student loans but a totally different way of funding education.

1. Funding a students' education through a percentage of lifetime income. A student when accepted to a school or schools will apply to a variety of private funds (to be created by financial institutions--brokers, mutual funds, banks, etc) with their academic record, test scores, future plans, etc. Each fund will then send the student their bid . . . so much percentage of their lifetime income in return for funding their entire 4 year education or that portion unfunded. The student then does not worry about repaying student loans (and has no debt at the end of his career) and the government gets to stay out of the student loan funding effort.

2. This percentage will not count towards social security and gross income so it will not be taxed (similar to 401k deductions)

3. This is particularly timely as the baby boomers will be retiring shortly and will be living for decades. they will need income to live on. Think of this as an annuity. Paying the education of a bright young student and getting an annuity for many years thereafter. New financial markets will be created. Contracts can be bought and sold. Students can renegotiate their contracts if they wish.

4. The owners of these annuities should be able to include life insurance on the student up to twice value of the contract as well as an income disability clause. The financial markets could bring pressure to bear on the educational institutes to be more efficient, minimize price increases, etc. By signing a contract, the student would be in essence locking in four years worth of education at a firm price prior to going to school. the student could also continue to graduate school at his/her option and renegotiate the contract to do so.

Other details could be worked out. I believe this is a product whose time has arrived and would be a win win situation for everyone--students, colleges, financial institutions, and annuities for boomers.

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