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Any government backed student loan should have a simple repayment schedule -- a maximum of 15% of your earnings for 10 years following graduation. At the end of

Any government backed student loan should have a simple repayment schedule -- a maximum of 15% of your earnings for 10 years following graduation. At the end of 10 years, the loan is considered fully paid and any balance, if remaining, forgiven. The institution eats the cost of forgiving the balance. So if you're an institution providing an expensive but worthless education, you aren't going to get paid for it. Let's treat universities the same way we treat teachers -- let's assess the results.

fantnn 13y ago
What if you've dropped out?
- interestinecom 13y ago
  Then you repay the amount of money you took off the Government. I don't understand how that's even a question?
  - fantnn 13y ago
    10 years @15% if you've graduated is biased towards people with shit degrees is all I'm saying
    - ceejayoz 13y ago
      It's also biased against institutions offering shit degrees at high expense. If institutions have to start eating the costs of a Byzantine pottery degree, they'll either stop offering it or start finding ways to do it more cheaply.
    - rossjudson 13y ago
      Agreed -- but keep in mind that institutions aren't going to be accepting loan-financed students who are unlikely to be able to pay the loans back, because that results in the institution repaying the government loan instead of the student.
  - danielweber 13y ago
    It's a question because we shove a lot of people into college that don't belong there, and then they can't cut it, and end up with the worst of both worlds: no college degree (employers can legally discriminate against them based on that) and a bunch of debt.
rayiner 13y ago
For all the hand-wringing, the current federal student loan system (under Obama's PAY-E program) has pretty sensible repayment terms. You pay a maximum of 10% of your earnings above 150% of the household poverty level (but no more than you would under an ordinary 10 year repayment plan), capitalized interest capped (over the lifetime of the loan) at 10% of the original principal, balance forgiven after 20 years. It's progressive, there's a safety net, and it is, for the time being, solvent (government makes 30-50% profit on each dollar lent). Yes, people with great credit who would end up paying less under a standard 10 year repayment at say 5% end up subsidizing those who graduate without getting a decent job, but I think that's uniquely justifiable in this context, because everyone involved is turning to the student loans as a way to better their economic situation (after all, nothing stops you from paying in cash or getting a private loan at 5% if you can qualify for one). I think if you added a cap in there instead of going up to full cost of attendance, to force schools to moderate their tuitions, it would be nearly perfect.
- rossjudson 13y ago
  Good info. The problem I see with a cap is that it's one size fits all. I'd rather see a system where a school can charge higher rates if it is confident that its graduates will be able to repay those loans. 20 years just seems too long. And the key point here is that when a balance is forgiven, the institution should bear the cost, not the government. Maybe that's already the case. Can you provide more detail?
  - danielweber 13y ago
    the institution should bear the cost That assumes they really feel it. If a school charges you $500,000 per year for tuition and then gives you financial aid of $480,000 per year, they aren't really giving you that money. If a school extends you $150,000 in credit, and then in 20 years you've only paid $40,000 of it back, they haven't really lost $110,000. They are just practicing perfect price discrimination, getting the most money from the people most willing to pay, backed up by the government who is doing the work of auditing people's tax records to ensure compliance.
mseebach 13y ago
Even simpler: Don't have the government involved in student loans at all, and let the market price loans for different degrees for different students freely. Those institutions that can convince lenders that graduates will be in a position to pay back the loans quickly will be able to offer lower rates to students, and thus attract more and better students. Those out to study degrees that don't offer great employment opportunities will be offered more expensive loans which will curb demand for such degrees which will depress the cost of the degrees. It will also make sure that fewer people will go to a party college and study an easy degree (or, at least, that those that do aren't subsidised by tax-payer underwritten credit). Extra bonus: All those companies that clamour for STEM grads have a very simple avenue for putting their money where their mouths are: Simply go out and underwrite some cheap loans. (And no, indentured servitude is still illegal - companies underwriting student debt shouldn't be allowed to change the terms of the loan if the student comes to work for them).
- brown9-2 13y ago
  Those institutions that can convince lenders that graduates will be in a position to pay back the loans quickly will be able to offer lower rates to students, and thus attract more and better students. This assumes that a lender's primary interest is in having a loan repaid quickly. I don't think it's true - they are in it to make a profit, and exploiting the young adult with penalties and hidden fees or tricks helps expand that profit.
  - mseebach 13y ago
    No, true, they won't care about the speed. But they will care about the default rate - and the ability to pay the debt down faster correlates strongly with a lower risk of default.
    - brown9-2 13y ago
      But all other things being equal, would they choose a speedy repayment or a slower, more expensive schedule? I think one good reason for government participation in the student loan market is that it helps reduce exploitation of the borrowers, who are mostly just-turned-18 adults so eager to attend a college they'll sign anything.
danielweber 13y ago
maximum of 15% of your earnings for 10 years following graduation And then we make it 20%, and then 30%, and then extend it out to 15 years, and then . . . We've been putting people into debt they cannot escape to go to college while telling them they "need" to go to college. Given the history, the end result of any kind of "we take a portion of your income" plan will be to make it ever more efficient for the colleges to capture 99% of the lifetime earning difference between a high-school grad and a college grad. We need price pressure on the cost of education.
fatjokes 13y ago
> Let's treat universities the same way we treat teachers -- let's assess the results. There are dozens of legitimate ratings of colleges and universities and NYU rarely ranks at the top academically (except their research staff, which I know can be exceptional). That won't stop kids from paying $40k/yr from going there so they can party it up in the Village for 4 years.

fantnn 13y ago

What if you've dropped out?

interestinecom 13y ago
Then you repay the amount of money you took off the Government. I don't understand how that's even a question?
- fantnn 13y ago
  10 years @15% if you've graduated is biased towards people with shit degrees is all I'm saying
  - ceejayoz 13y ago
    It's also biased against institutions offering shit degrees at high expense. If institutions have to start eating the costs of a Byzantine pottery degree, they'll either stop offering it or start finding ways to do it more cheaply.
  - rossjudson 13y ago
    Agreed -- but keep in mind that institutions aren't going to be accepting loan-financed students who are unlikely to be able to pay the loans back, because that results in the institution repaying the government loan instead of the student.
- danielweber 13y ago
  It's a question because we shove a lot of people into college that don't belong there, and then they can't cut it, and end up with the worst of both worlds: no college degree (employers can legally discriminate against them based on that) and a bunch of debt.

rayiner 13y ago

For all the hand-wringing, the current federal student loan system (under Obama's PAY-E program) has pretty sensible repayment terms. You pay a maximum of 10% of your earnings above 150% of the household poverty level (but no more than you would under an ordinary 10 year repayment plan), capitalized interest capped (over the lifetime of the loan) at 10% of the original principal, balance forgiven after 20 years. It's progressive, there's a safety net, and it is, for the time being, solvent (government makes 30-50% profit on each dollar lent). Yes, people with great credit who would end up paying less under a standard 10 year repayment at say 5% end up subsidizing those who graduate without getting a decent job, but I think that's uniquely justifiable in this context, because everyone involved is turning to the student loans as a way to better their economic situation (after all, nothing stops you from paying in cash or getting a private loan at 5% if you can qualify for one). I think if you added a cap in there instead of going up to full cost of attendance, to force schools to moderate their tuitions, it would be nearly perfect.

rossjudson 13y ago
Good info. The problem I see with a cap is that it's one size fits all. I'd rather see a system where a school can charge higher rates if it is confident that its graduates will be able to repay those loans. 20 years just seems too long. And the key point here is that when a balance is forgiven, the institution should bear the cost, not the government. Maybe that's already the case. Can you provide more detail?
- danielweber 13y ago
  the institution should bear the cost That assumes they really feel it. If a school charges you $500,000 per year for tuition and then gives you financial aid of $480,000 per year, they aren't really giving you that money. If a school extends you $150,000 in credit, and then in 20 years you've only paid $40,000 of it back, they haven't really lost $110,000. They are just practicing perfect price discrimination, getting the most money from the people most willing to pay, backed up by the government who is doing the work of auditing people's tax records to ensure compliance.

mseebach 13y ago

Even simpler: Don't have the government involved in student loans at all, and let the market price loans for different degrees for different students freely. Those institutions that can convince lenders that graduates will be in a position to pay back the loans quickly will be able to offer lower rates to students, and thus attract more and better students. Those out to study degrees that don't offer great employment opportunities will be offered more expensive loans which will curb demand for such degrees which will depress the cost of the degrees. It will also make sure that fewer people will go to a party college and study an easy degree (or, at least, that those that do aren't subsidised by tax-payer underwritten credit). Extra bonus: All those companies that clamour for STEM grads have a very simple avenue for putting their money where their mouths are: Simply go out and underwrite some cheap loans. (And no, indentured servitude is still illegal - companies underwriting student debt shouldn't be allowed to change the terms of the loan if the student comes to work for them).

brown9-2 13y ago
Those institutions that can convince lenders that graduates will be in a position to pay back the loans quickly will be able to offer lower rates to students, and thus attract more and better students. This assumes that a lender's primary interest is in having a loan repaid quickly. I don't think it's true - they are in it to make a profit, and exploiting the young adult with penalties and hidden fees or tricks helps expand that profit.
- mseebach 13y ago
  No, true, they won't care about the speed. But they will care about the default rate - and the ability to pay the debt down faster correlates strongly with a lower risk of default.
  - brown9-2 13y ago
    But all other things being equal, would they choose a speedy repayment or a slower, more expensive schedule? I think one good reason for government participation in the student loan market is that it helps reduce exploitation of the borrowers, who are mostly just-turned-18 adults so eager to attend a college they'll sign anything.

danielweber 13y ago

maximum of 15% of your earnings for 10 years following graduation And then we make it 20%, and then 30%, and then extend it out to 15 years, and then . . . We've been putting people into debt they cannot escape to go to college while telling them they "need" to go to college. Given the history, the end result of any kind of "we take a portion of your income" plan will be to make it ever more efficient for the colleges to capture 99% of the lifetime earning difference between a high-school grad and a college grad. We need price pressure on the cost of education.

fatjokes 13y ago

> Let's treat universities the same way we treat teachers -- let's assess the results. There are dozens of legitimate ratings of colleges and universities and NYU rarely ranks at the top academically (except their research staff, which I know can be exceptional). That won't stop kids from paying $40k/yr from going there so they can party it up in the Village for 4 years.