Tuesday, December 23, 2008

Mortgaging Education

There have been a lot of ideas floated about how to fix the tuition for yeshiva education problem. There is a discussion that has been going on this week at Orthonomics on this subject (http://orthonomics.blogspot.com/) and some good ideas have been fielded. But I've been trying to think out of the box about this problem and I'm wondering if what follows might not be a viable solution.

There is a possibility which I've never heard mentioned but which might be a real option: educational mortgages. Instead of condensing yeshiva payments into 12-13 years for each child, a contract could be taken out with a yeshiva for 25-30 years, just as home mortgages are taken out now. There are benefits that would accrue to the parents with this option and that would accrue to yeshivas as well.

Children usually start school at a point in their parents' lives where those parents are not earning as much as they hopefully will be earning later. There may be only one working parent when the kids start school. Buying an "educational mortgage" would allow parents to give their children a yeshiva education on terms they could afford.

Parents who could afford a lower "down payment" when "buying" their children's education would be paying less over the time of the mortgage. Those with sufficient funds to be able to pay down the total early would be paying no or little interest on their mortgages. And yes, there might be some people who didn't require a mortgage at all because the funds were available to purchase the education outright. Those with minimal funds available would have longer to pay for the education purchased. Presumably SAHMs--or dads who are not yet working--eventually go out to work, and eventually they could be contributing to the remainder of payments on the education mortgage. Regardless, the person paying for that education would be the one that purchased and used it.

Just as with a banking institution, if a "borrower" applied to take out a mortgage and it was clear that said borrower could not be reasonably expected to be able to make any of the payments, perhaps now or perhaps later, then the "lender" could require a co-signatory who would stand as guarantee on the loan. Grandparents would then have the option of deciding to guarantee such loans, and for how long and in what amounts, rather than being hounded by yeshivas to pay what their children can't. Or the lender could be brutally honest and tell the potential borrower that they can't afford this school--find something cheaper that you can afford.

As with regular home mortgages, when interest rates "go down" (perhaps the school has received a large contribution from a donator that will reduce how much money is needed from parents in tuition) the mortgage can be renegotiated.

Of course, this would also require that educational mortgage lenders be regularly, openly and competently regulated to make sure that the terms of the mortgages they grant are in line with accepted business practices. They would no longer be able to give preferential treatment to "customers" based on family relationships or "yichus." Contracts would have to be realistic and conform to standards that apply to everyone. But the advantage is that schools would have a steady, known stream of income.

Tuition help could thus be eliminated or reserved for true emergency cases--perhaps a widowed parent whose family income is suddenly in jeopardy, someone who has suddenly lost a job and needs a "bridge loan" until a new job is found, or perhaps c"v a family with sudden catastrophic medical bills.

And with all the different types of schools out there, with their differing cost structures, parents might have to pick the type of education mortgage they can afford, rather than buying in to something they will never, ever have a hope of paying off. And maybe some schools will become more affordable if the schools can plan their activities and expenses around steady amounts of money being available to them. Yes, maybe tuition would become lower because schools would not need to be constantly raising tuition costs to get some money out of those with ready capital available now.

Maybe we will have learned from the sub-prime mortgage lending mess out in the secular world. Schools really cannot afford to be giving away something for nothing all based on the hope that some people with money will bail them out if they get in trouble. Realistically structured "education mortgages" are one way that could help us out with the tuition crunch we are presently facing.

12 comments:

Allen said...

Yes, it's a plan that could work and would take the pressure off the parents who are carrying the load for everyone. But if it requires that the yeshivas be open about their finances and submit to some kind of regulation, well that I'm not so hopeful about. It's going to take one yeshiva going bankrupt before the other yeshivas might, just might, begin to rethink their postions.

JS said...

Where's the collateral? This is just an unsecured loan. I think all this would mean is that instead of not getting paid in the here and now, the yeshiva doesn't get paid oevr 30 years. Without collateral, there's no incentive to pay this off. It becomes just another debt owed to a heimeshe organization that won't call out the debt, or if they do can be put off. It's just like suggesting a 30 year payment plan at the kosher grocery store. The idea just can't work since it places too much trust in people that have already proven themselves to be untrustworthy.

The idea is no different than telling parents who can't pay in full now, "we'll accept your donations after your kids are done with school." How many of these people would donate even though they've received significant scholarships for 15 or so years for all their kids? And as soon as they're done paying for the youngest, now they have weddings to plan and perhaps a married couple to support.

Without collateral, these parents will continue to pay current obligations while ignoring ones from the past.

And for those who would suggest a house as collateral, not everyone has a house, for those that do they already take out home equity loans to pay for yeshiva so this is nothing new, and besides, do we really want yeshivas kicking people out of their homes or repossessing their cars and jewelry?

Face it. The only solution is for people to pay in full.

Lion of Zion said...

i liked your idea beacuse it basically assumes that tuition assitance is not a divine right like everyone thinks. but as i read it i had the same concerns that JS has. the yeshivah market could easily end up like the contemporary housing market.

Lion of Zion said...

i liked your idea beacuse it basically assumes that tuition assitance is not a divine right like everyone thinks. but as i read it i had the same concerns that JS has. the yeshivah market could easily end up like the contemporary housing market.

Anonymous said...

Where's the collateral?

The kids. The kids!! If the parents don't pay off the loans, the school "repossesses" the kids as indentured servants ("eved ivri") :-)))

The idea is no different than telling parents who can't pay in full now, "we'll accept your donations after your kids are done with school." How many of these people would donate even though they've received significant scholarships for 15 or so years for all their kids?

Very few. My father received tuition assistance from the schools my siblings and I attended back while he was unemployed and simply had no money to pay. Later on, he repaid every penny of that assistance. Now please realize that my father (and I to some extent) despises the way most Jewish day schools are managed and staffed and rarely donates anything to them (and instead favors donations that benefit poor people rather than rich or middle class people*), but he viewed this as a debt, and like all debts he's ever incurred, paid it off.

Mark

* That means that he doesn't donate to "edifices" (grandiose shuls, schools, etc) or to memorials for dead Jews, and instead donates to places like the chicken fund of the chicken lady of Yerushalaim (Mrs. Clara Hammer, who happens to be distantly related to us). The shul can do without a new kitchen for the caterer, but the poor folks in Yerushalaim can't do without a meal next shabbat.

Anonymous said...

What happens when a school folds before the children attend? What happens to the payments already made?

ProfK said...

I would guess Anonymous that parents would be required to take out "mortgage insurance" which would cover the folded school.

ProfK said...

JS,
Re "do we really want yeshivas kicking people out of their homes or repossessing their cars and jewelry?" Substitute banks for yeshivas and no one would have a problem with the idea. Frankly, if someone signs a fiduciary contract with a yeshiva and reneges on that contract, not because of catastrophic circumstances, then why shouldn't the yeshiva be entitled to the collateral that was put up? And why not put up that jewelry or car or house? Maybe if some parents knew that they were endangering their ownership they might rein in the type of spending that is making it impossible for some of them to meet their tuition bills.

SephardiLady said...

I'm not enthusiastic about mortgaging an education. Plenty of people do it by taking a loan against their home. I everyone who ever had a scholarship committed to pay every penny at least when their estate was disolved, we probably wouldn't have the tuition crisis we have.

As for me, I hate debt hanging over my head. Even having a large mortgage makes me itch. If we can't keep up with the race, knowing we can be in the race for 30 plus yars isn't going to make me feel like we can afford it.

Hope you don't mind if I link to this as a guest post.

ProfK said...

SL,
Don't mind at all. It's one way to expand the conversation on tuition and maybe find some ideas that might work, if not in every case perhaps in some cases.

JS said...

ProfK,

Personally, I'd rather see the family get a collateralized loan from the bank and have the bank deal with it than have a rabbi with a tow truck show up to tow away the car.

aml said...

I think this is a terrible idea. As it is, we'll still be paying a mortgage and student loans (our loans!) in 25 years- I can't imagine still paying for kindergarten 25 years later.