According to the recent PISA scores, which measure the necessary skills (reading, math, and science) of 15-year-olds, the US ranked 30th in Math among the 38 OECD countries – nothing to write home about, right? We need a sea change in the way our colleges work. In doing so, we need to rethink and reinvent the qualification criteria for student loans. Here are some suggestions:
1. Interest Rates on Student Loans must be tied to SAT Scores and APs. Obtaining student loans should be no different than securing home loans. Let's face it: Two prospective homebuyers (mortgage applicants) with 600 and 800 FICO scores, respectively, will be offered vastly different mortgage interest rates, down payment requirements, and origination fees (points) by the same bank. Similarly, interest rates on student loans should be a function of the SAT and AP scores (these are comparative metrics while the general academic records aren't). Those scoring 1,580 (out of 1,600) on the SAT and complete six APs with all 5's must be eligible for a much lower interest rate than their counterparts scoring 1,300 on the SAT completes three APs with all 3's. This merit-based system will incentivize everyone to do well academically from the get-go, making the loan program a student loan scholarship program.
2. Sallie Mae must publish SAT/AP-based Student Loan Rates to provide Transparency. Sallie Mae, the largest student loan provider, and other large providers like Citi, Nelnet, Wells, etc. must develop and publish SAT/AP-based rates to educate students regarding high scores' advantages. If the high school students (starting in sophomore) are taught that high score equals low rates, they would be working harder, thus gradually bumping up the curve, making the system globally more competitive. Of course, unlike mortgage rates that change daily, the proposed SAT/AP-based student loan rates would be revised annually based on the new data trends (i.e., improving scores). Hopefully, the rate chart would be prominently displayed in all high school cafeterias as a constant reminder that a little extra push would go a long way.
3. Interest Rates on Student Loans must be Significantly Higher for Lateral education (education for the sake of education). When students stay back in schools and continue to take unrelated courses aimlessly (e.g., 2nd/3rd major or 2nd Master's, etc.), lenders must discourage such loans by charging significantly higher interest rates related to those credits. If students plan on co-concentrating (e.g., finance and applied math), they must declare their intention right at the outset while applying for loans, thus locking in their preferred rates throughout the period, as well as to avoid having to pay a significantly higher rate down the road for the "co" in the form of a second major. Frequently, meaningful co-concentrations help job-seekers narrow down the competition. Likewise, many employers prefer those graduates as they bring in genuinely complementary knowledge.
4. Interest-free Student Loans must be provided to All STEM Candidates. Instead of enticing foreign STEM graduates with visa adjustments, we must learn to nurture our own. And, it must start with an awareness movement in the middle and high school. At the core of this movement lies the marketing of the female students' awareness in that they have "equal access" to this career domain. Until and unless our young ladies are convinced of equal access, we will have no choice but to depend on the foreign employees. In promoting STEM education, teachers and counselors must also explain to the students that 10's of thousands of STEM jobs remain unfilled and, as a result, our "volume" employers are forced to hire foreign employees to fill in those slots. Interest-free student loans could be a big incentive to entice more students to look into this colossal career domain.
5. Ideally, a moratorium on student loans is needed for business and humanities majors. Due to the easy access to student loans, far too many students – relative to the aggregate market demand – continue to major in business and humanities, resulting in significant disguised unemployment all across the country, arguably reaching a point of moral hazard. To reduce the incidence of such disguised unemployment, we need a moratorium on such student loans for some time, at least 5 to 7 years, thus allowing enough time to get the excess market supply meaningfully absorbed while the wage level rises back up to the point of equilibrium. Absent student loans for business and humanities, only a small percentage of the future student population –- mostly from the well-to-do families and foreigners –- will opt for these majors.
Last but not least, STEM Students in State Schools must qualify for Financial Aid ahead of all others. In addition to interest-free student loans, STEM students must receive financial aid ahead of their counterparts. Given the urgent need for STEM graduates in our economy, it does not make much sense to treat all economic needs equally. At this point, college education must be compared with and treated like government services, meaning essential education (like essential government services) must always receive higher weights and protections than the not-so-essential education (like non-essential government services).
Simply put, STEM education must be declared, protected, and promoted as "essential" education. Ceteris paribus, the qualified STEM student population, must get the first shot at the pool of financial aid, and the residual will then be distributed to the other disciplines depending on the needs of the labor force.
Again, it's high time that we make our student loan programs more labor-force friendly. Our students deserve better.
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