An Idea For Eliminating Student Loans
I, like many of you, have a ton of student debt. There are news articles and threads almost every day about ‘horror stories’, concerns of a bubble, and the transformation of recent graduates into indentured servants. The thing that continually strikes me is that the student loan conversation always revolves around the fact that school is paid for with loans.
Why not instead pay the university back for your education by letting it take an equity investment in you?
So here's my bass-ackwards idea: Eliminate annual tuition.
Neither the schools nor the students actually receive any money up front. Instead the school is paid by receiving a certain percentage of the student’s gross income for, say, 10 years after graduation. It comes out of the graduate’s paycheck just like taxes do but it doesn’t go to the federal government, it goes straight to the university.
In order to plug the gap created by the elimination of annual tuition, the university issues its own short term bonds. These bonds must be paid back once the university starts receiving cash flow from graduates. Once the university has incoming cash flow, it becomes ineligible to issue more bonds.
In my mind there shouldn’t be a motivation on the student’s part to take lower paying work or shelter income to avoid paying the tax. Except for a specific subset of the population, I don’t think anybody actually wants to waste their life working in a coffee shop.
The motivation for the university is there to help its students get the long term highest-paying jobs they can, because that’s the only way the university is paid for the education services it provided.
The university is literally invested in the success of each and every student. No more tuition hikes to build a new recreation center because the gravy train of guaranteed federal funds is gone.
This isn’t income-based repayment in the sense that you originally borrowed a certain amount and have flexibility in repaying that fixed amount.
I know the idea is rather convoluted and might not work in actual practice (I haven’t actually crunched any numbers). I also know that the value of a profession is more than just a person’s salary. The world actually needs at least a few English teachers too.
I’m curious to hear from you guys and gals what creative ideas you might have for reworking the education finance system? Would you be willing to give a percentage of your salary to your university for 10 years, 20 years, or even for the rest of your life? Going to an even bigger and more philosophical question, how do you value an education?
Comments
I think there is a much
I think there is a much simpler solution, which is simply to curtail the amount of students that go to college. Not everyone needs or should go to college. There are plenty of professions that we are running shortages of because of the easy availability of student loans allowing kids to pursue their passion of art history studies instead of being something like a welder. There is nothing wrong with being a welder.
Moreover, If you choose a major such as art history you should simply have a much higher interest rate on your loan because you are not as likely to pay it back compared to someone with a computer science degree or even a business degree in general. If you can afford to pay your own way, study whatever the hell you want.
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I sounds like an interesting
I sounds like an interesting idea, but there is one problem.
In your system, school are incentivized to increase their returns from the education the provide. At first this seems like an excellent idea, since it could easily be mutually benefitial. (School gets a stead income based on preformance and students receive an education that will ensure future job security.)
At the same time, schools might put too much emphasis on high-return programs (ex. finance, business programs, engineering programs, etc) and less on low-return programs, including a large part of what constitutes a "liberal education". Students will then receive a lower-quality education if they want to do something more creative.
I simply think that changing the laws for student debt is in order. It should be treated as any other debt, which it is not.
The major problem with
The major problem with federal student loans, is that it leads to price inflation. The amount of student loans increases nearly every year, and so does tuition. When colleges and universities raise rates across the board, students ask the government for larger and larger loans. Cycles like this are unsustainable.
Addinator - I don't think the whole problem lies with students who pursue their passion in "art history/english/whatever degree", part of the problem is the degree itself. These students certainly do become some form of "expert" in their field, but they have no idea on how monetize on that knowledge. I'm sure there are thousands (millions worldwide) of wealthy individuals and families that need help purchasing art for their collections. Are Art History major's trained to do this? No, they are trained to know everything about art, but not how to make money off their knowledge.
I think that some kind of applied entrepreneurship courses for majors like this could go a long way. So what if you can tell the difference between Manet and Monet? If you can't sell that knowledge after graduating you are probably SOL.
I'd also like to point out with a job like a welder, you probably work 40 hours a week on the dot, make decent money, have good benefits, and have enough time left over to learn everything there is to know about impressionism. Maybe you're on to something, "Welding for Art." Teach a bunch of art lovers how to weld, contract their services, then teach them art history in the evening.
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That would end up being a
That would end up being a horrible investment for schools. If students can't find meaningful work to pay off their loans what makes you think schools will get a good enough equity return from it's students to continue functioning? The schools are off loading that risk to the providers of student loans
"One should recognize reality even when one doesn't like it, indeed, especially when one doesn't like it." - Charlie Munger
You're all wrong. My
You're all wrong. My solution is so simple, so elegant and still trumps all your suggestions:
***ALLOW STUDENT LOANS TO BE DISCHARGED IN BANKRUPTCY COURT***
Problem solved, no new regulations or government oversight needed. Lenders will no longer be willing to lend -> potential students will no longer be able to attend -> college tuition will be driven down.
The End.
Man made money, money never made the man
[redundant double post,
[redundant double post, deleted]
Man made money, money never made the man
Addinator37: I think there is
I think there is a much simpler solution, which is simply to curtail the amount of students that go to college. Not everyone needs or should go to college. There are plenty of professions that we are running shortages of because of the easy availability of student loans allowing kids to pursue their passion of art history studies instead of being something like a welder. There is nothing wrong with being a welder.
Moreover, If you choose a major such as art history you should simply have a much higher interest rate on your loan because you are not as likely to pay it back compared to someone with a computer science degree or even a business degree in general. If you can afford to pay your own way, study whatever the hell you want.
No SB's to give but I would if I had one . This is truth.
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RE Capital Markets: You're
You're all wrong. My solution is so simple, so elegant and still trumps all your suggestions:
***ALLOW STUDENT LOANS TO BE DISCHARGED IN BANKRUPTCY COURT***
Problem solved, no new regulations or government oversight needed. Lenders will no longer be willing to lend -> potential students will no longer be able to attend -> college tuition will be driven down.
The End.
What impact would that have on the federal student loan market (over $100 billion last year)? From what I have seen, it appears the federal market has much more of an affect on the number of students attending school and tuition rates than private loans do.
My WSO Blog
"Unbelievably Believable" -- RG3
miermier: I sounds like an
I sounds like an interesting idea, but there is one problem.
In your system, school are incentivized to increase their returns from the education the provide. At first this seems like an excellent idea, since it could easily be mutually benefitial. (School gets a stead income based on preformance and students receive an education that will ensure future job security.)
At the same time, schools might put too much emphasis on high-return programs (ex. finance, business programs, engineering programs, etc) and less on low-return programs, including a large part of what constitutes a "liberal education". Students will then receive a lower-quality education if they want to do something more creative.
I simply think that changing the laws for student debt is in order. It should be treated as any other debt, which it is not.
I mean this in all seriousness, the liberal arts should be a luxury to those who can afford it (e.g. pay it in cash). If you can't afford it then you should get a degree in something that has a monetary return so that your children might one day be able to afford to study the liberal arts. The liberal arts ARE a luxury and should not be financed now indirectly by the tax payers, nor should people choose to destroy their finances to get the same education they could receive in a public library reading books.
"I must study politics and war that my sons may have liberty to study mathematics and philosophy. My sons ought to study mathematics and philosophy, geography, natural history, naval architecture, navigation, commerce, and agriculture, in order to give their children a right to study painting, poetry, music, architecture, statuary, tapestry, and porcelain." John Adams
This is a thought from a man (John Adams) who did not see himself as part of an entitlement society.
Community college should be
Community college should be more encouraged. Students that complete community college should be able to get a rebate for the amount they paid and that amount should be applied to the college they attend. It would leave a student with roughly 3 semesters of tuition to pay rather than 8.
Student loans from the federal government should not be able to be discharged in bankruptcy. Student loans from private lenders should be able to be discharged in bankruptcy.
Don't worry, all of you with
Don't worry, all of you with massive student debt. Obama is coming.....
One of his 'October Surprises' will be massive student loan forgiveness. It will help motivate all the youth votes for another election.
The same 18-20 year olds studying art history who voted for him in large droves four years ago will go to the polls to re-elect him in exchange for repudiation of the debts accumulated for their useless degrees.
Eliminate the liberal arts.
Eliminate the liberal arts.
Make the upaid loans the
Make the upaid loans the college's problem. Start with the for profits, they have almost zero political power, so they could be made an easy and effective example of. If an institution is churning out more net debt liability than earning potential among its students, it gets cut off from federal funding.
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So what you're essentially
So what you're essentially describing is indentured servitude and development of university feudalism, thereby stifling competition from smaller universities and shrinking the ability for those that can't get in the best universities (not that it matters as according to Judge Smails; "the world still needs ditch diggers") from attaining semi-respectable jobs (think corporate accounting at Bojangles Restaurants or 4th year analyst at Nomura). If that's indeed the case.....I like it.
Issue here is however you change the system someone has to take the pain....ultimate question is whom. Allowing bankruptcy isn't necessarily the best option considering the higher yields lenders must charge to compensate for augmented risk; not to mention pass through to tax payers when government needs to bail out Sallie Mae (...again).
I like the idea of allowing
I like the idea of allowing bankruptcy for private loans and not federal. It'd be a huge blow for taxpayers if federal loans were allowed to be discharged. For private loans, it's the banks' responsibility to do the due diligence on their borrowers.
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You're transferring the loan
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YOU JUST GOT TROLLED
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Hey there, bro... This is not
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I don't feel like I should
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