I have a notion so commonsensical it is radical. Interest rates for student loans should be tied to the student’s major.
I can also envision conditioning willingness to loan upon choice of career path. As a lender I would be more willing to loan to people whose career path is likely to lead to (a) employment and (b) substantial earnings.
Those who major in STEM fields will have, on average, more job offers, a greater ability to repay and a reduced likelihood of default. Their loans, taken as a group, should embody less risk to the lender, and therefore come in with a reduced risk premium built into the interest rate.
Those who major in “_____ studies,” which I think of collectively as “victim group studies,” will have poorer employment opportunities than other graduates, will therefore be at higher risk of default on repayment and should pay a higher risk premium, if they can even get loans.
These two examples probably anchor the ends of the continuum but there should be a fair number of points along the way where meaningful differences in outcomes make differences in costs-to-borrow and willingness-to-loan defensible.
Furthermore, students change majors while in college. Prudent lenders would dole out dollops of loan as the students pass milestones toward lucrative careers, and dry up the funds should the student switch to a major with little or no employment future.
I can hear idealists whining “But students should follow their hearts in choosing what to study.” To which my response is “Sure, but only if they can figure out how to pay for it.” A realistic world would subsidize studies leading to employment and only those.
If philanthropists want to fund studies in playing the bassoon or art appreciation or women’s studies, they’re welcome to do so. Perhaps it will warm their hearts.
Lenders are another matter altogether, making loans is a business decision - is this borrower an acceptable risk or not. Obviously there’s no way to know for an individual but plenty of ways to know for groups with common characteristics like major field of study.
I’ll illustrate with examples from the lives of the DrsC. I taught business majors, she taught those who would be public school teachers and a few eventually school administrators.
Both sets of our graduates got jobs, my business grads probably earned somewhat higher salaries than her education grads. Neither was at one of the extreme continuum ends. An economically rational lender would have charged my grads a somewhat lower interest rate than her grads, but the difference wouldn’t have been large.
