Their Relation to Higher Educational Finance
75
By grouping in this manner those administering loans could reach
the defaulting borrowers through the alumni association and a rivalry
could be set up between the different classes as to which would have the
best record at the end of, say, ten or fifteen years. The assessment for the
guarantee fund could be placed on the borrowing group in the dass, the
borrowing groups in the entire institution, and the borrowers of the
corresponding dass in all institutions.
Thus the insurance would come from the dass group, the College
group, and the intercollegiate dass group in the case of funds administered
by an outside or intercollegiate Organization. If it is a College fund,
the intercollegiate element should be omitted. Such a form of guarantee
should be more effective than one where there exists no connection excepting
the loan connection.
It may be said, then, that the group guarantee plan is sound both in
principle and practice and is the most effective means to administer funds.
As used at present, the only objections are the form of grouping and the
allocation of charges for the guarantee fund. The groups should be large
and in accordance with already existing groups—the dass, the College, and
those of the corresponding dass in the different Colleges and universities.
Organizing a certain number of borrowing members of a dass in this
manner, they, in conjunction with the business officers of the university,
could pass upon the eligibility of other members of the dass who
wished to borrow. This should be a most effective manner in which to
select the borrowers. The students know the members of their own dass
better than the faculty or business officers. It would also eliminate the
element of Unfairness which exists under the present group guarantee
plan, namely, making students responsible for others when they have had
no part in the selection of the risk. If all the members of the group are
to be responsible for individual defaults which occur, then they should
have a voice in the selection of their fellow members. Thus with a
different form of grouping, the giving to the members of a group a voice
in the selection of additional members and different allocation of charges
for the guarantee fund, the group guarantee should be most commendable.
Disposing of the Guarantee Fund
After having decided that the guarantee fund is desirable as an assurance
and as a source of pressure to force payment, it becomes necessary
to provide for the handling of such a fund. The amount required
should be sufficient only to cover losses and the remainder should be
refunded. It should be possible, after sufficient experience, to make the
surcharge for this purpose just enough to cover losses with perhaps a safe
margin.
