by Jeff Sovern
Yesterday the Times published an editorial, Full Disclosure for Student Borrowers, which concluded:
A bill pending in the Senate would require both colleges and lenders to educate students about the differences between federal loans and riskier, more expensive private loans — and their borrowing options. Congress should also require schools to provide in-depth, annual loan counseling to students and set criteria for the information that must be provided. All schools should be required to disclose annually the average debt load of their graduates.
Before students borrow to pay for their education, they need to understand the obligations they are taking on, and how long it will take to pay them off.
Two thoughts: first, if students should receive loan counseling (which I agree with), shouldn't those applying for mortgages also receive such counseling when there is reason to believe they don't fully understand what they are committing to? Mortgages are typically for larger amounts than student loans and we have ample reason to believe many mortgage borrowers didn't understand their obligations (as I have argued elsewhere), which of course contributed to the Great Recession. Second, do we really want the colleges to provide the loan counseling? Colleges have a stake in students taking out the loans, because if the students don't, they may not be able to attend the college, thus reducing the school's revenue. In a way, that's like asking mortgage brokers whose income depends on consumers taking out loans, to provide mortgage counseling--and we all know how the advice given by mortgage brokers turned out. Wouldn't it be better if students received counseling from disinterested entities that would have no reason to advise students to take out large loans unless that is in the students' best interest?