Case Study 6: Troubles in Higher Education: The Growing Dilemma of Student Debt
Written by Kelly Nyhoff
Case Summary
Beginning in the 1940s, a broad variety of student loan programs have been introduced in the
U.S. In recent decades, as a result of multiple contributing factors, student loan debt has grown
Case Analysis
The U.S. student loan industry originated in the 1940s to assist veterans returning from WWII.
Additional programs introduced in the 1960s were designed to promote social equality through
broader access to college education. However, over the next half-century, a wide variety of
Critical Thinking Questions and Suggested Answers
1) Some scholars argue that the student loan industry should incorporate risk-based
pricing models, similar to those used in conventional banking. They argue that the
failure to implement these tools contributes to many of the problems and
inefficiencies the industry is currently experiencing. Were risk-based pricing of
pricing for student loans also contend that these price signals would assist
postsecondary educational institutions in adjusting their programs to improve the
employment prospects of their students after college.vi
a. What are your thoughts regarding the use of conventional pricing models for student
loans? Do you think it would make sense for students majoring in certain disciplines to
receive substantially higher or lower interest rates on their student loans because their
future industry looks promising?
This question will likely stimulate a variety of responses from students. That said, it could
b. What are some of the pros of an approach like this?
It may result in students considering very carefully where they study, the associated costs,
c. What are some of the cons of the argument for risk-based pricing?
It could result in a surplus of students selecting courses of study that appear to be
2. Considering the mounting student loan debt burden U.S. students are incurring,
college?
A student could conduct their own risk-based assessment of their educational outcomes
3. Many students are reluctant to work during college for fear that it will prolong
their studies. Considering the mounting troubles student borrowers are facing in
managing their loan repayments after college, what is your perspective on working
during school?
For many students who rely on student loans in order to attend college, working during
school necessary. How work and studies are structured to enable the student to focus
4. In several European countries, public universities are tuition-free, even for
international students, yet few American students take advantage of this.vii Why do
you suppose that is? What are the primary risks, in your opinion, of seeking a degree
program abroad?
A few risks that are easy to identify might be (1) lack of knowledge of these programs and
