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Thread: Education loans

  1. #11
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    Re: Education loans

    Quote Originally Posted by Kandahar View Post
    Keep in mind that the percentage of your income that you'd pay would be tied to the amount of money you borrowed.
    Realistically speaking, in order for such a plan to get enacted, it would have to have some sort of progressive scaling plan in place such that people earning very low incomes wouldn't have to pay as high a percentage as people earning higher incomes. All it takes is one public school teacher who can't make ends meet b/c the program wants 30% of his income to ensure that Congress designs the program such that low earners pay only a small percentage of their income toward the loans. In light of that, I think it would be easy to find a sweet spot where you could milk the system pretty well.

    Then why go to college in the first place?
    1) Spend 10 years living it up on gov money while you get a degree and an MD or JD (with a masters or MBA thrown in for good measure)
    2) Spend 10 years working as a prosecutor/medical resident making $40-70k, watch your $300k in student loans evaporate.
    3) Spend the rest of your life working as a neurosurgeon/private practice lawyer making dolla dolla bills y'all.

    I already know people who do versions of this using the gov's public interest loan forgiveness program. If it was expanded to cover all jobs regardless of the field, this would become far more common.

    I'm not really sure that's an undesirable outcome, from a macroeconomic perspective. If people worked 40 hours instead of 70 hours, there would be less unemployment among recent grads.
    I'm not an econ dude, but is it really a better outcome for everyone to work fewer hours than for almost everyone to work more hours? I thought that our increased productivity/worker gave us an edge over places like France.

    Well, that problem could be solved by capping the amount that you could borrow. Or charging you more than 25% of your income if you ran up an exorbitant bill. Or both.
    I just think that no matter how the program was designed, it would be very easy to game. We already have a version of this in the gov's loan forgiveness for public service employees. I don't think it would be a good idea to expand it to all jobs and all loans.
    Last edited by RightinNYC; 01-04-11 at 01:25 AM.
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  2. #12
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    Re: Education loans

    Quote Originally Posted by Hugh_Akston View Post
    Really? Do you know how many people I know that got a student loan other than from the government? I think your stretching reality just a tad here.
    My understanding is that the only reason why private lenders are willing to give unsecured loans to young students is because they know that:

    1) The loans are backed by the federal government, or
    2) The loans are not dischargeable, thus guaranteeing that they can squeeze the student until he dies.

    Both of those things are due to the government, in one way or another.
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  3. #13
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    Re: Education loans

    I don't support this. I am a student who receives federal loans and I feel it isn't fair. Especially when it comes to the government taking a percentage of your income away based on your degree and salary. Why shouldn't a sociology or art majors degree be the same cost as a biologist or engineer? People choose what school they go to and they choose to have a major in a certain field. It isn't our fault that they may choose an area of study that does not pay well. Essentially you are socializing college debt with the more wealthy graduates paying their share and more for those who do not make as much but chose to major in a field that doesn't have many high paying jobs. It's fair for a theatre major and a science major to pay the same tuition and pay back the same amount of loans. One must also take into account that not all degrees and majors are earned with equal work and effort.
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  4. #14
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    Re: Education loans

    Quote Originally Posted by digsbe View Post
    I don't support this. I am a student who receives federal loans and I feel it isn't fair. Especially when it comes to the government taking a percentage of your income away based on your degree and salary. Why shouldn't a sociology or art majors degree be the same cost as a biologist or engineer?
    Because the degrees are not worth the same amount of money, from a return-on-investment perspective.

    Quote Originally Posted by digsbe
    People choose what school they go to and they choose to have a major in a certain field. It isn't our fault that they may choose an area of study that does not pay well.
    It's not your fault, but it doesn't make a whole lot of sense to charge them so much for a worthless degree. An engineering degree should cost more than a sociology degree for the same reason that a Harvard degree should cost more than a community college degree: it bestows better opportunities and higher salaries.

    Quote Originally Posted by digsbe
    Essentially you are socializing college debt with the more wealthy graduates paying their share and more for those who do not make as much but chose to major in a field that doesn't have many high paying jobs.
    As it stands now, the philosophy majors are subsidizing the engineering majors. A philosophy degree is worth far less than the average degree, and an engineering degree is worth far more. Yet they cost the same from any given institution.

    Quote Originally Posted by digsbe
    It's fair for a theatre major and a science major to pay the same tuition and pay back the same amount of loans. One must also take into account that not all degrees and majors are earned with equal work and effort.
    I don't really see how that's relevant from an economic standpoint.
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  5. #15
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    Re: Education loans

    Quote Originally Posted by Kandahar View Post
    Because the degrees are not worth the same amount of money, from a return-on-investment perspective.
    So we should subsidize investors who make risky investments and lose their money? Should we take the money and profits from wise investors to subsidize others? No. Universities charge tuition rates based on credit hours (and typically full time student status). What if a theatre major decides to take a science class? Should science classes be more expensive? A degree and a major is a personal choice.
    It's not your fault, but it doesn't make a whole lot of sense to charge them so much for a worthless degree. An engineering degree should cost more than a sociology degree for the same reason that a Harvard degree should cost more than a community college degree: it bestows better opportunities and higher salaries.
    Then why is it sensible for someone to earn and pay for a worthless degree? An engineering degree and a sociology degree should cost the same at the same school. The difference between Harvard and a community college is the quality of an education and the professors.

    As it stands now, the philosophy majors are subsidizing the engineering majors. A philosophy degree is worth far less than the average degree, and an engineering degree is worth far more. Yet they cost the same from any given institution.
    They should cost the same. A degree is a degree. We shouldn't overcharge science majors because the kids studying art or philosophy won't be able to make as much with their degrees as scientists. It's a personal choice.
    I don't really see how that's relevant from an economic standpoint.
    My point is that typically science majors work far harder than theatre or art majors. People chose to go into sciences because they pay well. However, the classes and coursework is much harder and requires more study. I know many people at my university who are riding off of mommy and daddy's money and are all art and theatre majors. They aren't in school to get a money earning degree, they are there to study a hobby and wind up costing their parents a lot of money while they work in fast food with a bachelors in art or something. I'm not intending to bash those who chose to major in art or theatre, but why should I as a science major have to pay more in tuition and pay back a disproportional amount of student loan money so someone else can pay less due to the fact that their area of study is academically easier and economically not as profitable? I work really hard to keep a 3.0+ GPA as a molecular biology major. I will be in school for 8 years total because after I get my B.S. in molecular biology I am going to go to pharmacy school. I am going to spend 8 years in university, lots of money in tuition, and many more hours of study and testing required to pass and succeed in the area of sciences. Why should I have to subsidize the theatre major when I work much harder and will have to study for over double the amount of years? People make choices, they chose to attend a school and chose to declare a major.
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  6. #16
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    Re: Education loans

    Quote Originally Posted by Kandahar View Post
    I've heard an interesting idea for college loans kicked around a few times, and I was wondering what you guys thought of it.

    Currently, the federal government via Sallie Mae provides loans (up to the total cost of attendance) for students to attend vocational schools, community colleges, universities, or professional schools. The students then pay the government back, with interest, after they finish school and get a job.

    Instead of doing this, the government could simply takes a percentage of debtors' income for, say, the first ten years after they graduate. The exact percentage would depend on the amount they borrowed. As I see it, this would have several positive effects:

    • It would introduce market forces into universities. Is it really fair or economical for an engineering major to pay the same tuition as a sociology major?
    • It transfers risk from the individual borrower to the state, in effect creating a large insurance pool for recent college graduates. This, in turn, could increase the number of people pursuing higher education.
    • It prevents people from graduating school at age 22 with a 200% (or more) debt-to-income ratio.
    • It puts the brakes on the ever-increasing rates of college tuition.


    What do you guys think? Would this idea work? What problems do you foresee?
    What happens if upon graduation if that individual can not get a job in the field he studied for?

    1. Do we take his check he earns at McDonalds, Walmart or maybe what he earns an electrician for the next ten years and we the tax payers take a loss or do we instead take part of his check for the next 30 or 40 years?

    2.Do we limit what degrees to what we think there will be a job market for when person graduates can go for under this program so that if there is no job market for that degree the tax payers are not screwed too much? In other words we do not fork out the cash so someone can go to college in order to get into NASA because we know you have a better chance of winning a lottery than getting a job at NASA?

    3.Do we allow people to go for degrees that we know that they can easily pay back even if there was no job market for and had to get a job at McDonalds, electrician or construction worker?

    4. Do we force people to move to the only places that are hiring people with those particular degrees so that the tax payers are not screwed?
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  7. #17
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    Re: Education loans

    Quote Originally Posted by jamesrage View Post
    What happens if upon graduation if that individual can not get a job in the field he studied for?

    1. Do we take his check he earns at McDonalds, Walmart or maybe what he earns an electrician for the next ten years and we the tax payers take a loss or do we instead take part of his check for the next 30 or 40 years?

    2.Do we limit what degrees to what we think there will be a job market for when person graduates can go for under this program so that if there is no job market for that degree the tax payers are not screwed too much? In other words we do not fork out the cash so someone can go to college in order to get into NASA because we know you have a better chance of winning a lottery than getting a job at NASA?

    3.Do we allow people to go for degrees that we know that they can easily pay back even if there was no job market for and had to get a job at McDonalds, electrician or construction worker?

    4. Do we force people to move to the only places that are hiring people with those particular degrees so that the tax payers are not screwed?
    1. Keep in mind that if the state was routinely losing money for useless majors, the government could simply not provide as much and the cost of tuition would drop. What I'm envisioning is a system where each major has its own price tag, that's roughly tied to the value of the degree in terms of expected salary. This would improve the economic efficiency of universities.

    2. I don't think there's any way the state can possibly know what jobs will be available when the person graduates. If you simply charge a percentage of their income, you eliminate that problem. If you have a lot of philosophy majors who pay back very little over the course of ten years, then the next group of philosophy majors will not have as much in student loans to draw from. This will cause the universities to lower their prices for useless majors.

    3. Sure. They just wouldn't be able to borrow very much in the first place.

    4. No, people can pursue their interests on their own.
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  8. #18
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    Re: Education loans

    Quote Originally Posted by Kandahar View Post
    As I see it, this would have several positive effects:

    • It would introduce market forces into universities. Is it really fair or economical for an engineering major to pay the same tuition as a sociology major?

    I am not convinced that this would actually accomplish this. How will this change the way universities price their students per credit?
    • It transfers risk from the individual borrower to the state, in effect creating a large insurance pool for recent college graduates. This, in turn, could increase the number of people pursuing higher education.
    To some degree it would, since the repayment depends upon your future income.

    • It prevents people from graduating school at age 22 with a 200% (or more) debt-to-income ratio.
    This isn't necessarily the case. If you have an obligation to pay back a certain amount of your income you might as well call it debt. Its a percent of your annual income, but the payment is several years so its not really an apples to apples comparison. Some people may be earning less money with your idea there would be people paying back less, but then again there might be people paying back more too if they make more money. This basically is the risk part you were talking about. But remember the risk does not go away. Eventually someone will be liable for the cost of the tuition, whether it be the student, the school, or the taxpayer. If your goal is to reduce the amount of student debt you could accomplish the same task with a larger subsidy to higher education.
    • It puts the brakes on the ever-increasing rates of college tuition.
    I disagree, if it causes more people to pursue college degrees, the cost will increase. This is known as the law of demand.
    Last edited by drz-400; 01-06-11 at 02:50 AM.

  9. #19
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    Re: Education loans

    Quote Originally Posted by Kandahar View Post
    I've heard an interesting idea for college loans kicked around a few times, and I was wondering what you guys thought of it.

    Currently, the federal government via Sallie Mae provides loans (up to the total cost of attendance) for students to attend vocational schools, community colleges, universities, or professional schools. The students then pay the government back, with interest, after they finish school and get a job.

    Instead of doing this, the government could simply takes a percentage of debtors' income for, say, the first ten years after they graduate. The exact percentage would depend on the amount they borrowed. As I see it, this would have several positive effects:

    • It would introduce market forces into universities. Is it really fair or economical for an engineering major to pay the same tuition as a sociology major?
    • It transfers risk from the individual borrower to the state, in effect creating a large insurance pool for recent college graduates. This, in turn, could increase the number of people pursuing higher education.
    • It prevents people from graduating school at age 22 with a 200% (or more) debt-to-income ratio.
    • It puts the brakes on the ever-increasing rates of college tuition.


    What do you guys think? Would this idea work? What problems do you foresee?
    I guess what I am missing is the mechanism in your idea that would "put the brakes on ever increasing rates of college tuition". Since the college would not be directly involved with the loan, the loan really doesn't seem to effect the college what-so-ever.

    Basically, I think that it is a nifty innovative idea, I REALLY like innovative ideas that are origional and thunk up "out of the box". But I don't see that it would solve any problems, and it might create an entirely new set of additional problems as suggested by several posters.

    I am highly supportive of government backed student loans. I generally lean to the right on issues concerning special favors for special groups, and on subsidy issues. Basically, if the free market can't support an industry, then that industry probably doesn't need to exist. Student loans however are an exception. The "student loans made directly to the student and secured only by good faith" industry probably wouldn't survive without government guarantees or subsidies of some sort. However those types of loans are one of the most valuable to our society in as far as they tend to even up the playing field for people from a financially disadvantaged background. A lot of bright and capable and deserving young people would not be able to attend college without these loans (including myself). They are reasonably fair in that they are loans which have to be paid pack, so they are much more economical to the taxpayer than need based grants, and a lot more practical for our society than to have bright young minds working low skilled occupations just because their parents were not relatively wealthy.

    Student loan(s) is one of the few issues that actually has a rational centrist position. Most concepts only work if you go to a far right or far left extreme, anything in the middle tends to not be very functional. But government guaranteed student loans truely provide for the best of all worlds. The government student loan is not a give-away or freebe, it is something that has to be repaid. It may occasionally have an expense to the taxpayer in that not everyone will repay their loans, but that cost is minimal and quite lower than the cost of government grants, while still providing opportunities and advantages to both the individual and our society as a whole that may not be available otherwise. It's a win-win situation.

    Our current system of educational funding worked fairly well when I was a college student. 25 years later I still have student loan debt, but it is minimal and the monthly payments really don't cut into my lifestyle significantly. The value of my education was worth far more than it's cost. But like I said, that was 25 years ago, things may be different now, I am fixing to find out...

    My son is a senior in high school, he has just applied for acceptance at 4 colleges. One is a fairly prestigious (and expensive) medium size private university with an excellent program in his area of interest. One is a major state supported university with a large program in his area of interest, but not particularly well known for that program (although it has a different program that it is consistantly rated #1 in the world for). Another is an in-state, lower end academically, fairly large state supported university which does offer a degree suitable to his interest, but it is far from ideal. The fourth college is an out of state, but state supported, fairly large university, not highly ranked academically overall, but it has a reputation for an excellent program in his area of interest.

    Which college he goes to will be determined by which ones he will get accepted at (two of them will be slam dunks, one is a "maybe" and one is fairly unlikely), and the bottom line cost after any scholarship/grant money. Personally, I am in the financial situation where he probably can't get any need based grant money, yet I have no money saved for his education because I have burned through what little savings we did have due to recession related financial issues. I can certainly help him out with by paying for the meal plan and some pocket money, I don't know that I can contribute a lot to his tuition or housing, so he will most likely have to rely on student loans for whatever gap may exist between the total bill and whatever he can get as far as scholarships.
    Last edited by imagep; 01-06-11 at 02:18 PM.

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