As Detroit lines up for a “line of credit” (of $34 billion) so it can continue its operations, and considers saddling foreign automakers (and even automakers in other states) with its ridiculous union packages, and as Congress considers a student loan bailout, it’s worthwhile to consider alternatives.

Detroit first, since it’s the easiest one.  Why doesn’t Congress tell Detroit and UAW that it has two choices: 1) re-negotiate union contracts with Congress as a mediator;  2) file for bankruptcy and let a judge re-do the contracts for them; or 3) go out of business and have NO contracts, NO benefits, and NO pensions.

While the car manufacturers can make noise about being unable to sell cars if they have to declare bankruptcy, that is not a reason to refuse to consider that as an option.  Tell the unions, “Look, guys, renegotiate with us, or we’re declaring bankruptcy and it’s all over. If we have to shut down operations because no one is buying our cars, it won’t be the people behind mahogany desks who lose their jobs.  We have to be here no matter what.  Y’all are only here if we are making and selling cars.  So you can either have a bankruptcy court tell you what your contract is going to be, or you can play nice with us now.”

Now, for the student loan debacle.  For several decades, college tuition has increased much faster than inflation.  Some of this is due, in part, to the fact that the federal government has given out low-interest loans to students.  As students find it easier to fund their educations, colleges have less of an incentive to control costs.  The vicious cycle continues as the federal government rolls out ever shinier and prettier loan programmes.

There are a variety of solutions to this problem; some have suggested congressional oversight of college endowments, or required spending of endowments on financial aid.  Aside from being a sickening intrusion into the private market and a disruption of our world-class educational system, it would not let colleges save up money to weather financial storms (like the one happening right now), and would force them to spend money in very steady increments, despite the fact that their budgets can vary widely from one year to another.   This is because universities use their endowments to fund, among other things, building expenditures.  Some years, a college won’t be building and doesn’t spend a dime; in subsequent years, it may need to replace almost all of its buildings.

Socialisation of our universities aside, there are other options.  If Congress truly wanted to ensure that students weren’t borrowing too much, could pay back their loans, and that colleges weren’t using the easy access to loans to mismanage their resources, it could limit loans not just by dollar value (which still incents colleges to raise their tuition), but by total debt load.  For example, the federal government could refuse to lend to a law student whose total debt at graduation, from federal and private sources, exceeds $75,000.  This will provide a huge incentive for colleges to give grants, reduce their tuition, or provide income-sensitive debt repayment.  If they were to charge too much, students won’t be able to get any federal money.

Just a thought.