The Student Loan Issue: Resolved.

[nissangirl74]

I heard this story this morning on the radio and it is quite possibly the most brilliant proposal I have heard in years. It is the concept of work-study taken to the highest most efficient level and it was proposed and designed by students, not politicians. You can go to school tuition free. You just have to pay the school back 3% of your earnings for the next 20 years. If you make $100,000 / year, you pay $3,000 / year. If you make $10,000 / year, you pay $300. It is BRILLIANT. They should implement this nationwide. TOMORROW. Problem solved.

...the Oregon state legislature has unanimously approved a plan to provide free tuition to students while they attend community college and public university...The program is called “Pay It Forward, Pay It Back”. Its structure is fairly straightforward. It will allow students to go to a public university or community college tuition-free with a binding contract that they will pay a small, fixed percentage of their annual adjusted gross incomes after they graduate from college...One of the proposals that Dudley’s students ran with is that all community college students pay 1.5 percent of their incomes for 20 years, and all four-year public university students pay 3 percent for 20 years.

“Essentially what it does is allows you not to carry a debt load,” Dudley said. “It’s not a debt that you graduate with. Your debt-to-credit ratio is not mucked up and you can participate in the economy.”

http://www.webpronews.com/oregon-may-so ... an-2013-07

Imagine actually using money designated for education, on an education!!! Radical, I know, but a novel concept, indeed. Call me crazy but I think it is absolutely OK for people to have to go out and get a JOB to pay for their cars, booze, and dead hookers instead of using student loan money. Even if they have to buy a LBD in order to do it. The best part is that this keeps all of the money in the schools. Sallie Mae doesn't get any of it, BofA doesn't get any of it and the federal government doesn't get any of it. Win, Win, Win!!!

[IBCoupe]

I'm a fan, but that's going to cause a huge budget hit to the public university system in Oregon for at least the next ten years. I don't know whether Oregon has a balanced budget requirement (most states do), but if so, that means that there are going to be some very unpopular budgetary actions (drastically reduced spending or drastically increased taxes) in the meantime.

[ADDirishboy]

Awesome idea. But was that LBD comment directed towards me?

[Bubba1]

I'm a fan, but that's going to cause a huge budget hit to the public university system in Oregon for at least the next ten years. I don't know whether Oregon has a balanced budget requirement (most states do), but if so, that means that there are going to be some very unpopular budgetary actions (drastically reduced spending or drastically increased taxes) in the meantime.

This ^^
Bex, yes it sounds like "problem solved" for students. But for the institutions, it sounds like "problem started" as they can't simply defer their costs for several years waiting for all that revenue to trickle in slowly. The state of Oregon and it's higher ed. institutions could face some rather ugly financial decisions over the next several years if the state implements it just to stay open.

It would be very interesting to hear the views of Oregon's College/University Presidents about the impact. It would not surprise me if those institutions were excluded from the discussion.

[Eikon]

Bex.. I wouldn't have pegged you for a socialist.

Here's the problem with this idea:
1.) Those who are successful pay more than those who are not. If I work my butt off in college and then in the job and I make a good wage, I have to pay more.. in your example it would be 3% of $100k or $3k per year.. for 20 years.. equals $60k in tuition paid. Those who slack off in college, maybe don't graduate, get a job flipping burgers or running the front desk at a local hotel.. maybe they make $30k and pay $900 a year or $18k overall. Why do I have to pay more than 3x for the same service? Guess what else is bound to happen.. if the students average income is low, the university gets lower income. They will have to cut programs, services, etc.. or have to raise fees, book costs, or that rate of tuition. Or just close their doors.

2.) You say that this plan saves the student from carrying a debt load? It doesn't.. the only thing it does is shift the payment from a monthly outflow to a yearly outflow. Guess what happens to the economy every Spring when people have to borrow money to pay their $3k tax bill that used be a small refund. What happens to the federal budget when Sally Mae's interest income vanishes? How about all the people employed with Sally Mae (ColdZero..)

3.) You are now giving the IRS even more control over our lives. In an era where many of us think the IRS should be limited, you are proposing that the IRS should have control over our education?


The current system is ok.. needs a few adjustments.. but it works. Government needs to limit interest rates on student loans to help me it more affordable. Government needs to limit tuition increases at public universities to keep higher education affordable. Government needs to limit accreditation for all these fly-by-night, "online", non-traditional, for-profit schools who offer you little more education than you could get yourself at your local library for a huge fee. Students need to wake up and stop being stupid.. college is not a drunken party for 4 years.. take advantage of the education that is available. Stop going to worthless schools, start going to in-state universities and take advantage of the huge in-state tuition discounts. Stop trying to get a degree in a field of study that has little hope in helping you find a career and earn an income.

The system is ok.. we're just too stupid to take advantage of what is out there.

[Jesda]

I'm intrigued and fascinated. Nothing has triggered my libertarian freakout alarms () but I suspect there may be some significant trade-offs like those detailed above.

[AZhitman]

Those who are successful pay more than those who are not.

Um, Seth, that's Capitalism. The guy making $100K is going to be genuinely happy he has no debt, and can likely see the intrinsic value of having a good education and no debt. Ergo, that bill gets paid gladly.

Why do I have to pay more than 3x for the same service?

You get out of it what you put into it. Your mortgage is twice mine, but you didn't pack up the farm and move to the desert - Point is, we both have a nice home in the area we want to live. Why should you pay double?

Guess what else is bound to happen.. if the students average income is low, the university gets lower income. They will have to cut programs, services, etc.. or have to raise fees, book costs, or that rate of tuition. Or just close their doors.

Or get rid of the football coach and a handful of overpaid administrators.

If the students' average income is low, that's a direct reflection on the market's perception of the value of their education. It's a valid measure, and the college needs to step up and crank out better students.

How about all the people employed with Sally Mae (ColdZero..)

"Too big to fail?" No. We didn't bail out Smith-Corona when typewriters went away. We don't artificially prop up industries in a sensible society.

3.) You are now giving the IRS even more control over our lives. In an era where many of us think the IRS should be limited, you are proposing that the IRS should have control over our education?

This is my only real agreement... I have a problem with this as well. However, I don't see it as the IRS having control over education - they don't get involved until AFTER graduation.

Government needs to limit interest rates on student loans to help me it more affordable. Government needs to limit tuition increases at public universities to keep higher education affordable.

These two goals are mutually-exclusive. Sounds good on paper, but neither is feasible. The beast WILL be fed, and student loan interest SHOULD be allowed to rise. I've made my point soundly on this topic.

Students need to wake up and stop being stupid.. college is not a drunken party for 4 years.. take advantage of the education that is available.

Most 18-year olds don't have that capacity and you know it. When loan money comes in a $9K check every semester, payable TO THE STUDENT, it's a recipe for shenanigans. Sallie Mae knows it (and loves it), the students know it (and abuse it) and the Fed knows it (and doesn't dare make a peep). It's crap, and it's criminal. Do some reading on the development of the brain in teenagers and you'll see why they can't seem to forego short-term gratification in pursuit of long-term benefits. It's manipulative, fraudulent, and a colossal scam. Sorry Bud - All the love in the world, but your employer is guilty as hell.

The system is ok.. we're just too stupid to take advantage of what is out there.

Respectfully agreeing to disagree.

Realistically, I think Isaac touched on the only valid criticism of the plan, and that's "what happens in the interim decade."

Then again, I think a few less taxpayer-funded excursions abroad, some sensible cuts in entitlements, and cutting some foreign aid to pissant countries that hate our guts MIGHT go a long way towards getting universities through that spell... but now I'm just being a hard-core Libertarian who hates and distrusts our Administration.

[Eikon]

Um, Seth, that's Capitalism. The guy making $100K is going to be genuinely happy he has no debt, and can likely see the intrinsic value of having a good education and no debt. Ergo, that bill gets paid gladly.

You get out of it what you put into it. Your mortgage is twice mine, but you didn't pack up the farm and move to the desert - Point is, we both have a nice home in the area we want to live. Why should you pay double?

Capitalism gives the person who works harder the opportunity to make more money.. not the burden to pay more money just because they can afford it. You shouldn't get a free ride or a discount with me paying the difference because you didn't work as hard as I did. (not you Greg.. just people in general). You are right.. you get out of it what you put into it.. the problem is that most of our students put nothing into it.. then complain because they have to pay for it.

If the students' average income is low, that's a direct reflection on the market's perception of the value of their education. It's a valid measure, and the college needs to step up and crank out better students.

It's a two-way street.. You can't blame the school for kids who don't understand the value in their education. The opportunity is there.. teachers are happy to teach, books have tons of knowledge stored within the pages. If a kid doesn't care, then won't learn, they won't get good grades, they won't impress in an interview, they won't get good jobs.. that's on the kids. That's on the parents... that's on society/culture, etc..

"Too big to fail?" No. We didn't bail out Smith-Corona when typewriters went away. We don't artificially prop up industries in a sensible society.

We've bailed out a few industries recently.. but that's beside the point. Sally Mae is a quasi gov't entity that pays out its profits to the government. If you take away that income stream you have to find some way to replace it.. and for some reason I feel like that's going to be out of my pocket.

Most 18-year olds don't have that capacity and you know it. When loan money comes in a $9K check every semester, payable TO THE STUDENT, it's a recipe for shenanigans. Sallie Mae knows it (and loves it), the students know it (and abuse it) and the Fed knows it (and doesn't dare make a peep). It's crap, and it's criminal. Do some reading on the development of the brain in teenagers and you'll see why they can't seem to forego short-term gratification in pursuit of long-term benefits. It's manipulative, fraudulent, and a colossal scam. Sorry Bud - All the love in the world, but your employer is guilty as hell.

Respectfully agreeing to disagree.

Wait a second.. so 18 year-olds have the capacity (responsibility/maturity/intelligence) to vote, to drive a car, to get a job, to fight (and die) for our country as soldiers, to get married, have kids, and so on.. but they should get a free pass on their own personal finances? They aren't smart enough? mature enough? Finances are somehow a more complex and difficult facet of life that is beyond the ability of an 18 year old to manage? Sorry Greg.. I strongly disagree. Replace with a 12 year old and I would agree.
Also, in most cases the student loan check is drawn by the university itself, which automatically pays the tuition and other fees and then disburses any remaining funds to the student. In most cases there are no remaining funds because they draw only the necessary amount. There are some cases where loans are available for "room and board" and other living expenses, but those are not as frequent as you may think.

My point is.. you can make a lot of life-changing choices as an 18 year old (sometime life-ending).. why should personal finance be a free pass? It's not the government's duty to make these choices for us. We need more parents to start teaching their children to be responsible.. and maybe a high school to teach a personal finance class instead of "home economics" or "library science".

Our culture needs to wake up and start remembering the concept of personal responsibility. You want a good life.. work for it! It starts when you are a kid.. take advantage of the education provided to you. You want a good job.. make yourself marketable through your education, skills, and experience. You want nice things in your life.. understand the concepts of credit scoring, personal savings, investments, budgeting, etc..

Why is it that the people who understand the above paragraph have to pay for the lazy people who don't?

Sorry for the tangent.. My point is that the problem with the student loan system is not the system.. it's the people who use it. If you make bad decisions you should have to pay for it. If you make good decisions you should reap the benefit and not get strapped with the burden of paying for those who don't. We can't change the cost of education to be more expensive for people who are responsible and less expensive for those who are not.. that only encourages more poor decision making.

Knock it off Barack!!

[PapaSmurf2k3]

I would think people would abuse the s*** out of that system. What happens if you go, get 3.99 years of education, and then just don't graduate? Are you still on the hook?
Not sure if this would happen or not, but if there's people that don't really want to go to/belong in college just start going just because its "free". They end up making the same amount after college as they would have before, but they just went to party for 4 years.

I could definitely see the system working somewhere, just not in America. I gotta side with Seth on this one right now (plus Isaac's point). Our current system works fairly well, you just have to not be an idiot at it. By the time someone is 18, they should know how to save a buck and realize how bad debt is. Hell, debt is always being talked about, you can't escape it (the conversation), and no one says its good... yet people still rack up credit card bills and student loans. If they choose to spend their money wrongly, then so be it.

[PapaSmurf2k3]

Our culture needs to wake up and start remembering the concept of personal responsibility.

I completely agree. Responsibility and accountability.

[nissangirl74]

Bex.. I wouldn't have pegged you for a socialist.

I prefer not to be labeled, thanks.

I didn't say that this idea was perfect, I just said it was brilliant because someone was finally proposing an idea that is different, fresh, and new. I don't have all of the answers and maybe the state of Oregon doesn't either. What I do know is that the current system is completely and utterly BROKEN and if we stay on the same road we are on, then we can't expect anything different.

There is roughly somewhere between $902 billion and $1 trillion in total outstanding student loan debt in the United States today. The Federal Reserve Bank of New York reports $902B while the Consumer Finance Protection Bureau reports $1T.

•Roughly $864 billion is outstanding federal student loan debt while the remaining $150 billion is in private student loans(Source: Consumer Finance Protection Bureau). Private student loans are not made or backed by the federal government.

A trillion dollars is a lot more unacceptable to me than 3% of my earnings over 20 years. Would this program eliminate all of that debt? No. But it COULD -over time- help reduce that number. 1 trillion didn't show up overnight and it won't go away overnight. However, paying it back at 3% is better than people just saying 'screw it I'll never pay it off so I'm just going to bail completely', and paying 0%.

I know people should be responsible and people should manage their money, but not everyone makes the right decisions. I know a lot of grown people who are adults, parents, gainfully employed, and are downright STUPID about money and they make stupid money decisions. I think this program could help weed out the people that are in school just so they can get a bunch of loans that can be labeled as "student loans" that they don't have to pay back until the diploma comes or they stop taking classes. I think this is a great opportunity for people who are interested in going to school and getting an education so they can go to WORK but not necessarily racking up a lot of debt with huge payments and lots of interest. It won't work for everyone and it may not work at all but I think it is a bit premature to say that it will absolutely fail without knowing the whole story, including guidelines, stipulations, and the terms of the agreement. Why is it wrong to suggest that something else might work better?

[PapaSmurf2k3]

I think this program could help weed out the people that are in school just so they can get a bunch of loans that can be labeled as "student loans" that they don't have to pay back until the diploma comes or they stop taking classes.

ahhhh I see what you're saying. I didn't think people went to school just to take out loans though.

[AZhitman]

You shouldn't get a free ride or a discount with me paying the difference because you didn't work as hard as I did. (not you Greg.. just people in general).

I don't see this as the "winner" bearing most of the burden. The top students will get the top jobs. The slackers will get menial jobs. A percentage of one's income is the same as the "Flat Tax" concept, and no one really freaks out about that. Besides, the "top students" are likely to incur more educational expenses, especially if the $ gets cut off unless they earn a C or better (they need to add that in, BTW).

You are right.. you get out of it what you put into it.. the problem is that most of our students put nothing into it.. then complain because they have to pay for it.

Let 'em complain. They can whine all day while they're raking my yard or cooking my Southwest Bacon Cheeseburger (hold the tomato, please).

If a kid doesn't care, then won't learn, they won't get good grades, they won't impress in an interview, they won't get good jobs.. that's on the kids. That's on the parents... that's on society/culture, etc..

Then they get the boot. I'd definitely add in a caveat that a C or better average be required to stay in the program.

and for some reason I feel like that's going to be out of my pocket.

Not sure how it could be, considering you and I are already done with college.

Wait a second.. so 18 year-olds have the capacity (responsibility/maturity/intelligence) to vote, to drive a car, to get a job, to fight (and die) for our country as soldiers, to get married, have kids, and so on.. but they should get a free pass on their own personal finances?

Not really, not really, sure, debateable, not really, not really, and so on. But we can't do anything about that.

I said nothing about giving them a free pass. I don't like the idea that every scam artist credit cars / student loan company throws a handful of money at a 17-year old the minute they step on a college campus, knowing full well that they're too retarded to make wise money decisions. I don't LIKE it any more than you do, but telling a 17-year old not to piss away money they don't have is like telling them not to pork the cheer squad captain. Good luck with that in the upcoming decade, BTW.

They CAN manage it, if taught well. But who's gonna teach them? On average, their parents have $40THOUSAND in consumer debt. Yeah, Mom and Dad are a real good source of financial wisdom.

Also, in most cases the student loan check is drawn by the university itself, which automatically pays the tuition and other fees and then disburses any remaining funds to the student.

Not that I've seen. EVERY person I know who has racked up student loan debt got the check direct.

We need more parents to start teaching their children to be responsible.. and maybe a high school to teach a personal finance class instead of "home economics" or "library science".

I don't disagree. I'm right there with you. But as the parent of 3 teens and a young adult, I can tell you this: Even Bex and I, with our financial savvy, are struggling to instill the lessons of delayed gratification. It's biology - biochemistry - developmental psychology. I don't conduct the studies, I'm just telling you that it's scientifically-supported. Teenage brains are different, and you'll see... and I'll be right here to commiserate with you, brother.

Our culture needs to wake up and start remembering the concept of personal responsibility. You want a good life.. work for it! It starts when you are a kid.. take advantage of the education provided to you. You want a good job.. make yourself marketable through your education, skills, and experience. You want nice things in your life.. understand the concepts of credit scoring, personal savings, investments, budgeting, etc..

Amen.

Why is it that the people who understand the above paragraph have to pay for the lazy people who don't?

Again, I don't see this as a handout, or an uneven playing field at all. Won't cost me a dime.

But 3% interest on beer money? THAT is a handout, and a scam. Why can't I get a 3% loan, Seth? I've got perfect credit, a stable income, and good sense. I could make 8-10% annual returns on that money and pocket the difference. Why can't I have it? Just because I'm not 17? Just because I'm already educated? Just because I'm not pouring it into a broken post-secondary education system?

You KNOW how I feel about the collegiate system. It's a runaway train, and the more "cheap money" they keep dumping into its gaping maw, the more it's going to want. Tuition at my alma mater is now, get this, TEN TIMES what it was in 1994 when I graduated. Really? REALLY? Is ANYTHING 10x more expensive today than it was in 1994?

It could be... if the US Government subsidizes it.

This is not too terribly different from the GI Bill. Give us 4-6 years of your life, and we'll pay for your education. Works great.

To make it even BETTER< get employers involved. They're the ones requiring the degree - Why aren't they kicking in for the educational costs? I'll tell you why - Because THEY know that a 4-year education that costs $70K is worth about $25K in increased productivity. Graduates aren't really coming out with the capacity to set the world on fire... Trust me, I work with them. Lots of dim bulbs coming out of prestigious colleges.

[PapaSmurf2k3]

Is ANYTHING 10x more expensive today than it was in 1994?

Google stock

I actually can't think of much. Maybe R12 Freon?

[IBCoupe]

2.) You say that this plan saves the student from carrying a debt load? It doesn't.. the only thing it does is shift the payment from a monthly outflow to a yearly outflow. Guess what happens to the economy every Spring when people have to borrow money to pay their $3k tax bill that used be a small refund. What happens to the federal budget when Sally Mae's interest income vanishes? How about all the people employed with Sally Mae (ColdZero..)

Why wouldn't we just make it part of withholding?

If you're taking it out of each paycheck.. then why not just have the payment due each month.. what's the difference?

[IBCoupe]

I would think people would abuse the s*** out of that system. What happens if you go, get 3.99 years of education, and then just don't graduate? Are you still on the hook?

Of course you're still on the hook. Every college I've attended bills by the semester. If you go get 3.99 years of education, you've still got eight (at least) chunks of college tuition. Your bills don't go away when you drop out, and, if it's at a State school, I don't see why you'd escape from the tax. What's the downside? A drop-out probably will make less, and the school will probably make less. This sucks for the school, but I'm comforted to realize that:

1) The number of people who would drop out just before graduation is probably low
2) Those folks likely aren't going to make a lot of money even with the college degree
3) The only exception is a person who's clever enough to make a lot of money in spite of not having a college degree
3)a) And that person's going to be paying a proper amount in taxes.

[IBCoupe]

Also, in most cases the student loan check is drawn by the university itself, which automatically pays the tuition and other fees and then disburses any remaining funds to the student.

Not that I've seen. EVERY person I know who has racked up student loan debt got the check direct.

The way it worked for me was the way Eikon described it. And it was good for me. If the school had simply taken the excess disbursement and paid it back to the lender, I'd have been screwed, and likely would have had to have drop out, eventually. But it wouldn't have been immediate. I spent the money on car upgrades, but that was no more than $4,000 ($2,000 net - I resold the wheels + tires for a profit of a whopping $10 after Paypal fees) of the excess $50-60,000. Most of the money just went to making sure I could continue to live doing all that I was doing, as a direct result of going to school.

From books to computers to gasoline, there are a lot of things that aren't accounted for in school tuition. Now, maybe I didn't need all of the refund I received every semester, but I certainly needed a lot of it, and I'm pretty glad that the University handed me a check with my name on it after it took its cut of the loan. But, I may not have what you'd call "racked up" student loan debt, given that in exchange for $120,000, I got a law degree.

[Dattebayo]

I think this is a great idea, but I think it assumes that everyone goes to college with making money in mind, right? Every degree has a different cost per student to the university, and many degrees have a different goal in mind; a goal not to pay well, but to either educate others or for philanthropy of some kind. I think what that means in the future is that some fields of study are going to end up dropping off to make room for the better paying degrees. I don't know if I like that? I'm not sure if I like some of the more useless degrees out there either, but choice is part of being free, right?

[Jesda]

I used the overage check from my student loan to help start a business and cover expenses, one that I've been running now for about eight years.


I suspect most students just spend the $500-$2000 on booze.

[AZhitman]

Pretty insightful stuff from Dave - Yep, I considered that as well... Then again, it makes me wonder if we really need a bunch of philosophy majors or sociologists in the work force these days.

Certainly, there are those who study religion, music, and the arts, and run the risk of not seeing a huge return on their academic investment. However, I'd bet that those folks are well aware of the need for a "fallback" plan, AND I suspect they're not exactly the type to go blow their student loan check on beer and designer clothes.

Isaac, your situation is relatively unique. You were in the top 1% of your age bracket with regard to goals, planning, and insight... no question about it.

[IBCoupe]

I think this is a great idea, but I think it assumes that everyone goes to college with making money in mind, right?

That's a very good point; and I'm surprised it hadn't occurred to me. However, I guess that leads us to a conversation we probably should have had for a while: are those the students our state universities should be catering to? Or, maybe those are programs that you'd pay a surcharge up-front for?

Isaac, your situation is relatively unique. You were in the top 1% of your age bracket with regard to goals, planning, and insight... no question about it.

"Were" being the operative word. Look how far I've fallen!

[AZhitman]

We all choose a path, young brother.