That would certainly make economic sense for the lenders. But in effect it would impose a penalty for certain "bad-performing" majors. The criteria by which loans are granted, rejected or are given a higher interest rate would also be intransparent and not subject to public discussion.
More importantly, it would demand the highest interest rates from the group of students that will presumably have the most trouble paying them. You say yourself that the interest rates would probably be higher than they are today. That sounds to me as if it would make crippling student debt more likely, not less.
> But in effect it would impose a penalty for certain "bad-performing" majors.
Is that necessarily a bad thing? I think it'd be a great idea for the market to send you signals that paying $50k for an art history degree is probably a terrible idea.
And if we as a society believe that art history really is important, then we should subsidize jobs that employ art history majors. But the student loan part of the process can sort itself out privately.
I think it'd be a great idea for the market to send you signals that paying $50k for an art history degree is probably a terrible idea.
That's a hard question. It gets into the much larger matter of whether the market is a good arbiter of what has social and cultural value, or whether the government needs to step in and subsidise certain things because it really does know better than the wisdom of the masses, who will always prefer Cheetos and ballgames to polenta and Shakespeare.
I'm no libertarian: there are definitely plenty of cases of market failure, where the market fails to provide enough of goods with positive societal and cultural externalities. Art history might even be one of them.
But, as pc2g4d notes, the right way to deal with that is for the government to directly stimulate demand for art history. Not to give cheap loans for students to study art history and then live the rest of their lives in debt.
Personally, I don't buy that the world needs more music and film majors. We seem to have far more music and film than we need already. I can understand why economically irrational young people might think it's fun to spend 4 years watching films, but I don't think we should be subsidizing that choice.
the right way to deal with that is for the government to directly stimulate demand for art history. Not to give cheap loans for students to study art history and then live the rest of their lives in debt.
I would certainly concur with that. I think we're in agreement.
> the government needs to step in and subsidise certain things
It does — but in the right place. Pay a lot to librarians, professors and historians, and then they'll be able to pay commercial rates for their education and banks will offer better loan terms.
More importantly, it would demand the highest interest rates from the group of students that will presumably have the most trouble paying them. You say yourself that the interest rates would probably be higher than they are today. That sounds to me as if it would make crippling student debt more likely, not less.