Access to federal student loans by for-profit institutions is an ongoing issue of debate in the US. Their default rates tend to be higher because (a) fees, and therefore loans, are much higher without state/federal subsidies (b) the target market is older and has lower completion rates than your average high school graduate (c) some of the institutions are rubbish and target people with no chance of succeeding. There are more issues, but that gives you an idea of some of the key issues.

Now, the Higher Education Act of 1965 states that degree courses must have ”an eligible program of training to prepare students for gainful employment in a recognized occupation.” Gainful employment hasn’t been well-defined in the past, but it is being worked on right now.  I’m drawing on a Chronicle of Higher Education story for this post and they wrote that:

“…officials are considering requiring that a program’s students do not take on loan payments that exceed 8 percent of graduates’ expected earnings based on a 10-year repayment plan and Bureau of Labor Statistics earnings data…programs that exceed the 8-percent limit could still be eligible for federal financial aid by showing that their graduates’ true earnings were higher than the government averages or that 90 percent of all graduates repaid their loans; by documenting that students have at least a 75-percent repayment rate on federal loans; or by demonstrating a program-completion rate of at least 70 percent and a 70-percent job-placement rate.

The Chronicle article has much more discussion, but I’d like to pick up on the implications for NZ. What if our tertiary education organisations (TEOs) and programmes were judged on the basis of their students’ future success, and ability to pay back loans quickly? Paying back loans more quickly would reduce the cost of the interest-free writeoff, which is the main cost of loans right now. Since most people are actually studying in order to increase their future earnings, their future earnings might be quite a useful test of a TEO’s success. Anyway, it might be an idea for Steven Joyce to look at, since he seems to be announcing a reform every fortnight at the moment.