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To sum it up: Basically, if several states pass it, it would replace the student payment system with a system where students would go to school tuition free in exchange for paying 4% of their annual income back for the next 20 years regardless of income. It essentially acts as a tax and removes loan providers from the equation.
Right now, I'm in support of this policy so long as it addresses the issues of universal coverage to prevent wealthy students from opting it and I see how they determine how much private universities that receive federal funds will receive. I think the most immediate effect of the policy will be that it will alleviate the student debt load. The more long term effect though, will be that more low income students will want to attend college and not be intimidated by the cost. That's a good thing since it helps for greater social mobility and intergenerational mobility in particular.
I don't think it solves the biggest problem in higher education. I'm all for a change if it takes on the larger problem... which is the availability of low quality higher education for prices ranging from affordable to insane. States should focus on a few high quality schools than several low quality schools. Without fixing this, programs like Pay it Forward just help fuel the larger problem.
20 years is a LONG time. For instance, 20 years of 4% of my entry-level salary would more than cover the out of state tuition for the school I went to, with $4000 left over. And I was in-state, so I paid about 40% of that. So it seems like not such a great deal
Additionally, if private colleges are included (from the article it looks like they aren't), it decouples the payor from the receiver of services even more than is actually done. This would be certain to cause prices (either paid by the state, or by those who opt out of the program) to go up even more.
Yes 20 years is a long time, but the idea is that everyone would be paying it regardless of their income after college reducing uncertainty about immediate job prospects. In addition to that, debt doesn't act as an obstacle to students who don't get a job that pays well. Overall, I think the idea is that you pay a little bit more into this for the reduced uncertainty so that it pays for itself with a surplus to cover those who are underemployed. Considering what we know about the lifetime earnings of college grads, I think we can conclude that such underemployed students would make up a small portion of grads. I'm talking lifelong underemployment though. During downtowns, underemployment by recent grads is problematic due to their inexperience.
I disagree about the private school thing. Under current state and federal laws, public schools which receive a large portion of their funding from states(which has been declining) are prohibited by increasing their fees by a certain amount each year(it varies by state). If private schools were to opt then they would have no choice but to take what they receive since they aren't charging students for tuition.
To sum it up: Basically, if several states pass it, it would replace the student payment system with a system where students would go to school tuition free in exchange for paying 4% of their annual income back for the next 20 years regardless of income. It essentially acts as a tax and removes loan providers from the equation.
Right now, I'm in support of this policy so long as it addresses the issues of universal coverage to prevent wealthy students from opting it and I see how they determine how much private universities that receive federal funds will receive. I think the most immediate effect of the policy will be that it will alleviate the student debt load. The more long term effect though, will be that more low income students will want to attend college and not be intimidated by the cost. That's a good thing since it helps for greater social mobility and intergenerational mobility in particular.
This is a terrible idea. All this is doing is adding leverage into college tuition. Ideas like this is what led to the housing market crash in 2008. It is the reason social security has a massive unfunded liability. It is the reason the federal reserve does not have the capital to fund another collapse. This continues the deviation between payment balances on student accounts and cash flows to universities. That deviation is typically managed by interest on loans. Now, we want to remove that interest and replace it with a levered balance on a balance sheet. Every single industry that has embraced that model has eventually suffered a massive collapse due to it. This is how bear stearns and the lehman brothers kept making money at such a high rate, and look where it got them. Don't we learn anything from history?
In this case if I never get a raise I will pay 70k for tuition that only cost me 25k. If it were free tuition, room & board, books, and food the 4% for 20 years may make sense. But just free tuition, most people would pay back 2-4x what they took out. You would have to make less than 30k for 20 years in order to not payback 25k @ 4% of that salary. Tuition at most public state schools is very affordable. In most states it is under 10k/yr. The expenses come in when you talk about room & board, food, books, etc.
At least the current system encourages people to major in subjects that the economy needs people employed in. The system proposed is flawed because it will lead to more students following their bliss and not being employed, but not having to fret over it because others will be paying their tuition.
It will be like a four year learning vacation for some.
Assuming a person has an average student loan balance ($24,301, given that is the national average student loan debt) and pays it off over 20 years at a 6% interest rate, they will end up paying $41,761 in student loan debt over those 20 years. If we assume a person gets an average raise of 2% year over year in their job, the break even point with this new program is a starting salary of $42,969. This means that this program would force anyone with a starting salary of over $42,969 in today's dollars to subsidize those who start out making less than that upon graduation. Is that something we really want to do? How would that do anything to encourage people to pick degrees with economic viability?
To sum it up: Basically, if several states pass it, it would replace the student payment system with a system where students would go to school tuition free in exchange for paying 4% of their annual income back for the next 20 years regardless of income. It essentially acts as a tax and removes loan providers from the equation.
Right now, I'm in support of this policy so long as it addresses the issues of universal coverage to prevent wealthy students from opting it and I see how they determine how much private universities that receive federal funds will receive. I think the most immediate effect of the policy will be that it will alleviate the student debt load. The more long term effect though, will be that more low income students will want to attend college and not be intimidated by the cost. That's a good thing since it helps for greater social mobility and intergenerational mobility in particular.
how the heck would you ever get lending institutions to participate in this? a loan where if the student is unemployed or underemployed, they are SOL?
oh wait, i know. have a federal subsidy guarantee that the lender will at least recoup their losses
but for all those that go to med school and for whom this represents way more than the original loan plus reasonable interest, lender keeps the entire 4%...
thumbs down. much better to just use the subsidy money to keep the price of public education down
This is a terrible idea. All this is doing is adding leverage into college tuition. Ideas like this is what led to the housing market crash in 2008. It is the reason social security has a massive unfunded liability. It is the reason the federal reserve does not have the capital to fund another collapse. This continues the deviation between payment balances on student accounts and cash flows to universities. That deviation is typically managed by interest on loans. Now, we want to remove that interest and replace it with a levered balance on a balance sheet. Every single industry that has embraced that model has eventually suffered a massive collapse due to it. This is how bear stearns and the lehman brothers kept making money at such a high rate, and look where it got them. Don't we learn anything from history?
To be honest, I think you're taking a bunch of unrelated things and trying to tie them together. I have no idea what you're talking about as they are other various forms of higher education models in other developed countries ranging from something similiar to Pay It Forward to outright subsidizing education including the graduate and doctorate level. The US is very unique in that it's the richest developed country yet it has the highest tuition rates and student debt levels. The EU as a whole produces nearly as much as the US when we look at GDP yet tuition levels vary depending on how each country subsidizes education, yet what they all have in common is that they're nowhere as near as expensive as the US.
Quote:
Originally Posted by mizzourah2006
In this case if I never get a raise I will pay 70k for tuition that only cost me 25k. If it were free tuition, room & board, books, and food the 4% for 20 years may make sense. But just free tuition, most people would pay back 2-4x what they took out. You would have to make less than 30k for 20 years in order to not payback 25k @ 4% of that salary. Tuition at most public state schools is very affordable. In most states it is under 10k/yr. The expenses come in when you talk about room & board, food, books, etc.
Yeah someone mentioned they would pay more earlier and I think that's a valid concern. For me whoever, I would disagree since I think creating that access to higher education is a public good worth investing in. For low income, first generation, or minority students, it's even more important since they may put off college because of the cost which is a waste of human capital to have people permanently underemployed. In a knowledge economy, that's very important. I think it's important to note that high earners generally pay more back in taxes over their lifetime and right now they're used to fund higher education. One thing I also like about the idea is that it cuts down the on the paperwork for higher education so it would make fafsa useless to everyone except maybe low income students.
I disagree about the affordability of higher education. The cost of it has ballooned over the past 40 years due to decreased public investment. As investment increases students take on more debt. For example, the a state may be expected to fund 80% of higher education cost while the student funds the remaining 20%. As public investment decreases, the student is expected to pick up the percentage that the state does not cover.
During the late 90s, at the height of the dot com bubble , tuition levels went down for the first time in a long time as states were collecting more in tax revenue because the economy was at full employment. Since then it's continue to rise. The total student debt levels in the early 2000s was around 225 billion. Now it's at 1 trillion. That's pretty bad since not only can people who graduate during a recession expect to earn less than someone who graduates during a boom, but now they're carrying more debt that they're going to have a harder time paying off as interest accumulates which is detrimental when it comes to making investments for themselves.
Quote:
Originally Posted by goldengrain
At least the current system encourages people to major in subjects that the economy needs people employed in. The system proposed is flawed because it will lead to more students following their bliss and not being employed, but not having to fret over it because others will be paying their tuition.
It will be like a four year learning vacation for some.
Please provide hard evidence to back up your claim.
Education is not industrialized technical training, making it more accessible is not going to lead to students "vacationing", and aside from the already mentioned economic benefits of education, it also has social spillover effects.
Quote:
Originally Posted by hnsq
It is a slow day at work, so I did the math.
Assuming a person has an average student loan balance ($24,301, given that is the national average student loan debt) and pays it off over 20 years at a 6% interest rate, they will end up paying $41,761 in student loan debt over those 20 years. If we assume a person gets an average raise of 2% year over year in their job, the break even point with this new program is a starting salary of $42,969. This means that this program would force anyone with a starting salary of over $42,969 in today's dollars to subsidize those who start out making less than that upon graduation. Is that something we really want to do? How would that do anything to encourage people to pick degrees with economic viability?
As I stated before, people who earn more pay more in taxes and the inevitably of that happening hasn't led people to stop going into high earning fields. Our taxes already go to fund public institutions in our state and federal subsidies issued by the DoE.
Quote:
Originally Posted by OdysseusNY
how the heck would you ever get lending institutions to participate in this? a loan where if the student is unemployed or underemployed, they are SOL?
oh wait, i know. have a federal subsidy guarantee that the lender will at least recoup their losses
but for all those that go to med school and for whom this represents way more than the original loan plus reasonable interest, lender keeps the entire 4%...
thumbs down. much better to just use the subsidy money to keep the price of public education down
I know it's long, but please read the article. This acts as a 20 year tax that funds itself with a surplus. There is no longer a need for a lender.
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