The associate professor of economics teamed with the president of a North Carolina think tank to propose a new approach for lowering risks associated with student loans while helping college graduates build wealth.
Kurt worked with Timothy R. Ferguson, a corporate attorney and founder of the Gracchi Instituate, to write “Inventing a new way to deal with college debt.” Published June 10, 2014, the column introduces and encourages the concept of the “anti-stacking rule” to college student loans.
The rule would require student loan lenders to reduce the interest rates charged to borrowers. The borrowers in turn would be required to invest that savings in certain types of appreciating assets, such as homes, mutual funds, permanent life insurance policies and municipal bonds. Though the lender loses some profit, the assets would serve as collateral should the college graduate default on his or her loan payments.
In time, the borrower would eventually pay off his or her loan while also building wealth through asset investments. The two writers conclude:
“All players would benefit. Borrowers would have a chance to build an asset base, and years of directed investment would train many young people to develop good investing habits. Educational institutions wouldn’t have to compromise the quality of education or plunder endowments. Governments would have reduced funding slack and additional liquidity through securities sales. Taxpayers would get a reduced likelihood and scope of student debt subsidization. Mortgage lenders, fund managers and life insurance companies would have more business. The public markets and the housing markets would get a liquidity infusion.
“And even lenders would benefit because it would reduce their risk, give them more rights and avoid harsher alternatives with fewer benefits: loss of bankruptcy protection, partial debt forgiveness and/or refinancing with no collateral.”