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Fixing the Flaws in Obama’s Affordable College Plan



As CEO of a company that’s working to revolutionize the student loan industry, I have to say the past couple of weeks have been interesting to watch.

President Obama’s much-debated plan to increase college affordability has stoked the fires of an already heated national dialogue about the rising cost of higher education. I applaud the President for addressing this issue, and I’m pleased that this event is bringing the conversation to the forefront.  However, I still think there are some fundamental flaws in the plan.

First, tying college ratings to graduation rates doesn’t work.  It just means colleges will graduate folks who are unprepared.  We’ve already seen this in secondary education at the state level.

Second, it doesn’t address the core problem, which is that colleges do not teach students about the realities of job prospects and earning potential for different majors.  As a result, students are unable to make educated decisions about post-graduation career planning and how much they can afford to borrow.  This kind of financial intelligence would go a long way to solving the problems we face today, but for some reason most schools fiercely resist it.

Third, there still is no “skin in the game” for these schools.  As long as they get paid to push volume, they will have no accountability for the quality of that volume.

Finally, the idea of providing loan forgiveness for public service is completely backward.  The President acknowledges that the US needs more engineers, so why provide subsidies to folks entering an already-bloated bureaucracy versus pursuing a career in the technology sector?

Overall, I do think the concept is a move in the right direction.  In my view, the best way to fix the system is to build real school accountability.  Schools should have an economic connection to student loan performance – if their students default, it should affect the school’s ability to receive aid. That would drive down tuition costs and lower debt burdens immediately.

I also believe that colleges have a fundamental responsibility to educate students about how much they can reasonably borrow and be able to repay, given their choice of major and career path.  Let them know what they’re up against so that they can make smart decisions.  The sooner these borrowers know the facts, the better their chances of keeping their own student debt in check.


ABOUT Mike Cagney Twitter: @mcagney Mike is the CEO and co-founder of SoFi and leads corporate strategy and development. Before co-founding SoFi, Mike co-founded Cabezon Investment Group, a global macro hedge fund, and Finaplex, a leader in wealth management software. Mike was also SVP and head trader for the proprietary trading and financial products group at Wells Fargo Bank. He holds an M.S. from the Stanford Graduate School of Business, where he was a Sloan Fellow, and a M.S. in applied economics from UC Santa Cruz.


3 thoughts on “Fixing the Flaws in Obama’s Affordable College Plan

  1. Kathryn ONeill says:

    all student loans(including parent plus loans) should be interest tax deductible,regardless of income. Let’s reward people for working hard!

  2. I disagree with making student loan interest tax deductible. Many college graduates end up in low-income jobs where a tax advantage won’t benefit them. Dangling a tax incentive in front of students makes taking on debt more attractive. America needs public policies that make student loans less attractive.

    The Administration’s 2013 plan to make college more affordable does indeed have flaws. It does little to control costs and does not make student loans dischargeable in bankruptcy: http://alfidicapitalblog.blogspot.com/2013/08/saving-college-really-means-saving.html

  3. matilda gray says:

    I agree the president is going in the right direction. However, we should start by eliminated the tuition mills that have sprung up everywhere. Classes and certifications for jobs that never required diplomas to begin with.

    The students are given documents to sign for funds they never see.

    I know one poor girl who took a class to be a dental assistant. She can’t get anywhere because of her student loans. After more than 7 years of working in her field, she still makes a lot less than 20 an hour. There is no way she can pay for housing, transportation, childcare and pay off a student loan.

    It impossible to fix all problems in education but this is really a great place to start. It is sad to see the poorest of people fall into traps because they are so desperate to find a job.

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