Atif Mian and Amir Sufi write,

We believe they should recognize that the central problem with student loans is that they force graduates to bear a disproportionate amount of risk for circumstances completely outside their control.

The right way to think about student loans is that they are a gift from taxpayers to the higher education industry, both non-profit and for-profit. Most of the benefit goes to those who work in that industry, not to students. Most of the risk is borne by students and taxpayers, not by those who work in the industry.

The main risk for students is not, as Mian and Sufi imply, macroeconomic risk. Instead, the biggest risk is not graduating. Another risk is not getting a useful education.

The obvious reform is for the higher education industry to have more skin in the game. For example, the institution could be responsible for paying the first ten percent of any losses on a loan undertaken to attend that institution.

Actually, I do not believe that the public interest is served at all by government student loan programs. If the government got out of the business, then it would be up to the market to supply loans to students. Lenders (either the schools themselves or third parties) would have to try to identify students who are likely to profit from attending college, and there would be much more pressure on colleges to pay attention to graduation and to value added.

Some further points:

1. Keep in mind that if government student loan programs went away, tuition probably would fall.

2. Colleges retain the ability to engage in price discrimination, offering lower tuition to students who otherwise would not attend.