The Pollock-Dodd-Frank reform for college and university tuititions...

Borrowing a page from the Dodd-Frank playbook, Alex J. Pollock has offered a way to induce colleges and universities to keep tuitions down.

In an article published by The American, Pollock unveils his plan based upon the 2010 Dodd-Frank Act which required that mortgage originators (e.g., banks) have some "skin in the game."  The way that happens is that loan originators must accept a loss if the loan should fail.

Previous to Dodd-Frank, debt levels expanded beyond the ability of a large percentage of borrowers to repay and, with the government guaranteeing much of the debt by putting the U.S. taxpaying public on the hook for it, the result was that home prices were driven to to unprecedented and unsustainable heights.

Pollock notes that the same thing happened with college tuitions.

With student debt levels expanding beyond the ability of many students to repay and, with the government having guaranteed much of the debt by putting the U.S. taxpaying public on the hook for it, the result was that tuition prices were driven to unprecedented and unsustainable heights.

The "Pollock-Dodd-Frank" reform would have colleges and universities maintain a 10% first-loss share in the credit performance of student loans.  This, Pollock argues, would provide a very strong financial incentive to academic administrators to charge reasonable rates of tuition.

Why?

First, the institutions would have a credit position junior to that of the U.S. taxpaying public.  In short, academic administrators would have to pay for non-performing student loans.

Second, the institutions would have sufficient have "skin in the game" stop the growth of a potential student loan bubble.  What academic administrator wants to dip into institutional endowment to pay off bad loans?

An interesting concept, no?

No doubt about it, Pollock-Dodd-Frank would represent a bitter pill that academic administrators would have to swallow.  Doing so would force them to slash costs in order to keep costs down as well as to cover losses on student loans.

Any guess about where the biggest savings will come from?

No, not faculty salaries.  No, not from intercollegiate athletics.

Those savings will come from cutting down to size the bloated administrative hierarchy and reducing administrative expenses as part of the overall costs of running an institution.


Let the discussion begin...



To read Alex Pollock's article in The American, click on the following link:
http://www.american.com/archive/2012/january/fixing-student-loans-lets-give-the-colleges-some-skin-in-the-game