Rethinking College Financing and Student Loans - Yelo Funding

NEW YORK, NY / ACCESSWIRE / August 2, 2024 /Federal judges in Kansas and Missouri recently halted the implementation of the Biden Administration 's Saving on A Valuable Education plan (SAVE) plan whose purpose was to alleviate the burden of student loans. Using provisions from the Higher Education Act, President Biden viewed it as the next plausible route for extensive relief, even though a key revelation from the White House suggested that participants under the SAVE plan would approximately repay just seventy one cents for each dollar borrowed. Contrasting this against the conventional loan paradigm, SAVE feels more akin to a quasi-grant system than a traditional loan scheme.

This ruling followed Biden 's first $400 billion forgiveness attempt which the Supreme Court struck down a year ago, asserting that the Administration overstepped its bounds regarding student loan debt cancellation. While those - politically motivated - initiatives address a pressing concern, it is also crucial to recognize that merely canceling debts does not tackle the root problem plaguing our higher education system.

A national crisis

We currently find ourselves amidst a national crisis where Americans are declaring bankruptcy in pursuit of a college education. A recent survey from Gallup and Lumina Foundation shows that seventy one percent of respondents have delayed a major life milestone due to the burden of their student loans. The issue lies in the nature of those loans, resembling a tax that cannot be discharged in bankruptcy and leading the government to garnish wages until the debt is settled.

If we fail to reform the college financing system, there is further danger that lies ahead. The Bennett hypothesis (named after former Education Secretary William J. Bennett) sheds light on a critical aspect of this issue. Government loans, meant to support aspiring students, have inadvertently contributed to skyrocketing tuition fees. Since 1980, college tuition has surged by a staggering 1,300%, a trend directly linked to the availability of government loans. It is time to recognize that a fundamental shift in the financing paradigm is necessary to break this cycle.

One of the critical flaws in our current system is the lack of accountability in higher education institutions. Colleges operate without proper customer service mechanisms and bear no responsibility for the aftermath of the product they sell. There is a pressing need for colleges to be pressed to lower tuition fees and ensure the success of their students.

A practical solution

There is a socially responsible way to address this growing student debt crisis, and for that we must advocate for a transition of student financing back into the hands of the private market. Income-contingent financing products, like the one we propose at our company YELO Funding, emerge as a viable alternative, where repayments are tied to one 's income, ensuring a fair and reasonable burden on graduates.

By investing in the students ' success, this system creates a better alignment of interests than the conventional loan programs and helps students make better career choice by incentivizing them to select programs with favorable career outcomes that are independent of their financial obligations. Eventually, a portion of this repayment should even be backstopped by the colleges to hold them accountable for the quality and outcomes of the education they provide. In short, shifting towards income-contingent financing would place a shared responsibility on both students and colleges, fostering a more sustainable and equitable higher education system. And the law of supply and demand will eventually bring back to earth the tuition of a lot of those programs.

The American dream itself is at stake in this discussion. As we navigate the complexities of college financing, we must not only focus on short-term solutions but also lay the groundwork for a system that encourages responsibility, transparency, and fairness. Debt cancellation is not the answer, although it does buy votes in an election year. To truly safeguard our children 's future, we must fundamentally reshape how we finance higher education. As education costs continue to soar and economic conditions remain unpredictable, financial structures must evolve to support - rather than hinder - students ' educational pursuits. Income-contingent financing products, with their income-tied repayment systems, inherently recognize the cyclical nature of economic realities and adapt accordingly. It is time to break free from the cycle of passing the ball to the next generation and build a system that fosters success for all.

Daniel Rubin is the founder and CEO of YELO Funding, Inc. He has over 25 years of principal investing, investment banking, restructuring and operational experience, including roles as co-founding partner of YAD Capital, COO/CFO at Halpern Real Estate Ventures, investment banker at Lehman Brothers, private equity investor at JEN Partners, and turnaround consultant at Deloitte. Dan has invested in and/or advised on approximately $5 billion of corporate finance transactions.

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Company Name: Yelo Funding
City and Country: New York, USA
Mail: info@yelofunding.com
Website: yelofunding.com

SOURCE: Yelo Funding

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