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Thread: Education loans

  1. #1
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    Education loans

    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?
    Last edited by Kandahar; 01-04-11 at 12:37 AM.
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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
    • 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?
    It would encourage expensive, useless degrees more than it would (relatively) cheap, useful degrees. A 200% debt-to-income ratio coming out of college is an excellent incentive not to go to an Ivy League for a philosophy degree with the government on the hook for the Ivy league tuition.

  3. #3
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    Re: Education loans

    I don't support government being in the business of student loans, Amtrak, health care, home loans, etc... Every business the government sticks their fingers in loses money. My vote would be for government to get out of the marketplace and let the free market (something we haven't had in this country for a very, very long time) handle it.
    Welfare (Food Stamps, WIC, etc...) are not entitlements. They are taxpayer funded handouts and shouldn't be called entitlements at all. Social Security and Veteran's benefits are 'Entitlements' because the people receiving them are entitled to them. They were earned and paid for by the recipients.

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    Re: Education loans

    Quote Originally Posted by Kernel Sanders View Post
    It would encourage expensive, useless degrees more than it would (relatively) cheap, useful degrees. A 200% debt-to-income ratio coming out of college is an excellent incentive not to go to an Ivy League for a philosophy degree with the government on the hook for the Ivy league tuition.
    But those useless degrees would cease to be so expensive if market forces were introduced into universities. The problem is that most universities have a simple tuition rate for everyone, regardless of their major. That would change in a hurry if Sallie Mae only offered to pay universities the amount that the degree was actually worth, as determined by the graduates' salary for the first ten years after school.
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    Re: Education loans

    Quote Originally Posted by Hugh_Akston View Post
    I don't support government being in the business of student loans, Amtrak, health care, home loans, etc... Every business the government sticks their fingers in loses money.
    Of course it does. If it didn't lose money, then they could just let the private sector handle it. The government isn't in business to make money.

    Quote Originally Posted by Hugh_Akston
    My vote would be for government to get out of the marketplace and let the free market (something we haven't had in this country for a very, very long time) handle it.
    That would close off college education to a lot of people and have a very negative impact on our nation's competitiveness.
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    Re: Education loans

    Quote Originally Posted by Kandahar View Post
    Of course it does. If it didn't lose money, then they could just let the private sector handle it. The government isn't in business to make money.
    So they are in the business to lose taxpayer money? Because that is exactly what they are doing when they try to run a business. It is costing me and you when they do.

    Quote Originally Posted by Kandahar View Post
    That would close off college education to a lot of people and have a very negative impact on our nation's competitiveness.
    Why, because the loan companies would discriminate? That seems like a big assumption on your part.
    Welfare (Food Stamps, WIC, etc...) are not entitlements. They are taxpayer funded handouts and shouldn't be called entitlements at all. Social Security and Veteran's benefits are 'Entitlements' because the people receiving them are entitled to them. They were earned and paid for by the recipients.

  7. #7
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    Re: Education loans

    Quote Originally Posted by Hugh_Akston View Post
    So they are in the business to lose taxpayer money? Because that is exactly what they are doing when they try to run a business. It is costing me and you when they do.
    Only if you think of government services as though they were businesses. I mean, the US spends $650 billion on the military each year, but no one says that the military "loses money" because it isn't assumed to be a money-making venture in the first place. Same thing with federal university loans. They aren't "losing" taxpayer money on an ill-conceived business venture, they are "spending" taxpayer money on something that they consider to be in the country's best interest even though they know that they won't get all their money back.

    Quote Originally Posted by Hugh_Akston
    Why, because the loan companies would discriminate? That seems like a big assumption on your part.
    It's unlikely that an 18-year-old kid with no collateral is going to be able to get a large loan to attend school if the federal government is not involved.
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  8. #8
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    Re: Education loans

    I think it would be a strong incentive for people to take out the maximum amount of loans and then to "work" at easy jobs with relatively low pay. I know that in that system, I would be far more likely to take the 40 hour/week job that paid $60k instead of the 70 hour/week job that paid 3 times that.

    I would have also spent as long in college as possible - 10 years of sacrificing 25% of a meager salary would be a small price to pay for dicking around for the best 15 years of my life on the government dime while I got my PhD in Politics/whatever tickled my fancy.
    Last edited by RightinNYC; 01-04-11 at 12:59 AM.
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    Re: Education loans

    Quote Originally Posted by RightinNYC View Post
    I think it would be a strong incentive for people to take out the maximum amount of loans
    Keep in mind that the percentage of your income that you'd pay would be tied to the amount of money you borrowed.

    Quote Originally Posted by RightinNYC
    and then to "work" at easy jobs with relatively low pay.
    Then why go to college in the first place?

    Quote Originally Posted by RightinNYC
    I know that in that system, I would be far more likely to take the 40 hour/week job that paid $60k instead of the 70 hour/week job that paid 3 times that.
    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.

    Quote Originally Posted by RightinNYC
    I would have also spent as long in college as possible - 10 years of sacrificing 25% of a meager salary would be a small price to pay for dicking around for the best 15 years of my life on the government dime while I got my PhD in Politics/whatever tickled my fancy.
    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.
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    Re: Education loans

    Quote Originally Posted by Kandahar View Post
    Only if you think of government services as though they were businesses. I mean, the US spends $650 billion on the military each year, but no one says that the military "loses money" because it isn't assumed to be a money-making venture in the first place. Same thing with federal university loans. They aren't "losing" taxpayer money on an ill-conceived business venture, they are "spending" taxpayer money on something that they consider to be in the country's best interest even though they know that they won't get all their money back.
    You're comparing apples to bowling balls here. The military (at least the Army and the Navy - the Air Force did not yet exist as flight had yet to be discovered and the Marines are typically covered under "armies" as worded in the Constitution) are covered in the Constitution. I don't see government loans for students, government loans for housing, the government running Amtrak or any other business for that matter anywhere in the Constitution. The founders did not want the federal government to have the power or the leverage over people's lives like it does today.

    Quote Originally Posted by Kandahar View Post
    It's unlikely that an 18-year-old kid with no collateral is going to be able to get a large loan to attend school if the federal government is not involved.
    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.
    Welfare (Food Stamps, WIC, etc...) are not entitlements. They are taxpayer funded handouts and shouldn't be called entitlements at all. Social Security and Veteran's benefits are 'Entitlements' because the people receiving them are entitled to them. They were earned and paid for by the recipients.

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