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As the marketing director of the Association of Certified College Funding Specialists, I work closely with the founder Ron Them, CCFS® and every now and then when I look at one of our chats, I think to myself… I should share this.  

When it comes to college funding, there is not a better thinker regarding the subject. I should know, I see the demand for his expertise weekly, as I am the person that approves the interview requests for him.

Ron and I were working on updates to the Education Loan Analyst course materials and in this one of our many conversations, Ron made a comment that stood out, “I could end the  “Student Loan Crisis” with one simple change, but the Federal government and the colleges would nix it in a New York minute”.

Now if anyone else would have made that kind of statement I would have called bullsh%t; but with Ron, I usually ask... “What do you mean?”

Ron and I usually chat over Slack, typing back and forth. So I thought it would be cool to cut and paste the chat and share it with you here in a blog post. 

To be transparent, I did clean up our Slack chat a bit for the purposes of making it easier to read and fixing a lot of typos (ok, maybe a few curse words too), but this is basically how the conversation unfolded...

Ron: You know Josh, I could end the so-called “Student Loan Crisis” with one simple change, but the Federal government and the colleges would nix it in a New York minute.

Me: What do you mean?

Ron: One simple change to the PLUS (Parent Loan for Undergraduate Students) system, and the “Student Loan Crisis” will gradually diminish in the coming years.

Me: What would that change be?

Ron: Well, the Federal Stafford student loans are capped, right? There are limits on the amounts each student can borrow.

Me: Yeah.

Ron: Then all you would need to do is put a cap, or a limit, on the amount of PLUS loan that parents can borrow per year, per student. Limited borrowing would force the family to pick a college they can afford, rather than pick a school the student wants to go, regardless of the reason or cost.

Me: This PLUS limit would end the student loan crisis?

Ron:  Not immediately, but removing parent’s access to unlimited borrowing would force them to be more “price conscious”, which in turn would force colleges to rethink their price structure, and make them more “cost conscious” of their spending (tenured professors, capital projects, etc.). It’s simply letting the free market do its thing.

Me: But if you put a cap on PLUS loans, then families will just borrow money from the private loan market, or re-fi their mortgage. They will find a way to pay the college’s price.

Ron: Right, the Feds would have to put the same cap, or limit, on private education loans too. The Feds can control that as long as the private education loan is for post-secondary education.

Me: Well then parents would just re-fi their mortgage, borrow against 401ks, or use their credit cards.

Ron: Sure, but now you’re not talking easy money. You are talking a loan collateralized by the home they live in; or in the case of credit cards, loans with high variable rates and high payments with no forgiveness. Families would be less apt to let a child pick the college, with little regard to the bottom line yearly cost, using these types of loans.

Me: So how would this work? What would you set the limits at?

Ron: I’d cap the PLUS loan, or private education loan, at DOUBLE the current unsubsidized Stafford limits. The Feds already have limits on the amount of Stafford loan a student can borrow, so they would merely need to put a limit on the amount a parent can borrow for the student’s education too. Here’s what I mean...  the current student unsubsidized Stafford limits are Freshman $5,500, Sophomores $6,500, Juniors, $7,500, and Seniors $7,500.... so the PLUS education loan limits would be double... the new parent PLUS loan limits would be... Freshman $11,000, Sophomores $13,000, Juniors $15,000, and Seniors $15,000.

Me: So you are saying that PLUS/Private loan limits would force the parents of students to use their money to pay for college, or borrow using less attractive loan vehicles, or simply attend a lower priced school.

Ron: Yes. Gradually, “net” tuition prices for all colleges will begin to come to parity over time. And colleges would have to manage their expenses and capital expenditures like major corporations do. Carefully.

Me: That makes sense. But when it comes to college, parents will do anything for their children. So if the Federal government forced parent borrowing limits, it would force a market shift in college pricing? Is that what you’re saying?

Ron: Yes. It would take a few years, but over time the current $1.4 trillion student loan total would gradually decrease, and the crisis would be under better control.

Me: So why do you say that the Fed and the colleges would nix the idea of capping the PLUS loan limit?

Ron: Simple. Colleges love their current universe of perfect price discrimination.

Me: What do you mean by “perfect price discrimination”.

Ron: Think about it - the price the college charges the family depends on how much money the family has available (not afford). Colleges use the FAFSA financial application to find this out. If the parents demonstrate that they have less money, the college may give more grants and scholarships to help pay the bill. If not, then less. Regardless, after grants and scholarships are dispersed, the balance the family ends up owing is made up of loans. In some cases, lots of loans. Loans limited only by the total cost of attendance, not by the amount the family can afford to borrow.

Me: So any suggested Fed changes to that perfect pricing system would involve the colleges sending lobbyists and millions of dollars to Capitol Hill to veto any such bill.

Ron: Exactly. The bill would never see the light of day.

Me: So what can financial advisors do to help their clients avoid this crazy, hidden college pricing system.

Ron: Well… advisors can begin by explaining this crazy system to their clients. Families need to know this stuff well before sending their children, or grandchildren, to college. Advisors should also seriously consider becoming a Certified College Funding Specialist™ and I suggest they take our Education Loan Analyst (ELA)™ course too. These programs have the education and strategies to help financial advisors to dramatically reduce their client’s college costs and minimize their education borrowing. If an advisor helps their clients to understand this crazy system, they will have a fighting chance of not overpaying for college. The goodwill alone would be totally worth the cost of certification. (Ok, I really cleaned this part up. Hey, I'm a marketing guy after all)

Me: Put limits on parent loans for education, control the borrowing, and see where the chips fall.

Ron: Right. Parents need to know this pain BEFORE they send their kids to college and financial advisors need to warn them.

Anyways, while I thought I would share my chat with Ron, I mostly just want to remind financial professionals that student loans and PLUS loans are at crisis levels, and I want to see as many financial professionals go out in their communities and help.