9 ms·

Every time I read articles about student loans in the USA, the options are always presented as either the current state, or free tuition. Why are interest free

Every time I read articles about student loans in the USA, the options are always presented as either the current state, or free tuition. Why are interest free student loans never floated as an option? Here in New Zealand, our student loans are provided by the government and are interest free as long as we reside in New Zealand. It means that people who don't do tertiary education, or who do a trade, don't subsidise those who go to university. It also means that there's a disincentive to go to university if you don't need to, which I think is a good thing, however everyone is able to go to university if they want to/need to, without worrying about how it's being paid for. Our student loans are also paid off proportional to our income, I think at a rate of around 8% (and no repayments required if you earn less than $19k per year). This means that you only pay what you can, it's essentially another tax, rather than in the USA where you get people struggling to make payments on their student loan. Obviously, we also have the advantage of cheaper tuition, although it is rising. It costs around NZ$7,000 (~US$5,000) per year to go to university, it's not cheap, but it's not cripplingly expensive.

marklyon 10y ago
Even just reducing the interest rate can have a significant impact. I cut my rate from just over 7% to 4.71% and slightly increased my payment, moving my final payment from July 2, 2038 to December 1, 2025 (ignoring any additional payments I make) [1]. Just doing that made attacking my massive loan balance much more manageable. I don't expect (or want, actually) for my education to be free. I knew I was racking up debt and knew it would have to be paid. Being able to refinance, though, was a huge help. [1] https://marklyon.org/2016/05/refinancing-student-loans/ https://marklyon.org/2016/05/refinancing-student-loans/
- andromeduck 10y ago
  Jesus! Just how big is your student loan?! I mean I paid for all my living and education expenses with loans too but I'm not sure I would if it would take 20+ years to pay off
  - marklyon 10y ago
    Over 100k. Law school wasn't cheap.
- saiya-jin 10y ago
  well, glad I had it for free, there are tons of other financial burdens in life rather than paying education in IT which was nearly obsolete even during studying (i think unis nowadays catched up a bit with current state). imagine that - graduating and having 0 debt, and not ruining parents in the same time. it's called freedom. but if you feel that you don't want this kind of freedom and perform better under long term pressure, then enjoy your current state.
GarrisonPrime 10y ago
>Why are interest free student loans never floated as an option? I suspect because then no one could make money. In the current system, they certainly make money. In a "free tuition" state, they'd still make money; it'd just come direct from the government rather than being filtered through the population and economy first.
- Godel_unicode 10y ago
  In the United States the vast majority of student loans are from the government.
caf 10y ago
Well, it's still a subsidy, it's just much less of one than completely free tuition would be. If the Government wasn't loaning that money interest-free, it could in principle reduce its issued bonds by that amount, so the subsidy is the value of the bond rate faced by the NZ Government - plus the present value of the expected defaults. The idea of linking repayment to income is called an "income-contingent loan". It's a great idea for University tuition, because it reduces the loan to a system for reclaiming a proportion of the private benefits that accrue to the student from the additional education. This removes some of the risk faced by the student that they might put a lot of resources into education but then fail to realise the expected benefits (eg. through serious illness, a broader economic collapse etc).
parennoob 10y ago
As a non-American living here, I think it boils down to social attitudes. Remember, this is a nation of "temporarily embarrassed millionaires". The general attitude in the US is more like "Everything is a choice" rather than "The Government should do things that are broadly good for everyone". So anything that gives relief to students as whole will be deeply unpopular, but universities charging exorbitant rates and employers using college degrees as a filter for jobs that don't need them are okay, because it's your choice to get into student debt for a degree, or because it's your choice as an employer to use whatever filter you want. This attitude is really hard to change because practically anyone in the US who is admired or famous is so because of their wealth. All the parents think that their kid is going to be good enough to go to Harvard and become a millionaire. And that is why they pony up the ridiculous fees that keep their child in facilities that are ridiculously good for some petulant 18-year olds.
- rebootthesystem 10y ago
  I'm sorry, you generalizations about the US are a grotesque misrepresentation of reality. Just like anywhere in the world, there's a wide spectrum of hopes and wishes and dreams here and an equally wide spectrum of how to achieve them. You are painting the US as a drone-like nonsensical mono-culture. This is very, very far from reality.
jessriedel 10y ago
> It means that people who don't do tertiary education, or who do a trade, don't subsidise those who go to university. Well, an interest-free loan is certainly a significant subsidy, as is the direct government support of NZ universities. But I agree this is less subsidy than some European countries where higher education is essentially given away for free.
jerf 10y ago
We could also make college a lot cheaper. Maybe split things back out into "college" and "university" more clearly, and let more people do something other than ship out to a four (or more) year boarding school to have someone more or less through classes that are more or less someone holding your hand through reading a text book that you may neither want nor need to read. (Yes, the exceptions immediately leap to your mind, I'm sure. But I went to University too, and I remember that I just described an awful lot of courses, even as I too remember the exceptions.) Universities are valuable, yes, but they acquired that reputation in a time where we weren't shoving everyone through them. It is completely unclear to me that 19th century attitudes about the values of Universities are appropriate to our 21st century reality. If you take a hard-headed business-type look at a university and look at the product it is producing vs. the overhead it requires to produce that cost, not to mention the opportunity cost being foisted off on the students, it's not hard to think that we could pare this down a bit for the vast bulk of students, with the result that they still get the vast majority of benefits and either not having any debt, or having an order of magnitude less of it. Leave those who still need the full experience to it, don't make everyone pay for it.
- caseysoftware 10y ago
  I have a 7 week old and a 22 month old and am convinced that - outside of certain fields - college will be entirely optional to them. Even now, there are many things that can/should be learned through apprenticeship or online or via other means and that is only going to increase in the next 15+ years. Please note: I said "college" not education. I believe education will always be vital, no matter what. A piece of paper "proving" it may not be.
  - skuhn 10y ago
    Education (or teaching people how to think) will always be important. Curriculums which attempt to teach and certify specific things will always be of varying degrees of usefulness, but in order for them to become optional their importance to your career will need to be greatly reduced. That means that entire industries need to learn how to hire people based on what they know and what they can do rather than what someone says they can do.
nickjarboe 10y ago
The US has a very complicated system of multiple, income-based, student loan repayment schemes[1]. 20 to 25 years of repayment based on many factors. It is so complicated the government has created a "Repayment Estimator"[2] to help people choose the best plan. At a glance it looks similar to the New Zealand 8%. Seems like most systems evolve to where they are impossible for a human understand. See tax code, social security, Obamacare, etc. [1] https://studentaid.ed.gov/sa/repay-loans/understand/plans https://studentaid.ed.gov/sa/repay-loans/understand/plans [2] https://studentloans.gov/myDirectLoan/mobile/repayment/repaymentEstimator.action https://studentloans.gov/myDirectLoan/mobile/repayment/repay...
- Daishiman 10y ago
  > Seems like most systems evolve to where they are impossible for a human understand. See tax code, social security, Obamacare, etc. That's because the US is characterized by a Republican party with wholly obstructionist goals which make the worst possible consessions for those who do wish for an effective social safety net to be in place, effectively being able to say "I told you so" when the watered-down systems inevitably fail. In countries where those systems are not points of contention they end up working quite well. See the German education system, NHS, and a long list of other programs around the world.
  - rayiner 10y ago
    The German system would never mix with American optimism. Germany has a fewer percentage of its students going to university. Kids are aggressively tracked from an early age into seperate tracks, most of which don't lead to college. And German universities aren't luxurious four year vacations like American universities are.
  - Sacho 10y ago
    What would an effective social safety net look like in this case, without Republican party interference?
rahimnathwani 10y ago
"Why are interest free student loans never floated as an option?" Imagine what would happen if the US government made student loans interest free. Who would gain, and who would lose? (1) Students could afford to take out larger loans (as the repayments would be more affordable with 0% interest vs. 4.66% interest) (2) As a result of (1) colleges could charge higher tuition fees, without reducing the number of students would could afford to pay (3) The government would pay interest to the banks (interest that's paid by students under the current system). Based on what we've seen in the past, increasing access to credit for students mostly benefits colleges. Students end up paying the same monthly payments. Just like how lower interest rates make house prices go up. This is indeed a sad situation. I'm generally in favour of free-market solutions, but most 18-year-olds don't have sufficient information or ability to act as a rational market participant. So the situation in the UK, where undergraduate education is mostly funded by the government, and prices are centrally capped, seems much better for students.
- laughfactory 10y ago
  You're right on the money. In fact, I'd argue that almost no one is smart enough (or wise enough) to only borrow what they really need. I went to college when I was 30. I thought I was smart. I knew that new graduates typically make, maybe, $40K. Yet, I signed up for the full boat...taking every last cent they'd loan me. Consequently, my wife and I are now $250K in debt--and have just bachelor's degrees (plus incomplete master's degrees). Sigh. So much for being so smart. Basically, I've come to the conclusion that college is not for all. We would be wise to get behind technical schools, and community colleges, and save the university for those pursuing subjects like medicine, science, math, law, etc. At a minimum we should change the paradigm of college--from being an "experience" (parties, socializing, sports), to academics. Getting rid of school sponsored sports would vastly change the perception of college. Plus, we should make it harder to graduate. Require a 3.0, and have controls in place to ensure grades don't inflate to enable everyone to achieve the new minimum. Basically, college should be 100% for learning. Sure, you'll still have friends, go to the occasional party, but on the whole you're only there to learn and do things you couldn't learn or do elsewhere. Right now it's almost day care for 20-somethings. This would also necessitate dropping easy programs and majors. Not that there isn't a place for the arts, but is a four year degree in English or Art History really a good idea? But yeah, I've noticed the same thing: the more we incentivize people to go to college by way of grants and loans, the more expensive it gets. When was college cheapest? When there was virtually no aid/loans available to anyone, and a much smaller percentage of people went to college.
prostoalex 10y ago
What's the motivation fo recipients of such funds (universities, faculty, staff, facility builders) to reduce their prices? They operate in a quasi-monopolistic environment where system adjusts to absorb larger budgets thrown at them.
batbomb 10y ago
They were effectively "Free" in 2003, about 3%, IIRC. In fact, my (subsidized) loans from 2003-2005 currently have interest rates below 2% due to on time payments and auto withdraw.
winter_blue 10y ago
I think the problem is that there is no downward marker pressure on college costs (for some puzzling reason there). It seems like American students are willing to pay higher and higher tuitions. This is the root of the problem. If we had 0% interest loans, we might have students paying even more for college than now. Why can't these kids just think about the debt they're getting into?
- rayiner 10y ago
  Kids can't think rationally about debt because their parents and teachers have overinflated the importance of everyone going to college and have actively discouraged critical thinking on these issues.
  - petre 10y ago
    So send them to college elsewhere? in Canada? Europe?
    - paulmd 10y ago
      That's actually a thing now. A significant number of students are going to Germany, getting a subsidized education, and never coming back to the US. Brain drain is not an overall plus for the US economy. We shouldn't want our best and brightest settling overseas - except insofar as we want to do right by our posterity, and the US education system is obviously not doing right by them.
    - tptacek 10y ago
      Many of them can do as I did and go straight from high school to the work force. Others can go into apprenticeships in the skilled trades. Still more to community and vocational colleges to learn business management or accounting. The fastest growing profession for 4-year college graduates is "HR professional". Come on. You don't need a college degree to be an HR rep, or to be a sales account manager, or to work in a purchasing department. That's something like 60% of the white collar jobs in a typical corporation, which we pretend that you need to spend $150,000 on a Russian Lit degree to competently execute.
foota 10y ago
The reality is that providing tuition free loans does cost the government -- whatever the opportunity cost of using that money now was. Though you could argue that the externalities of having an educated population outweigh the opportunity cost.
switch007 10y ago
Are they "interest free" in the Government's use of the phrase, or the real meaning? The UK government calls (or called) them "interest free" because the interest rate is linked to inflation (as long as it's positive!) and of course (/s) your salary always rises with the same measure of inflation, therefore it's "interest free"
danjayh 10y ago
I'd like to propose a different option, one that would actually solve a lot of the current problems in the USA ... before posting a response, please read the 'why' section below. - The government stops guaranteeing student debt to banks - Students are allowed to declare bankruptcy and discharge their debt after N number of years, if they can prove that they're financially unable to pay & the market will not bear a salary high enough to service their debt for someone with their degree - (optionally) The government stops subsidizing student loan interest Why? - If banks are liable to lose the capital in the loan, they will have incentive to make sure that the money is being spent wisely. This does mean that they'll no longer give out $100k for a hypothetical finger painting degree. - It's a societal norm that debt can be discharged in bankruptcy if a person has no assets and no income, and student loans shouldn't be straight-up exception. We have to tighten this up a little bit to make sure people don't go to college, default, and then reap all the benefits ... but disallowing bankruptcy entirely seems extreme. Optionally, we could also consider revoking their degree if they default (rough equivalent of repossession of a physical good). - College is extremely expensive right now because a flood of guaranteed, subsidize money has created fairly inelastic demand -- many students have little price sensitivity. This drives prices up. If loans are harder to get, smaller, and not subsidized, college prices come down. The big problem with the American system right now is that we've written the educational institutions a blank check. If suddenly we put even a little economic pressure on the system, costs will come down. Many of these changes couldn't be made retroactive -- loans were given out under a set of conditions agreed upon by all parties, and these determined the amount of the loans, so they shouldn't be changed. These changes could, however, improve things for future generations. One last note -- as someone who spent 5 years paying off $100k in student loans, and who now makes enough money that I'd be excluded from the 'free' (AKA 'paid by everyone else') tuition plans for my own kids, I do admit that I'm not real excited about that idea. I would be pretty ticked off if I had to pay for my own tuition, my children's tuition, and also everyone else's kids tuition.
- avar 10y ago
  Having a system where you revoke the degree for lack of payment would just create a system where revoked degrees would be equally valuable, since everyone would know they were the same, except for some bank being ripped off.
ekianjo 10y ago
> student loans are provided by the government and are interest free as long as we reside in New Zealand. If you give interest free loans there is a strong incentive from the universities to increase their fees. How do you fix that issue?
- aianus 10y ago
  At least in Ontario, Canada the schools cannot raise tuition without asking the government for permission.
  - ekianjo 10y ago
    Does that work?
    - aianus 10y ago
      I paid ~$13,000 a year tuition to study CS in Canada and I don't feel it's hampered my career vs. paying ~$30,000 in the US. Note that at the same school, Arts programs are much cheaper than STEM (maybe $5,000 a year), in large part because they have much lower perceived economic value.
dingo_bat 10y ago
5000 USD per year is extremely cheap.

marklyon 10y ago

Even just reducing the interest rate can have a significant impact. I cut my rate from just over 7% to 4.71% and slightly increased my payment, moving my final payment from July 2, 2038 to December 1, 2025 (ignoring any additional payments I make) [1]. Just doing that made attacking my massive loan balance much more manageable. I don't expect (or want, actually) for my education to be free. I knew I was racking up debt and knew it would have to be paid. Being able to refinance, though, was a huge help. [1] https://marklyon.org/2016/05/refinancing-student-loans/ https://marklyon.org/2016/05/refinancing-student-loans/

andromeduck 10y ago
Jesus! Just how big is your student loan?! I mean I paid for all my living and education expenses with loans too but I'm not sure I would if it would take 20+ years to pay off
- marklyon 10y ago
  Over 100k. Law school wasn't cheap.
saiya-jin 10y ago
well, glad I had it for free, there are tons of other financial burdens in life rather than paying education in IT which was nearly obsolete even during studying (i think unis nowadays catched up a bit with current state). imagine that - graduating and having 0 debt, and not ruining parents in the same time. it's called freedom. but if you feel that you don't want this kind of freedom and perform better under long term pressure, then enjoy your current state.

GarrisonPrime 10y ago

>Why are interest free student loans never floated as an option? I suspect because then no one could make money. In the current system, they certainly make money. In a "free tuition" state, they'd still make money; it'd just come direct from the government rather than being filtered through the population and economy first.

Godel_unicode 10y ago
In the United States the vast majority of student loans are from the government.

caf 10y ago

Well, it's still a subsidy, it's just much less of one than completely free tuition would be. If the Government wasn't loaning that money interest-free, it could in principle reduce its issued bonds by that amount, so the subsidy is the value of the bond rate faced by the NZ Government - plus the present value of the expected defaults. The idea of linking repayment to income is called an "income-contingent loan". It's a great idea for University tuition, because it reduces the loan to a system for reclaiming a proportion of the private benefits that accrue to the student from the additional education. This removes some of the risk faced by the student that they might put a lot of resources into education but then fail to realise the expected benefits (eg. through serious illness, a broader economic collapse etc).

parennoob 10y ago

As a non-American living here, I think it boils down to social attitudes. Remember, this is a nation of "temporarily embarrassed millionaires". The general attitude in the US is more like "Everything is a choice" rather than "The Government should do things that are broadly good for everyone". So anything that gives relief to students as whole will be deeply unpopular, but universities charging exorbitant rates and employers using college degrees as a filter for jobs that don't need them are okay, because it's your choice to get into student debt for a degree, or because it's your choice as an employer to use whatever filter you want. This attitude is really hard to change because practically anyone in the US who is admired or famous is so because of their wealth. All the parents think that their kid is going to be good enough to go to Harvard and become a millionaire. And that is why they pony up the ridiculous fees that keep their child in facilities that are ridiculously good for some petulant 18-year olds.

rebootthesystem 10y ago
I'm sorry, you generalizations about the US are a grotesque misrepresentation of reality. Just like anywhere in the world, there's a wide spectrum of hopes and wishes and dreams here and an equally wide spectrum of how to achieve them. You are painting the US as a drone-like nonsensical mono-culture. This is very, very far from reality.

jessriedel 10y ago

> It means that people who don't do tertiary education, or who do a trade, don't subsidise those who go to university. Well, an interest-free loan is certainly a significant subsidy, as is the direct government support of NZ universities. But I agree this is less subsidy than some European countries where higher education is essentially given away for free.

jerf 10y ago

We could also make college a lot cheaper. Maybe split things back out into "college" and "university" more clearly, and let more people do something other than ship out to a four (or more) year boarding school to have someone more or less through classes that are more or less someone holding your hand through reading a text book that you may neither want nor need to read. (Yes, the exceptions immediately leap to your mind, I'm sure. But I went to University too, and I remember that I just described an awful lot of courses, even as I too remember the exceptions.) Universities are valuable, yes, but they acquired that reputation in a time where we weren't shoving everyone through them. It is completely unclear to me that 19th century attitudes about the values of Universities are appropriate to our 21st century reality. If you take a hard-headed business-type look at a university and look at the product it is producing vs. the overhead it requires to produce that cost, not to mention the opportunity cost being foisted off on the students, it's not hard to think that we could pare this down a bit for the vast bulk of students, with the result that they still get the vast majority of benefits and either not having any debt, or having an order of magnitude less of it. Leave those who still need the full experience to it, don't make everyone pay for it.

caseysoftware 10y ago
I have a 7 week old and a 22 month old and am convinced that - outside of certain fields - college will be entirely optional to them. Even now, there are many things that can/should be learned through apprenticeship or online or via other means and that is only going to increase in the next 15+ years. Please note: I said "college" not education. I believe education will always be vital, no matter what. A piece of paper "proving" it may not be.
- skuhn 10y ago
  Education (or teaching people how to think) will always be important. Curriculums which attempt to teach and certify specific things will always be of varying degrees of usefulness, but in order for them to become optional their importance to your career will need to be greatly reduced. That means that entire industries need to learn how to hire people based on what they know and what they can do rather than what someone says they can do.

nickjarboe 10y ago

The US has a very complicated system of multiple, income-based, student loan repayment schemes[1]. 20 to 25 years of repayment based on many factors. It is so complicated the government has created a "Repayment Estimator"[2] to help people choose the best plan. At a glance it looks similar to the New Zealand 8%. Seems like most systems evolve to where they are impossible for a human understand. See tax code, social security, Obamacare, etc. [1] https://studentaid.ed.gov/sa/repay-loans/understand/plans https://studentaid.ed.gov/sa/repay-loans/understand/plans [2] https://studentloans.gov/myDirectLoan/mobile/repayment/repaymentEstimator.action https://studentloans.gov/myDirectLoan/mobile/repayment/repay...

Daishiman 10y ago
> Seems like most systems evolve to where they are impossible for a human understand. See tax code, social security, Obamacare, etc. That's because the US is characterized by a Republican party with wholly obstructionist goals which make the worst possible consessions for those who do wish for an effective social safety net to be in place, effectively being able to say "I told you so" when the watered-down systems inevitably fail. In countries where those systems are not points of contention they end up working quite well. See the German education system, NHS, and a long list of other programs around the world.
- rayiner 10y ago
  The German system would never mix with American optimism. Germany has a fewer percentage of its students going to university. Kids are aggressively tracked from an early age into seperate tracks, most of which don't lead to college. And German universities aren't luxurious four year vacations like American universities are.
- Sacho 10y ago
  What would an effective social safety net look like in this case, without Republican party interference?

rahimnathwani 10y ago

"Why are interest free student loans never floated as an option?" Imagine what would happen if the US government made student loans interest free. Who would gain, and who would lose? (1) Students could afford to take out larger loans (as the repayments would be more affordable with 0% interest vs. 4.66% interest) (2) As a result of (1) colleges could charge higher tuition fees, without reducing the number of students would could afford to pay (3) The government would pay interest to the banks (interest that's paid by students under the current system). Based on what we've seen in the past, increasing access to credit for students mostly benefits colleges. Students end up paying the same monthly payments. Just like how lower interest rates make house prices go up. This is indeed a sad situation. I'm generally in favour of free-market solutions, but most 18-year-olds don't have sufficient information or ability to act as a rational market participant. So the situation in the UK, where undergraduate education is mostly funded by the government, and prices are centrally capped, seems much better for students.

laughfactory 10y ago
You're right on the money. In fact, I'd argue that almost no one is smart enough (or wise enough) to only borrow what they really need. I went to college when I was 30. I thought I was smart. I knew that new graduates typically make, maybe, $40K. Yet, I signed up for the full boat...taking every last cent they'd loan me. Consequently, my wife and I are now $250K in debt--and have just bachelor's degrees (plus incomplete master's degrees). Sigh. So much for being so smart. Basically, I've come to the conclusion that college is not for all. We would be wise to get behind technical schools, and community colleges, and save the university for those pursuing subjects like medicine, science, math, law, etc. At a minimum we should change the paradigm of college--from being an "experience" (parties, socializing, sports), to academics. Getting rid of school sponsored sports would vastly change the perception of college. Plus, we should make it harder to graduate. Require a 3.0, and have controls in place to ensure grades don't inflate to enable everyone to achieve the new minimum. Basically, college should be 100% for learning. Sure, you'll still have friends, go to the occasional party, but on the whole you're only there to learn and do things you couldn't learn or do elsewhere. Right now it's almost day care for 20-somethings. This would also necessitate dropping easy programs and majors. Not that there isn't a place for the arts, but is a four year degree in English or Art History really a good idea? But yeah, I've noticed the same thing: the more we incentivize people to go to college by way of grants and loans, the more expensive it gets. When was college cheapest? When there was virtually no aid/loans available to anyone, and a much smaller percentage of people went to college.

prostoalex 10y ago

What's the motivation fo recipients of such funds (universities, faculty, staff, facility builders) to reduce their prices? They operate in a quasi-monopolistic environment where system adjusts to absorb larger budgets thrown at them.

batbomb 10y ago

They were effectively "Free" in 2003, about 3%, IIRC. In fact, my (subsidized) loans from 2003-2005 currently have interest rates below 2% due to on time payments and auto withdraw.

winter_blue 10y ago

I think the problem is that there is no downward marker pressure on college costs (for some puzzling reason there). It seems like American students are willing to pay higher and higher tuitions. This is the root of the problem. If we had 0% interest loans, we might have students paying even more for college than now. Why can't these kids just think about the debt they're getting into?

rayiner 10y ago
Kids can't think rationally about debt because their parents and teachers have overinflated the importance of everyone going to college and have actively discouraged critical thinking on these issues.
- petre 10y ago
  So send them to college elsewhere? in Canada? Europe?
  - paulmd 10y ago
    That's actually a thing now. A significant number of students are going to Germany, getting a subsidized education, and never coming back to the US. Brain drain is not an overall plus for the US economy. We shouldn't want our best and brightest settling overseas - except insofar as we want to do right by our posterity, and the US education system is obviously not doing right by them.
  - tptacek 10y ago
    Many of them can do as I did and go straight from high school to the work force. Others can go into apprenticeships in the skilled trades. Still more to community and vocational colleges to learn business management or accounting. The fastest growing profession for 4-year college graduates is "HR professional". Come on. You don't need a college degree to be an HR rep, or to be a sales account manager, or to work in a purchasing department. That's something like 60% of the white collar jobs in a typical corporation, which we pretend that you need to spend $150,000 on a Russian Lit degree to competently execute.

foota 10y ago

The reality is that providing tuition free loans does cost the government -- whatever the opportunity cost of using that money now was. Though you could argue that the externalities of having an educated population outweigh the opportunity cost.

switch007 10y ago

Are they "interest free" in the Government's use of the phrase, or the real meaning? The UK government calls (or called) them "interest free" because the interest rate is linked to inflation (as long as it's positive!) and of course (/s) your salary always rises with the same measure of inflation, therefore it's "interest free"

danjayh 10y ago

I'd like to propose a different option, one that would actually solve a lot of the current problems in the USA ... before posting a response, please read the 'why' section below. - The government stops guaranteeing student debt to banks - Students are allowed to declare bankruptcy and discharge their debt after N number of years, if they can prove that they're financially unable to pay & the market will not bear a salary high enough to service their debt for someone with their degree - (optionally) The government stops subsidizing student loan interest Why? - If banks are liable to lose the capital in the loan, they will have incentive to make sure that the money is being spent wisely. This does mean that they'll no longer give out $100k for a hypothetical finger painting degree. - It's a societal norm that debt can be discharged in bankruptcy if a person has no assets and no income, and student loans shouldn't be straight-up exception. We have to tighten this up a little bit to make sure people don't go to college, default, and then reap all the benefits ... but disallowing bankruptcy entirely seems extreme. Optionally, we could also consider revoking their degree if they default (rough equivalent of repossession of a physical good). - College is extremely expensive right now because a flood of guaranteed, subsidize money has created fairly inelastic demand -- many students have little price sensitivity. This drives prices up. If loans are harder to get, smaller, and not subsidized, college prices come down. The big problem with the American system right now is that we've written the educational institutions a blank check. If suddenly we put even a little economic pressure on the system, costs will come down. Many of these changes couldn't be made retroactive -- loans were given out under a set of conditions agreed upon by all parties, and these determined the amount of the loans, so they shouldn't be changed. These changes could, however, improve things for future generations. One last note -- as someone who spent 5 years paying off $100k in student loans, and who now makes enough money that I'd be excluded from the 'free' (AKA 'paid by everyone else') tuition plans for my own kids, I do admit that I'm not real excited about that idea. I would be pretty ticked off if I had to pay for my own tuition, my children's tuition, and also everyone else's kids tuition.

avar 10y ago
Having a system where you revoke the degree for lack of payment would just create a system where revoked degrees would be equally valuable, since everyone would know they were the same, except for some bank being ripped off.

ekianjo 10y ago

> student loans are provided by the government and are interest free as long as we reside in New Zealand. If you give interest free loans there is a strong incentive from the universities to increase their fees. How do you fix that issue?

aianus 10y ago
At least in Ontario, Canada the schools cannot raise tuition without asking the government for permission.
- ekianjo 10y ago
  Does that work?
  - aianus 10y ago
    I paid ~$13,000 a year tuition to study CS in Canada and I don't feel it's hampered my career vs. paying ~$30,000 in the US. Note that at the same school, Arts programs are much cheaper than STEM (maybe $5,000 a year), in large part because they have much lower perceived economic value.

dingo_bat 10y ago

5000 USD per year is extremely cheap.