Panel
Investing in Students
Milken InstituteSean Green, Mike Cagney, Dave Girard, Bob Whelan, David Bergeron, Bill Bennett, Tony Miller
- The company is currently processing approximately $100 million in monthly refinancing activity, with $21 million in loan applications denied on a single day due to capital market constraints regarding FICO scores and cash flow.
- While the company offers a three-year explicit guarantee for economic hardship forbearance, speakers anticipate that borrowers in private loan products may lose critical federal protections, including income-based repayment caps and discharge obligations for death or disability.
- Future growth in refinancing may be facilitated by a structure similar to a Tax-Exempt Loan Facility (TELF) to open frozen asset-backed markets, though such discussions are currently in their infancy.
- The organization has funded 11 students in a proof-of-concept phase, intends to connect them with AARP mentors, and aims to isolate key issues by borrowing at 0% as a nonprofit to help low-income students graduate without debt.
- A simple, traditional loan product was launched one year ago alongside the income share product to address the underserved millennial demographic, with the income share design predicting it will avoid defaults by remaining affordable during income disruptions.
- Legislative proposals like the "Wyden-Rubio" bill and the "College Scorecard" are expected to force institutions to provide earnings data and overturn 2008 laws preventing federal calculation of degree-based return on investment, though the "magic wand" of federal legislative change is viewed as having a zero percent chance of passage.
- Market signals such as tying debt limits to degree economics are anticipated to incentivize universities to channel students toward majors with strong financial outcomes, but this faces political and institutional resistance regarding schools holding "skin in the game."
- The private sector is expected to see increased entrance into in-school lending this year due to favorable Treasury interest rates, though private lending is predicted to remain viable primarily for specific programs like MBAs where income predictability exists.
- Speakers express concern that higher education institutions may profit from taxpayer money without delivering commensurate value, citing an 85% increase in debt for Master of Fine Arts degrees as evidence of a fundamentally broken system requiring disruption.
- The company plans to leverage a community-based marketplace with roughly 20% alumni capital and 80% institutional capital to create "moral suasion" that contributes to a zero default rate, while also quietly beginning to offer mortgages to its borrower community.
- Income share arrangements face skepticism akin to "indentured servitude" and may encounter regulatory hurdles, necessitating safety valves such as the ability to opt for standard repayment plans.
- Speakers anticipate that the Department of Education's current accounting method, which discounts loans near the government's borrowing rate, may result in projected gains that do not materialize if repayment rates fall below initial assumptions.
- The current accreditation process is criticized for forcing all education into a rigid model that excludes ten other forms of education, while the economy will require a shift in K-12 curricula toward coding and software skills to help workers realign with market opportunities.
- Private market solutions are viewed as limited in providing maximum access but could be improved by injecting market signals into public funding to prevent students from accumulating unmanageable debt without job prospects.
- Financial literacy initiatives involving "magic wand" explanations of degree value and borrowing limits are seen as necessary to resolve cultural problems where parents and institutions overestimate returns on educational investment.
- The "club" entity model is designed to include a student cohort member on the board to provide governance oversight and support for first-generation and English-language learners who lack mentors.