After 114 years, Sweet Briar College revealed last week that it would close after the spring 2015 semester, an abrupt announcement that shocked many in the world of academia.
“This is just the beginning of the college implosion,” Mark Cuban tweeted last week, after the news about Sweet Briar, an all-women’s college in Virginia.
Cuban, the well-known entrepreneur and billionaire investor, was not surprised by the news. For years, Cuban has warned of a “student loan bubble” created by skyrocketing tuition fuelled by an endless supply of student loans.
“At some point, it’s going to pop,” Cuban told Business Insider in a recent interview.
Here’s how to fix the bubble, according to Cuban. Congress needs to pass a law that caps the amount students can take out from private student lenders. That would be more useful than focusing on students’ current debt, he said.
“There’s all kinds of things that have been proposed to reduce existing student debt,” Cuban told Business Insider. “At some point, there’s got to be legislation where we put a limit on how much you can take out on a loan.”
To be sure, the federal government does put strict limits on the amount of money college students can take out in federally subsidized loans. Typically, dependent undergraduate students can only take $US31,000 at most in federal student aid for all four years of college.
However, the federal government doesn’t cap the amount of money students can take out from private lenders. Many private lenders set their own caps at a student’s “cost of attendance” for attending college, minus all other aid the student received — which can still top $US100,000 for four years of school.
Private loans also lack some of the benefit of loans backed by the federal government.
In a 2012 paper titled “The Other Big Test: Why Congress Should Allow College Students To Borrow More Through Federal Aid Programs” University of California, Irvine law professor Jonathan Glater identified three problems with private loan companies.
“It is difficult to ascertain loan terms ahead of time in order to engage in comparison shopping, those terms are typically worse and repayment options less flexible than those offered by federal aid programs, and it may be too easy for students to borrow more than they need,” Glater writes.
These issues have a very real impact on many students after graduation.
“I took out $US100,000 in student loans from Sallie Mae to finance my degree (graduated in 2009), and my father co-signed the loan. Now, I’m working for a technology solutions firm, earning $US40,000/year and facing $US1,200 monthly payments I can’t afford,” one recent graduate told Business Insider in 2013.
“If Mark Cuban is running the economy, I’d go and say, ‘Sallie Mae, the maximum amount that you’re allowed to guarantee for any student in a year is $US10,000, period, end of story,'” he said at Inc.’s GrowCo conference in 2014.
With this type of cap on student loans, colleges would be forced to lower their tuition or risk losing potentially millions of dollars from declining enrollment. “When you put a cap on loans, the money’s not available to universities and colleges,” Cuban said. “They have to either raise student aid or lower tuition, or some combination of the two.”
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