A Modest Proposal: Credential Repossession

“Ignorance of a law is no excuse,” a judge might admonish, “for having broken a law.” But apparently, ignorance of the contractual agreements one signs is an excuse for not fulfilling the terms of the contract. For those of us paying taxes, the various financial bailouts of the past several years have left us paying for other peoples houses, cars, and who knows what else. Our political class has seen fit to make us responsible for contractual obligations we didn’t sign while letting those who willingly and freely signed those contracts are let off the hook.

There were many points of failure that got us into this situation. And the chain of events are long indeed. In the case of the housing crisis, the origins to this perfect storm can be traced back to laws made twenty five years ago. The intentions may have been good, they often are, but the failure to consider evidence based consequences set up the cascade. I say “evidence based” because the consequences considered are often derived from irrational assumptions and a fundamentally weak knowledge base.

Image Credit: Baptiste GaultierReal world consequences for the failure to satisfy obligations bound by contract need to be reintroduced or, as history has shown, the systems we rely on will collapse under their own weight. Like the laws of gravity, Stein’s Law won’t be denied.

“If something cannot go on forever, it will stop.”

When the fundamental fiscal policy of a government is unrestrained spending of other people’s money, they eventually run out. And now, there is increasing noise from the political class, cheered on by the shrill whining from the Occupied With Self rabble, for measures to see to it we also pay for other people’s college education. Students (and frequently their parents) who neglected to invest the time to understand the student loans they were signing want to walk away from their obligations.

No doubt there are cases of hardship within this mess. And there should be a recourse for legitimate relief from the debt. The return of Marshalsea is an equally wrong direction for finding a solution. There is, however, ample opportunity to reintroduce responsibility without undue hardship. Just like an individual who defaults on their loan obligation to a house or car is subject to foreclosure on the house or repossession of the car, default on a student loan should result in the retraction of an individual’s degree credential. This would apply in cases where students actually graduate. In cases where students don’t graduate, transcript requests can be withheld pending satisfaction of the loan obligation.

To be sure, the student would own what they’ve learned and would have this available as they sought employment. What they would lack is the final blessing conferred by the educational provider. Much like the bank owns my house until I’ve paid the mortgage in full, the education provider would own the student’s degree until any outstanding financial obligations are fulfilled. And just as the mortgage agreement with the bank lets me live in the house as long as my payments are current, a student would be allowed to claim holding a particular degree as long as their student loan payments are current.

To really make this work, however, the educational providers would need to be on the hook as well. They need an incentive to promote responsible behaviors, both among their student populations and with administrators internal to the organization. A student who defaults on a student loan would no longer count among the “graduated” and would thus adversely affect the educational provider’s claims for success. Even better, I would like to see the educational providers on the hook for some portion of the unmet financial obligation.

2012.02.11

Speaking on the nationwide mortgage-foreclosure settlement just engineered by the political class, Charles Gasparino notes:

It’s hard to imagine a less-deserving group of victims: people who gambled during the housing bubble by purchasing homes with borrowed money that they knew or should have known they couldn’t afford, but who are now able to stay in the homes they should have never bought because of what amounts to paperwork errors on the part of the nation’s big banks.

What we reward and reinforce, we get more of. In this case, as well as the higher education bubble, expect more irresponsible behavior and lack of accountability.

(Image Credit: Baptiste Gaultier)