8 ms·

Has there been any attempt to orchestrate an income based repayment program? This could be implemented in a variety of ways, the most popular of which is taking

by tabeth 10y ago

Has there been any attempt to orchestrate an income based repayment program? This could be implemented in a variety of ways, the most popular of which is taking a percentage of your income after graduating. Some advantages I can think of: 1. Educational quality is more tied to student success. 2. The burden of "payment" is shifted from the student to the school, as the school now must make sure their students are capable of getting good jobs if they want to be paid themselves. 3. Education and corporate "curricula" are more coupled. This could also be a disadvantage, depending on how you think about it. Some diadvantages: 1. This hurts liberal arts, where the value is more opaque. 2. Research based, or generally any profession that's intellectually difficult, but pays low will be discouraged, implicitly through this. 3. Makes the point of education a bit more professional and practical, which may have longer term effects (people who think outside of the box generally aren't the ones who are paid well, initially).

RVuRnvbM2e 10y ago
Yes. Australia has had this for a long time. The rates last FY were: Below $54,126 Nil $54,126–$60,292 4% $60,293–$66,456 4.5% $66,457–$69,949 5% $69,950–$75,190 5.5% $75,191–$81,432 6% $81,433 - $85,718 6.5% $85,719–$94,331 7% $94,332–$100,519 7.5% $100,520 and above 8% The progressive structure helps address the disadvantages, I think. Also debt has no interest, but it's indexed to CPI.
- NeutronBoy 10y ago
  Just a note that it's not actually progressive brackets - e.g. if you earn $90,000, you pay 7% of the $90,000, not just the portion over $85,719. It's not like the rest of the tax brackets which actually are progressive. But yes, I really like the Australian system. The fact that's its integrated with the tax system means there's no other monthly payments to worry about, it sorts itself out at the end of the financial year.
bsder 10y ago
> Has there been any attempt to orchestrate an income based repayment program? Yes, it's called filing bankruptcy, and they removed the ability for people to do that for student loans.
peter303 10y ago
Both Bush and Obama offered income capped programs. Obama revision was more generous. I live they only apply to government loans, not private.
closeparen 10y ago
> Has there been any attempt to orchestrate an income based repayment program? Yes, this is available for most federal student loan programs today. [0] https://studentaid.ed.gov/sa/repay-loans/understand/plans/income-driven https://studentaid.ed.gov/sa/repay-loans/understand/plans/in...
Kalium 10y ago
> Has there been any attempt to orchestrate an income based repayment program? This could be implemented in a variety of ways, the most popular of which is taking a percentage of your income after graduating. Yes. In the US, this was reasonably common before student loans.
richthegeek 10y ago
This system, in a way, exists in the UK. We have a single (govt sponsored) source of student loans and repayment is taken out of paychecks automatically. In the pre-2012 scheme it's 9% of everything over £20k (roughly), where the median salary outside of London is ~£25k. For me, my student loans were about £20k overall (including living costs) and I'm paying back about £2.5k/year from it. Most of my friends are never going to pay it back. However, it's not really put much burden on universities as they get the money immediately and then the losses from non-repayment are absorbed by the government.
- pricechild 10y ago
  > Most of my friends are never going to pay it back. It scares me that people are taking on these loans with that assumption, spurred on by people like Martin Lewis. The government has changed the rules before... they may change them again. To be fair to Mr Lewis, he apparently put his money where his mouth is and engaged lawyers to challenge the recent changes, but I haven't heard of any results... http://www.telegraph.co.uk/finance/personalfinance/borrowing/loans/12049856/Martin-Lewis-tackles-Government-over-student-loans.html http://www.telegraph.co.uk/finance/personalfinance/borrowing... Does anyone know if it was just posturing for the press at the time, hoping we'd forget about it? Was there ever a ruling or result?
- iaskwhy 10y ago
  What happens if you take a loan to study but can't pay it back? I'm thinking it makes it impossible to eventually get any other credit like a mortgage?
  - kelnage 10y ago
    Nothing - under the current rules the Government writes off the debt after a number of years (either when you turn 65, after 25, 30 or 35 years, depending on when you got the loan and where in the UK you went to Uni). Also, having a student loan has little to no effect on obtaining bank loans or mortgages.
  - pricechild 10y ago
    > if you started higher education between 1998 and 2011 your "post-98"-type of loan does not show up on credit reference agencies. https://www.theguardian.com/money/2012/sep/24/student-loan-affect-credit-rating https://www.theguardian.com/money/2012/sep/24/student-loan-a... (I don't believe it's changed since)
matheweis 10y ago
IBR already exists in the US in the sense that your payments can be capped at a percentage of your income. Unfortunately interest keeps doing its thing so many people will see their loan amounts increase once on IBR. This leaves their only likely out as forgiveness by making 120 payments and working for a gov/education institution for 10 years.
- bradleyjg 10y ago
  There's a second out of forgiveness after 240 payments, though last I check it is unclear exactly what the tax consequences are for that type of forgiveness (public service forgiveness does not incur a tax liability).
  - rhino369 10y ago
    >it is unclear exactly what the tax consequences are for that type of forgiveness It's treated as taxable income unless you are insolvent, which you might be if you owe a lot of money.
Meegul 10y ago
My school, Purdue University, has been making a big push towards IBR. The biggest issue with it I can see, is that, as far as I can tell, there's no cap on the money collected. That is to say, if they take 15% of your income, and you end up making lots of money, they will continue collecting their share past the actual cost of college. It honestly makes me feel like they see me as an indentured servant, not a student.
- pricechild 10y ago
  Surely this can't be true? It isn't because the minimum repayments are so low they never come close to the large interested accrued?
  - Meegul 10y ago
    Here's some more reading on it: https://www.nytimes.com/2016/04/09/business/dealbook/getting-a-student-loan-with-collateral-from-a-future-job.html https://www.nytimes.com/2016/04/09/business/dealbook/getting... Mitch Daniels, the president of Purdue, has been pushing for this as a sort of solution to student loans, but it just ends up with the higher-income students subsidizing the education of the lower-income students, where 'income' refers to post-graduation job income.
    - dragonwriter 10y ago
      > Mitch Daniels, the president of Purdue, has been pushing for this as a sort of solution to student loans, but it just ends up with the higher-income students subsidizing the education of the lower-income students, where 'income' refers to post-graduation job income. You know what else does that? Having government guaranteed loans in the first place.
- deleted 10y ago
  [deleted]
- whorleater 10y ago
  On the other hand, if the cost of a college is "flexible" as in a % of your income, doesn't it just end up in a situation in which higher-paid graduates subsidize the cost of college for lower-paid graduates?
lettergram 10y ago
Currently, I use part of my student loan payments to shield against higher taxes. AKA I can write off the interest payments on my tax return. I can then use the money I write off to invest in the stock market, buy groceries, etc. This is better for the economy long term, but also for myself. That's why there have been discussions around the topic, but not much action in the U.S. Here are some issues it would have caused: (a) Reduced my chances of getting an education at a top rate university (because I would be considered "at risk" for not succeeding, at least on paper). So I would have ended up at a less prestigious school, made less money, etc. (b) If I had say 10% of my income siphoned off to a private company (which is a scary thought), I wouldn't have the opportunity to choose how to spend my money. For example, I have chosen to skip paying a loan payment to pay rent. I called and asked if this was alright, they told me it was fine. It kept me from being homeless for a month while I handled a cashflow issue. (c) Because of the tax benefits, I have zero incentive to pay off my loan quicker. If 10% of my income went to some loan agency I'd pay it off quicker than I am now, and thus have less interest to write off. Further, I make money quicker than I lose it due to loan interest on the stock market, so I can actually pay back my loan faster by investing, then paying down the loan. This also helps spur the economy along, and at scale this is a massive reason it's not in anyone's best interest to implement a plan like this.
- purplecpa 10y ago
  But why spend a dollar to save ten cents? If you paid off your loans quicker the savings in interest will far exceed the savings in tax deductions and depending on your rate of return in the market could even trump those gains.
  - dublinben 10y ago
    If your loans are only at 3.5%, but you can earn 7% on the stock market, you're throwing money away by paying over your minimums.
    - JumpCrisscross 10y ago
      > loans are only at 3.5%, but you can earn 7% on the stock market This isn't prudent asset-liability matching. If your loan is 3.5% and you can find investment-grade bonds that (a) yield more and (b) compensate you, in the spread, for your risk and hassle, then that might work.
ProAm 10y ago
> Has there been any attempt to orchestrate an income based repayment program? This wouldnt prevent students from going after useless degrees like they do today. > 2. The burden of "payment" is shifted from the student to the school, as the school now must make sure their students are capable of getting good jobs if they want to be paid themselves. It's usually not the schools loaning the money, they don't care what you do as long as you pay tuition, its banks and the federal government that loan the money, and they don't care because interest keeps accruing on your loan and you cant get rid of it.
- alistairSH 10y ago
  they don't care because interest keeps accruing on your loan and you cant get rid of it. I often wonder if the easy answer is to make student-loan debt dischargeable on bankruptcy. Yes, some banks would stop making the loans. But, would they all? I have to assume there would still be a market for student loans.
  - pmiller2 10y ago
    Rates would need to skyrocket to compensate.
    - aianus 10y ago
      Realistically the middle class would have their parents co-sign and poor people just wouldn't be able to go to school anymore. Not a great idea.
      - thmsths 10y ago
        This is basically the french system, the bank does not even look at your credit history/revenue stream if your parents makes a decent amount of money and cosign, however getting a loan without a cosigner is almost impossible.
dragonwriter 10y ago
> Has there been any attempt to orchestrate an income based repayment program? Such an option has been available for many years, though the main loan servicer has been accused of directing people into temporary deferments instead. http://www.huffingtonpost.com/entry/state-prosecutors-navient_us_57214218e4b01a5ebde47a02 http://www.huffingtonpost.com/entry/state-prosecutors-navien...
ChuckMcM 10y ago
At one level all loans are "income based repayment programs" as they depend on income of the recipient to repay. But I don't think it is the "program" that is the problem. If you step back and take in the wider view, you can see there is a business model for enslaving people without enough money. It works like this, you offer to give them money for something they want, even though they can't really afford it, and then you can add penalties and interest to garnish their future income until they die. This is the business model of payday loans, you offer a loan until pay day, but they never have enough money so you "roll over" the loan and you're always owed interest. You create a situation where not only will the person never be able to pay you back you can milk them for anywhere from 5 - 50% of any money they manage to acquire. You have effectively enslaved them. That was the same model used in the sub-prime mortgage crisis except there are two problems with sub-prime mortgages, one was they are usually no-recourse so you can just hand over the keys to the house and "pay them off" and they are dischargable in bankruptcy while the primary residence is protected. So these leeches have turned to student "loans." Not dischargable in bankruptcy, you pay until you die. Check. At risk population that feels they have to have a college degree? Check. A set of 'for profit' schools willing to set aside any sort of moral principle so that they can transfer money to themselves? Check. The predatory lenders stepped right into that ideal environment and have been convincing people left and right that things will be so much better and all they need is "education" and its easily within reach because they can "finance it."
- toomuchtodo 10y ago
  Great comment Chuck! Just wanted to add, as someone who is an avid armchair debt/creditor law junkie, that private student loans can not garnish/attach to social security, but federal loans can. That's a very important distinction, because in a lot of states, social security and other government support benefits are verboten from garnishment. The only two federal garnishments against social security that can occur are for federal taxes, and federal student loans.
  - ChuckMcM 10y ago
    Gawd, that is just plain evil. Loan grandma $2,500 to go to my MOOC class, suck $3,000 back out of her SSI.

by tabeth 10y ago

RVuRnvbM2e 10y ago

Yes. Australia has had this for a long time. The rates last FY were: Below $54,126 Nil $54,126–$60,292 4% $60,293–$66,456 4.5% $66,457–$69,949 5% $69,950–$75,190 5.5% $75,191–$81,432 6% $81,433 - $85,718 6.5% $85,719–$94,331 7% $94,332–$100,519 7.5% $100,520 and above 8% The progressive structure helps address the disadvantages, I think. Also debt has no interest, but it's indexed to CPI.

NeutronBoy 10y ago
Just a note that it's not actually progressive brackets - e.g. if you earn $90,000, you pay 7% of the $90,000, not just the portion over $85,719. It's not like the rest of the tax brackets which actually are progressive. But yes, I really like the Australian system. The fact that's its integrated with the tax system means there's no other monthly payments to worry about, it sorts itself out at the end of the financial year.

bsder 10y ago

> Has there been any attempt to orchestrate an income based repayment program? Yes, it's called filing bankruptcy, and they removed the ability for people to do that for student loans.

peter303 10y ago

Both Bush and Obama offered income capped programs. Obama revision was more generous. I live they only apply to government loans, not private.

closeparen 10y ago

> Has there been any attempt to orchestrate an income based repayment program? Yes, this is available for most federal student loan programs today. [0] https://studentaid.ed.gov/sa/repay-loans/understand/plans/income-driven https://studentaid.ed.gov/sa/repay-loans/understand/plans/in...

Kalium 10y ago

> Has there been any attempt to orchestrate an income based repayment program? This could be implemented in a variety of ways, the most popular of which is taking a percentage of your income after graduating. Yes. In the US, this was reasonably common before student loans.

richthegeek 10y ago

This system, in a way, exists in the UK. We have a single (govt sponsored) source of student loans and repayment is taken out of paychecks automatically. In the pre-2012 scheme it's 9% of everything over £20k (roughly), where the median salary outside of London is ~£25k. For me, my student loans were about £20k overall (including living costs) and I'm paying back about £2.5k/year from it. Most of my friends are never going to pay it back. However, it's not really put much burden on universities as they get the money immediately and then the losses from non-repayment are absorbed by the government.

pricechild 10y ago
> Most of my friends are never going to pay it back. It scares me that people are taking on these loans with that assumption, spurred on by people like Martin Lewis. The government has changed the rules before... they may change them again. To be fair to Mr Lewis, he apparently put his money where his mouth is and engaged lawyers to challenge the recent changes, but I haven't heard of any results... http://www.telegraph.co.uk/finance/personalfinance/borrowing/loans/12049856/Martin-Lewis-tackles-Government-over-student-loans.html http://www.telegraph.co.uk/finance/personalfinance/borrowing... Does anyone know if it was just posturing for the press at the time, hoping we'd forget about it? Was there ever a ruling or result?
iaskwhy 10y ago
What happens if you take a loan to study but can't pay it back? I'm thinking it makes it impossible to eventually get any other credit like a mortgage?
- kelnage 10y ago
  Nothing - under the current rules the Government writes off the debt after a number of years (either when you turn 65, after 25, 30 or 35 years, depending on when you got the loan and where in the UK you went to Uni). Also, having a student loan has little to no effect on obtaining bank loans or mortgages.
- pricechild 10y ago
  > if you started higher education between 1998 and 2011 your "post-98"-type of loan does not show up on credit reference agencies. https://www.theguardian.com/money/2012/sep/24/student-loan-affect-credit-rating https://www.theguardian.com/money/2012/sep/24/student-loan-a... (I don't believe it's changed since)

matheweis 10y ago

IBR already exists in the US in the sense that your payments can be capped at a percentage of your income. Unfortunately interest keeps doing its thing so many people will see their loan amounts increase once on IBR. This leaves their only likely out as forgiveness by making 120 payments and working for a gov/education institution for 10 years.

bradleyjg 10y ago
There's a second out of forgiveness after 240 payments, though last I check it is unclear exactly what the tax consequences are for that type of forgiveness (public service forgiveness does not incur a tax liability).
- rhino369 10y ago
  >it is unclear exactly what the tax consequences are for that type of forgiveness It's treated as taxable income unless you are insolvent, which you might be if you owe a lot of money.

Meegul 10y ago

My school, Purdue University, has been making a big push towards IBR. The biggest issue with it I can see, is that, as far as I can tell, there's no cap on the money collected. That is to say, if they take 15% of your income, and you end up making lots of money, they will continue collecting their share past the actual cost of college. It honestly makes me feel like they see me as an indentured servant, not a student.

pricechild 10y ago
Surely this can't be true? It isn't because the minimum repayments are so low they never come close to the large interested accrued?
- Meegul 10y ago
  Here's some more reading on it: https://www.nytimes.com/2016/04/09/business/dealbook/getting-a-student-loan-with-collateral-from-a-future-job.html https://www.nytimes.com/2016/04/09/business/dealbook/getting... Mitch Daniels, the president of Purdue, has been pushing for this as a sort of solution to student loans, but it just ends up with the higher-income students subsidizing the education of the lower-income students, where 'income' refers to post-graduation job income.
  - dragonwriter 10y ago
    > Mitch Daniels, the president of Purdue, has been pushing for this as a sort of solution to student loans, but it just ends up with the higher-income students subsidizing the education of the lower-income students, where 'income' refers to post-graduation job income. You know what else does that? Having government guaranteed loans in the first place.
deleted 10y ago
[deleted]
whorleater 10y ago
On the other hand, if the cost of a college is "flexible" as in a % of your income, doesn't it just end up in a situation in which higher-paid graduates subsidize the cost of college for lower-paid graduates?

lettergram 10y ago

Currently, I use part of my student loan payments to shield against higher taxes. AKA I can write off the interest payments on my tax return. I can then use the money I write off to invest in the stock market, buy groceries, etc. This is better for the economy long term, but also for myself. That's why there have been discussions around the topic, but not much action in the U.S. Here are some issues it would have caused: (a) Reduced my chances of getting an education at a top rate university (because I would be considered "at risk" for not succeeding, at least on paper). So I would have ended up at a less prestigious school, made less money, etc. (b) If I had say 10% of my income siphoned off to a private company (which is a scary thought), I wouldn't have the opportunity to choose how to spend my money. For example, I have chosen to skip paying a loan payment to pay rent. I called and asked if this was alright, they told me it was fine. It kept me from being homeless for a month while I handled a cashflow issue. (c) Because of the tax benefits, I have zero incentive to pay off my loan quicker. If 10% of my income went to some loan agency I'd pay it off quicker than I am now, and thus have less interest to write off. Further, I make money quicker than I lose it due to loan interest on the stock market, so I can actually pay back my loan faster by investing, then paying down the loan. This also helps spur the economy along, and at scale this is a massive reason it's not in anyone's best interest to implement a plan like this.

purplecpa 10y ago
But why spend a dollar to save ten cents? If you paid off your loans quicker the savings in interest will far exceed the savings in tax deductions and depending on your rate of return in the market could even trump those gains.
- dublinben 10y ago
  If your loans are only at 3.5%, but you can earn 7% on the stock market, you're throwing money away by paying over your minimums.
  - JumpCrisscross 10y ago
    > loans are only at 3.5%, but you can earn 7% on the stock market This isn't prudent asset-liability matching. If your loan is 3.5% and you can find investment-grade bonds that (a) yield more and (b) compensate you, in the spread, for your risk and hassle, then that might work.

ProAm 10y ago

> Has there been any attempt to orchestrate an income based repayment program? This wouldnt prevent students from going after useless degrees like they do today. > 2. The burden of "payment" is shifted from the student to the school, as the school now must make sure their students are capable of getting good jobs if they want to be paid themselves. It's usually not the schools loaning the money, they don't care what you do as long as you pay tuition, its banks and the federal government that loan the money, and they don't care because interest keeps accruing on your loan and you cant get rid of it.

alistairSH 10y ago
they don't care because interest keeps accruing on your loan and you cant get rid of it. I often wonder if the easy answer is to make student-loan debt dischargeable on bankruptcy. Yes, some banks would stop making the loans. But, would they all? I have to assume there would still be a market for student loans.
- pmiller2 10y ago
  Rates would need to skyrocket to compensate.
  - aianus 10y ago
    Realistically the middle class would have their parents co-sign and poor people just wouldn't be able to go to school anymore. Not a great idea.
    - thmsths 10y ago
      This is basically the french system, the bank does not even look at your credit history/revenue stream if your parents makes a decent amount of money and cosign, however getting a loan without a cosigner is almost impossible.

dragonwriter 10y ago

> Has there been any attempt to orchestrate an income based repayment program? Such an option has been available for many years, though the main loan servicer has been accused of directing people into temporary deferments instead. http://www.huffingtonpost.com/entry/state-prosecutors-navient_us_57214218e4b01a5ebde47a02 http://www.huffingtonpost.com/entry/state-prosecutors-navien...

ChuckMcM 10y ago

At one level all loans are "income based repayment programs" as they depend on income of the recipient to repay. But I don't think it is the "program" that is the problem. If you step back and take in the wider view, you can see there is a business model for enslaving people without enough money. It works like this, you offer to give them money for something they want, even though they can't really afford it, and then you can add penalties and interest to garnish their future income until they die. This is the business model of payday loans, you offer a loan until pay day, but they never have enough money so you "roll over" the loan and you're always owed interest. You create a situation where not only will the person never be able to pay you back you can milk them for anywhere from 5 - 50% of any money they manage to acquire. You have effectively enslaved them. That was the same model used in the sub-prime mortgage crisis except there are two problems with sub-prime mortgages, one was they are usually no-recourse so you can just hand over the keys to the house and "pay them off" and they are dischargable in bankruptcy while the primary residence is protected. So these leeches have turned to student "loans." Not dischargable in bankruptcy, you pay until you die. Check. At risk population that feels they have to have a college degree? Check. A set of 'for profit' schools willing to set aside any sort of moral principle so that they can transfer money to themselves? Check. The predatory lenders stepped right into that ideal environment and have been convincing people left and right that things will be so much better and all they need is "education" and its easily within reach because they can "finance it."

toomuchtodo 10y ago
Great comment Chuck! Just wanted to add, as someone who is an avid armchair debt/creditor law junkie, that private student loans can not garnish/attach to social security, but federal loans can. That's a very important distinction, because in a lot of states, social security and other government support benefits are verboten from garnishment. The only two federal garnishments against social security that can occur are for federal taxes, and federal student loans.
- ChuckMcM 10y ago
  Gawd, that is just plain evil. Loan grandma $2,500 to go to my MOOC class, suck $3,000 back out of her SSI.