Community college is great if you're looking at going into a trade or picking up some additional credits in the summer. However, in the vast majority of cases spending two years at a community college will hinder your ability to get a solid four year degree and thus, great paying job after graduating. Not being around the best competition, not having the best professors, etc., can have significant negative consequences.
If you want institutions to be on the hook for loan losses, why would you need private funding? The only thing private funding will do is increase rates charged on loans making the cost of school even more expensive, however, if the losses are backstopped by the institution than there is zero need for private funding. And to cover loan losses, institutions will raise tuition costs and thus, nothing is solved.
Also, under your scenario who determines when a person is unable to pay? It's very difficult today to wipe out student loans through bankruptcy and thus, institutions would rarely have to backstop anything. However, are you saying you would change this back to the pre-1976 bankruptcy laws where students had an incentive to file for bankruptcy (i.e., they could wipe out their student loans)?
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