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Now that undergraduate loans are exclusively financed by the Federal government, they've become a powerful policy lever: Want to greatly reduce your liability o

Now that undergraduate loans are exclusively financed by the Federal government, they've become a powerful policy lever: Want to greatly reduce your liability of $50,000 after four years of undergraduate education? Work in "public service" for ten years, making repayments at income-based levels and the rest of your debt is assumed by the taxpayer.[1] It's not hard to imagine a whole bunch of "desirable" activities that could be incentivized in this way. I am somewhat uncomfortable with that. [1] http://studentaid.ed.gov/repay-loans/forgiveness-cancellation/charts/public-service http://studentaid.ed.gov/repay-loans/forgiveness-cancellatio...

ASpring 13y ago
Some teachers have a similar deal. One of my best friend's debts will be payed off after she teaches for 5 years in a low income school district.
- twoodfin 13y ago
  That's great! Why not just pay her more so she can pay off her loans herself? I know the reason: The union pay scale that pays lousy old teachers much more than young good ones is politically untouchable. I just don't like that kind of backdoor policymaking. For one thing, it doesn't incentivize universities to offer more affordable educations, since people like your friend become price-insensitive.
  - stinkytaco 13y ago
    >The union pay scale that pays lousy old teachers much more than young good ones is politically untouchable. I think that is greatly simplifying a complicated problem. There are many reasons a teacher cannot get paid more in a low income school. They may be limited by the local government entity (state or municipality) or the environment may be very difficult. It can become equally politically problematic to adjust the payscale for low income schools as it can to incentivize working there. >For one thing, it doesn't incentivize universities to offer more affordable educations, since people like your friend become price-insensitive. Everyone who gets a college education is price insensitive and it has everything to do with loans, but likely little to do with the public service incentive. As long as loans are available and assistance is not, universities (most of which are public) will not have incentive to offer affordable educations. It's a serious problem, but one that has more to do with a culture of "Get an education and get a great job, even if you major in philosophy" than with "Be a teacher and we'll give you a break for serving the public good."
    - 001sky 13y ago
      It's not "over" simplifying the problem, though. Pay based on seniority is politically untouchable and is not correlated with the true variation of quality in the teaching profession. Lack of correlation with pay and performance is the number one problem with incentivising better talent to apply itself to teaching. The profession looks basically like a ponzi-scheme in that regard (pyramid pay). It is a bizzare that government uses this model of compensation...does anyone know why? It is all throughout the many layered beuracracies...
  - imaffett 13y ago
    My wife taught at an inner city school for 5+ years. Pay was competitive and they paid for her masters. Her school loans were just forgiven (around 5k) for doing this. It was a net win for us vs teaching st a suburban school. She loved it and it worked out great for us, but the education system is a disaster and I am glad she isnt teaching anymore.
rayiner 13y ago
Last year, the student loan system was $50 billion in the black.[1] So it's a cross-subsidy rather than a taxpayer subsidy. And that seems perfectly fine to me. My wife and I took loans for graduate school, and both came out with high-paying jobs for our trouble. I think it's totally fair for people like us to subsidize the people who pursue public service. The system helped us out, and now we're happy to help out the system. [1] This number is likely to decrease as time goes on and more people take advantage of the loan forgiveness, but there's quite a cushion at the moment.
- anothermar 13y ago
  That the system is in the black doesn't necessitate that program is not in fact a subsidy. If the market interest rate is 5% and the gov loans at 2%, assuming no defaults, the program will appear to be in the black while still subsidising borrowers at the expense of taxpayers. Moreover, when you say "fair for people like us to subsidize the people who pursue public service" you seem to imply that the tax is progressive when in fact is not since most people going to college are middle and upper middle class. Finally, this doesn't address the question of who is providing a public service. Are private for profit orgs not providing a public service?
yetanotherphd 13y ago
It's really just a part of the compensation package. The government is choosing to pay people by cancelling their student loan rather than with cash. So it's not a bad policy because it incentivizes working for the public service. But it is a bad policy because it effectively pays people with higher student debt more, for no good reason.

ASpring 13y ago

Some teachers have a similar deal. One of my best friend's debts will be payed off after she teaches for 5 years in a low income school district.

twoodfin 13y ago
That's great! Why not just pay her more so she can pay off her loans herself? I know the reason: The union pay scale that pays lousy old teachers much more than young good ones is politically untouchable. I just don't like that kind of backdoor policymaking. For one thing, it doesn't incentivize universities to offer more affordable educations, since people like your friend become price-insensitive.
- stinkytaco 13y ago
  >The union pay scale that pays lousy old teachers much more than young good ones is politically untouchable. I think that is greatly simplifying a complicated problem. There are many reasons a teacher cannot get paid more in a low income school. They may be limited by the local government entity (state or municipality) or the environment may be very difficult. It can become equally politically problematic to adjust the payscale for low income schools as it can to incentivize working there. >For one thing, it doesn't incentivize universities to offer more affordable educations, since people like your friend become price-insensitive. Everyone who gets a college education is price insensitive and it has everything to do with loans, but likely little to do with the public service incentive. As long as loans are available and assistance is not, universities (most of which are public) will not have incentive to offer affordable educations. It's a serious problem, but one that has more to do with a culture of "Get an education and get a great job, even if you major in philosophy" than with "Be a teacher and we'll give you a break for serving the public good."
  - 001sky 13y ago
    It's not "over" simplifying the problem, though. Pay based on seniority is politically untouchable and is not correlated with the true variation of quality in the teaching profession. Lack of correlation with pay and performance is the number one problem with incentivising better talent to apply itself to teaching. The profession looks basically like a ponzi-scheme in that regard (pyramid pay). It is a bizzare that government uses this model of compensation...does anyone know why? It is all throughout the many layered beuracracies...
- imaffett 13y ago
  My wife taught at an inner city school for 5+ years. Pay was competitive and they paid for her masters. Her school loans were just forgiven (around 5k) for doing this. It was a net win for us vs teaching st a suburban school. She loved it and it worked out great for us, but the education system is a disaster and I am glad she isnt teaching anymore.

rayiner 13y ago

Last year, the student loan system was $50 billion in the black.[1] So it's a cross-subsidy rather than a taxpayer subsidy. And that seems perfectly fine to me. My wife and I took loans for graduate school, and both came out with high-paying jobs for our trouble. I think it's totally fair for people like us to subsidize the people who pursue public service. The system helped us out, and now we're happy to help out the system. [1] This number is likely to decrease as time goes on and more people take advantage of the loan forgiveness, but there's quite a cushion at the moment.

anothermar 13y ago
That the system is in the black doesn't necessitate that program is not in fact a subsidy. If the market interest rate is 5% and the gov loans at 2%, assuming no defaults, the program will appear to be in the black while still subsidising borrowers at the expense of taxpayers. Moreover, when you say "fair for people like us to subsidize the people who pursue public service" you seem to imply that the tax is progressive when in fact is not since most people going to college are middle and upper middle class. Finally, this doesn't address the question of who is providing a public service. Are private for profit orgs not providing a public service?

yetanotherphd 13y ago

It's really just a part of the compensation package. The government is choosing to pay people by cancelling their student loan rather than with cash. So it's not a bad policy because it incentivizes working for the public service. But it is a bad policy because it effectively pays people with higher student debt more, for no good reason.