Hey I know, we could package these Income Sharing Agreements (ISAs) together to reduce the risk of investing in duds. Then we could resell those. I'm sure the rating agencies would get on board. Tranche the sht out of that stuff, and it's fun times until we realize that people don't actually have jobs anymore, and your AAA CISA is dogsht. Sign me up!
OTOH... I just went back to university and am getting straight As or A+s after my first year doing Physics, Chemistry, Biology. So ... investors ... my trajectory will put me somewhere between Elon Musk and Ted Kaczynski. Who wants to bite?
I’m amused at the idea of going in as a group with your class. Getting other students to guarantee your obligations... I can’t quite figure out the natural consequences for, say a class of engineers or a class of English majors. For some domains you would expect a certain rate of inability to pay. In others you would expect a certain amount of income superstars.
It would be very difficult to do worse than non-dischargable debt, like students in the US get fit student loans. I think you can get rid of an ISA by going bankrupt as it’s just a loan with a variable repayment schedule dependent on income. That description elides from the fact that the terms are not standardised either in terms of caps on amount paid back or the time you pay back. It should still be dischargeable in bankruptcy though.
I love this idea, but perhaps these kinds of financing should be offered by university endowments or by government funds? In fact, it might be useful to replace student loans with this mechanism to align long-term incentives of universities & their students.
This sort of financing might also lead to a better understanding of what sort of programs are effective. I could see financing being available for particular programs. Arts would probably suffer. That said, I think humanities might get a renewed interest -- those who can communicate effectively and solve problems are the bedrock of traditional business.
Private investors? There are lots of things that work great with private capital -- I'm skeptical that financing education is one of them.
Yeah, let’s prop up the government and hedge funds with attached research arms. We should ignore the private companies that are already using ISAs, like Lambda School, to help people get job training to change their lives for the better and just assume that not for profits and the government will do things right because they have only the purest motives.
That worked out so well for the taxpayers and citizens of the US with student loans, and for the students. Giving universities another legal massive legal advantage over alternative means of education is a great idea. That couldn’t possibly go wrong.
Sarcasm aside ISAs are not a terribly new idea and universities have tried and failed with them before, Yale and Purdue, in part because no one in universities really cares about getting it right. If you don’t get paid more if you do well and don’t get fired if it’s a catastrophe your motivation is reasonably limited.
ISAs do need regulation but just presuming non profits and the government will do it right out of the goodness of their hearts... It’s ignorant.
GP saying that it should be offered by the university because then if the university fails to produce a population of students that can make money in the job market, they will suffer.
It's an alignment of incentives much like how some people say colleges should be penalized or on the hook for having a high percentage of students that default on student loans. It would supposedly incentivize schools not to just charge students $300k for an education that gets does not prepare them for the job market.
Personally I think over-aligning these incentives and making college into a machine to make you a profitable worker sounds brutally dystopian, but something has to change about the current world.
Equity-based student loan funding is way less predatory than debt-based student loans, in my opinion, but every comment I read screams "slavery" and "wage-slave".
Of course, both types of funding can be benevolent and/or predatory depending on how you structure the terms, just like anything else. Unfortunately, our laws don't do a very good job of educating or warning young adults who are all entering predatory loan agreements that can't be voided even in bankruptcy.
The answer of course is that society should fund education in the same way as it does roads, bridges, national parks, security, governance, and other social goods. With tax dollars.
How do you think the loans get paid back, exactly? It's funded with borrowing because it makes no sense to take in enough tax revenues to build something in a single year when it's going to get used for twenty.
Is that because millionaires are prepared to give large donations to universities (especially if their kids get a place at the university in return), while they're not so generous when it comes to funding roads and bridges which are used by poor people?
It might be because most people here are software engineers.
If a person's new grad salary is high enough to pay off student loans inside of 2 years, then this arrangement is a lot worse financially than a simple student loan.
The job market for CS, also makes it so, that a loan is pretty low risk. a half-decent job is nearly guaranteed.
Flip the major to something with a lot more income insecurity, and these schemes make sense.
> Vemo Education, which vets students at Purdue and a handful of other schools on behalf of potential investors.
This statement does worry me though. It seems like they would only invest in a candidate if they were already on their path to success. These candidates were probably never at risk of not paying their student loans in the first place.
I wonder if they expanded their pool to more risk prone students, would such an investment system be sustainable at all ?
Am I reading this right? You have to pay 2.5% of your income for 7 years as a comp sci graduate for a loan of only $10k. Seems like a pretty terrible deal.
Edit: Avg comp sci grad salary from Purdue is $72k, assuming 5% raises on average including promotions, you'd pay about $14.6k for this loan, which is roughly equivalent to a loan with an 11% interest rate per year over 88 months.
Edit2: I was a business major, and if I used the finance major's payment percentage and term length, I would have paid $20k back over the term of 8 years which is basically like a 20% interest rate per year.
It is a terrible deal. Lambda School’s stipend programme (places limited) pays students $2,000 a month for the nine months of their job training, while they get trained 40 hours a week and that includes interview prep and placement and job search help that makes university careers offices look like they’re going through the motions, not trying to get the students a job.
And after paying students $18,000 and spending nine months getting them job ready and helping them find a job they only have to pay back
> Upon completion of the program, students will pay 10% of their salary for a five year period once they're making at least $50,000 per year. The max possible payment is capped at $50,000.
> There are no up-front costs required to attend Lambda School; we only get paid when you do. Once you’re earning at least $50k per year you’ll pay back 17% of your income for the first two years.
> Total tuition possible is capped at a maximum of $30k, so no matter how much you’re getting paid the most you could possibly pay is $30k.
You are comparing a loan to an equity. The ROI on equity usually is higher than on a loan, if all goes well. But the risks are higher.
In this case, if you graduate AND work AND at an average salary AND have no health problem, you payout will be higher than on a loan. But if any of these condition is not met (eg: you have trouble finding a job, your starting salary is lower than expected, ...) then you don’t have to pay as much. It’s more expensive in a best case scenario, but much more comfortable and safer in any other case. The risk is shared between you and the « lender ».
Yeah but imagine how awesome higher education will be with private equity/VC firms determining how to price-discriminate majors in order to increase their returns
I think this analysis is missing the main point of this kind of agreement, and that is that in the worst case scenario -- the graduate can't find employment, or income can't support the student loan payments -- this agreement should be better than straight loans. From another article [1]: "At Messiah College, students who opt for the school's ISA will pay between 3 and 3.5 percent of their future income for a set period of time. Payments are waived if a graduate's salary drops below $25,000 a year." (Of course, I don't know if this example is representative of all of these agreements)
On one hand, I could see this working for students going for degrees with less job certainty than comp sci. But on the other hand, this does seem like treating a symptom rather than the causes, like we're encouraging too many people to go for degrees that don't lead to gainful employment or self-sufficiency.
The obvious point to make is that American student loans already suck so this may be an alternative. However, this makes me feel really uncomfortable. The first is the same reason as student loans: At the age you're agreeing this you are very unlikely to correctly judge your own value. It's the same reason why students take on ridiculously onerous student loans.
The solution to that problem in my mind though is to regulate out of existence exploitative student loan conditions. Instead this mechanism creates a whole new way that lenders can rip students off. The Yale example is good but let me pick at this:
>Purdue, for example, caps total payments at 2.5 times what a student borrowed, so the most successful don’t feel gouged. That would be a 15 year loan at 15% APR. That IS gouging.
There is a good reason why super high APR loans are heavily regulated - because they're almost certain to cause debt spirals and are only entered into by those who are desparate. The nature of finance companies creating these schemes is that the schemes will be designed to favour the finance companies not the students. So in no way does this solve the problems that students face.
The credit card I have via my credit union has a 13.24% APR. I'm fairly sure that's pretty normal if you have good credit and pay on time - I certainly didn't go out of my way to look for a low interest card.
>Purdue, for example, caps total payments at 2.5 times what a student borrowed, so the most successful don’t feel gouged. That would be a 15 year loan at 15% APR. That IS gouging.
15% APR isn't gouging. That's a typical APR for an unsecured personal loan, which this is. Well, it's actually worse than an unsecured loan for the lender since payment is tied to employment. So, not egregious.
It's also not 15 years. The term maxes out at less than 10 years for English majors. The person being interviewed is on the hook for 8 and a half years.
EDIT: Where did you even get the 15% APR from? 2.5 times what the student borrowed does not work out to 15%, unless the debt is paid off in under 7 years.
A 15% APR over 15 years would be over 8 times the original loan amount.
Please show me where an unemployed person with uncertain future prospects and neither a work history nor any assets can get an unsecured personal loan for 4-9%? I'll even give you a pass on the requirements of the loan payback being subject to employment or a minimum income, a payment cap or a term limit.
Adding to the above, as noted the edit to my previous comment, even the 15% APR number is wrong in general. An English major would have to earn over $500,000 in 7 years to hit that APR.
> Please show me where an unemployed person with uncertain future prospects and neither a work history nor any assets can get an unsecured personal loan for 4-9%?
Every high street bank in the UK offers a student overdraft facility, e.g. HSBC[0] offers a guaranteed £1000 0% overdraft, with up to £3000 depending on how long you've had it. Other banks offer credit cards with 0% interest for students too.
Finally, student's aren't the same category as
> an unemployed person with uncertain future prospects and neither a work history nor any assets
While that is a technically true statement, it's ignoring the fact that <4% of recent graduates are unemployed. While that makes them higher risk than an engineer in SV making 6 figures, it absolutely doesn't have students in the same risk category as an unemployed disabled veteran.
(1) You cannot use a UK high street bank to finance a US student loan
(2) 1000 GBP or even 3000 GBP is not nearly enough to pay for college
Students which are likely to use this type of financing are very much in the same category as an unemployed person with uncertain future prospects and neither a work history nor any assets. They don't have any assets or income, otherwise they would not borrow on these terms. They are unemployed and will not be employed for an undetermined period, possibly years. They are more likely than not to be too young to have any real work history.
Obviously they are different from the long term unemployed, disabled or veterans, but neither was I claiming that.
The other consideration is that it makes investors incentivized to get you to succeed (at least as far as salary is concerned). That could be a huge advantage if you manage to get the right investors.
Of course I also wonder if it's only a matter of time before a short market emerges - which it will - if investors need to hedge against a recession or something that would not be covered by traditional insurance products.
Well my background is engineering and they're are some nice quite schemes in the UK where they'll sponsor you during university. It works like this: They give you cash towards tuition fees and living expenses. In return you pick some pre-approved courses (relevant to their industry) do an internship over the summer each year, and then they have the option to employ you after you graduate (they can reject you, but if you reject them you repay something towards the scholarship). That sounds much more sensible - but it's not a private equity concept, it's a HR recruitment strategy.
When suggesting trying to solve the problem, I'd first consider what caused the problem. It obviously was not always this way. The stories of people in the 50s and 60s working their way through college with a part time job and then graduating not only not in debt but even with a little bit set aside for a down payment on their first home are not just stories. That was a real thing.
So what happened? We decided that it would be a good thing if anybody could go to school without having to pay for it immediately. It's a pretty well intended motivation. And so how did we do this? We tried to solve it through regulations. The idea was pretty straight forward. To help ensure anybody could afford to go to college the government would give loans unconditionally, aside from financial need. To try to ensure people wouldn't just take the money and squander it, the law was adjusted to prevent these loans from being able to be dismissed in bankruptcy.
And indeed college attendance shot up after these laws were passed. But this did two things. It sharply increased the demand for post-secondary education, and it also increased the supply of money available to pay for it. Predictably costs started to gradually rise. And so as this happened, it began to be that government loans alone were no longer sufficient to ensure everybody could go to college without having to immediately pay for it. And so we now did the exact same thing with private loans - they could no longer be dismissed, which meant that from a lender's perspective, giving a loan was practically free money.
And we've seen what happened here already. Costs skyrocketed since there was now an effectively unlimited amount of money that students could borrow. The only reason costs stopped accelerating as fast is because we reached 'peak college' in 2010-2011 with enrollment figures with enrollment continuing to decline since then in spite of an increasing population.
----
The point I'm making with this is that the one and only reason we're in this situation is because of well intended regulations. It's easy to say just "regulate out of existence exploitative student loan conditions" but things like this are far easier to say than do. For instance, as you make loans less profitable for lenders, they end up becoming more selective on who they lend to. In turn we end up going back to where we started where college is no longer something for everybody. And in my opinion this is probably the right direction, but at the same time I think many people would disagree with this. If you happen to be one of these people then you end up in this tough situation of trying to create a system where lenders can/will lend to people who they probably should not be lending to. Getting a degree in underwater basket weaving isn't going to likely lead to a life such that one could repay years of debts taken on to obtain such a degree, even if the cost of education was relatively "affordable."
Well, one problem solved, but likely creating (or restoring) others. Their non-dischargable status helps keep rates low(er) and allow folks who'd never qualify for a $100k loan otherwise get a degree.
If we're gonna require a bachelors degree to work at McDonalds, it's probably time to treat undergraduate education like K-12; as an entirely publicly funded endeavour.
The problem is, it also allows folks who would never qualify for a 100k loan otherwise get 100K into debt.
I read an article about how artists are struggling in the high cost San Francisco Bay Area (sorry no link, because it was really an eye-opening article). The article did mention student loans, but focused mainly on gentrification brought about by high tech.
However, they did profiles of various struggling artists, and I was frankly stunned by the debt levels. People with fine and performing arts degrees frequently had student debt levels of $70,000-$90,000. Holy crap.
Is it a good thing that we've created a non-dischargeable, federally guaranteed loan that allows people to go $90k in hock for a degree that they wouldn't otherwise be able to get?
I was very intrigued when I learned that libertarians often look askance on weakening bankruptcy laws. I always figured they were a "that's the bargain you made" soft of crowd. What I learned is that libertarians aren't especially keen on lending (pun intended) the government's monopoly on physical force in service as a collection agency for people who make stupid loans. I'd say that making a $90,000 loan to someone so they can (channeling David Sedaris here) take photographs of rotting produce spilling out of garbage cans is the height of stupidity.
Like, if you make that loan, don't come crying to me. We already have a fairly punitive bankruptcy system, but we are not interested in marshaling the power of government sponsored men with guns to pursue foolish borrowers who don't pay foolish debts to the ends of the earth so that foolish lenders can get their money back. That, to quote pornstache from orange is the new black, "sounds like a whole lot of your problem".
If you don't think ordinary bankruptcy, along with credit and a history of repaying debts, is enough to incentivize repayment, seriously, don't make the loan.
> the government's monopoly on physical force in service as a collection agency for people who make stupid loans
> the power of government sponsored men with guns to pursue foolish borrowers
please correct me if I'm wrong, but I belive tax evasion is the only debt-related (but still requiring a criminal intent to avoid paying) situation that will result in arrest. If you don't pay your student loans, even gov't backed ones, it will be a thorn in your side forever and result in civil actions, but I don't believe you can be arrested or criminally charged for not paying.
Good point. If I'm going to discuss use of government force, I should distinguish between civil and criminal action taken on the part of the government.
This discussion does take me past my knowledge boundaries, though I believe failure to pay child support can also be "criminal". The main reason I'm not confident (and used quotes) in what I'm saying here is that there's a difference between criminalizing failure to pay a debt itself, and criminalizing various kinds of fraud that go into hiding money that would otherwise be garnished by court order. This difference can be complicated legally and I just don't know enough about it to have a meaningful discussion.
Seizing someone's assets in response to a failure to pay debt does eventually require law enforcement, so I do stand behind my claim that government force is ultimately to collect money based on foolish lending and borrowing practices, under draconian non dischargeable conditions.
> The solution to that problem in my mind though is to regulate out of existence exploitative student loan conditions. Instead this mechanism creates a whole new way that lenders can rip students off. The Yale example is good but let me pick at this:
How is "regulation" the answer? Private student loans are effectively dead since Obama. Over 92% of student loan debt is owed to the federal government as the lender.
> There is a good reason why super high APR loans are heavily regulated - because they're almost certain to cause debt spirals and are only entered into by those who are desparate.
The crucial difference is that only borrowers who end up making a high income will pay that high APR. People who end up with lower incomes pay less. That's a perfectly reasonable arrangement.
Also the entire point of an equity like arrangement is that the investor gets a larger fraction of the upside and in exchange for agreeing to eat the downside if the investment doesn’t work out. Comparing it to the APR of a normal student loan misses the point entirely. With a regular loan you have to pay the same amount whether you’re making minimum wage or 200k/year, whereas with an equity-like arrangement you only have to pay the max amount if you make a lot of money.
The math including payments is a bit more complex and will depend on how much you are paying during the loan term. I.e. if you paid 2.4x on day one and 0.1x the final day looks a lot different from 0.1x on day one and 2.4x the last day due to the time value of money.
>At the age you're agreeing this you are very unlikely to correctly judge your own value.
I think that's the point, isn't it? Even if the student overestimates his potential, investors with more neutral incentives and more broad experience in predicting such outcomes won't.
Lots of startup founders overestimate themselves too; the social purpose of VCs is to make judgments on who can use capital the best. What we have now is like a government agency that gives capital to literally anyone who wants to start a company, promises them riches, and makes them pay half the tab anyway so they end up hugely in debt in addition to wasting the taxpayers' share.
Even then, there is a lot of risk... how many will fallout, not finish or otherwise live in their parent's basement for a portion of the time?
In the end, you're agreeing to a sliding scale based on salary. Those financing are definitely having an interest in your field of study and the duration for completion.
I wonder if premiums are higher for women due to increased likelihood of just becoming a housewife and providing no income?
Correct me if I’m wrong but the anecdote in the front is also a much worse deal than the table later on. 279/month = 3,348/year. Thats 6.7% of her 50k salary, which is before tax to begin with.
Tons of other loopholes I’m curious about. Like salary vs other comp?
If they are going to be cynical about it, maybe they should consider household income instead of just personal salary so they can collect from women who, due to higher education, can marry a richer husband than they could without the education.
It would be hilariously unenforceable because people would just put off getting married on paper until the term of the payments is up. For couples with highly disparate incomes people already do this to take advantage of income caps for state provided healthcare.
Fitting that in a world where all the same old labor fights that were settled in the past are happening again that someone would un-ironically invent a new form of indentured servitude.
Makes me laugh at people who think that non STEM subjects have no value. Perhaps opening a book in one of those non STEM fields once in a while would help you avoid reinventing things consigned to the dust bin of history without realizing it.
Nearly but not quite as rich as when ride-sharing companies accidentally invent the city bus.
Computer Science itself is rife with reinvention of its own concepts, so I don't think wider reading would change much.
Furthermore, banksters aren't coming up with these mortal-debt schemes due to not knowing history or ethics, but because owning people is quite lucrative.
As far as mortal debt schemes go, this actually seems nicer than student loans denominated in straight dollars. But of course it will be nicer to start off - longer term it will probably converge on a similar income siphon as traditional loans, just with a nice bonus payday when one of the subjects makes it big.
Who is reinventing indentured servitude? There is no obligation to work for any particular employer.
The public service student loan forgiveness (and simmilar private programs, although the latter seem uncommon). Is closer to indentured servitude, as you either have to work an eligable job for a particular employer (eg, the government) or face a significant financial cost.
The belief that this kind of knowledge and critical reasoning skills are exclusive to non stem domains is part of the reason non stem has a strained reputation
This is literally the exact first thing I thought about when I read the article. I think the book gets a bit too ideological, but the prospect of buying a stake in someone's future earnings stuck with me as a pernicious side door into indentured servitude. At the times I shrugged it off as "well, it won't happen" yet here we are 10 years later...
How dystopian, and kids this is how the white collar indentured servitude class come to be.
Gave away a Percent for education, another for housing, another for health insurance ;)
Great.. why don't we just call ourselves the new digital serfs?
Definition:
1. A person in a condition of servitude, required to render services to a lord, commonly attached to the lord's land and transferred with it from one owner to another.
Being free but indebted is not really as bad as being forced to work someone else's land. I owe my bank a significant sum, but I am able to find work that schedules both a repayment of that debt as well as a nice profit and accumulation of assets for myself on the side. That is not possible under slavery or serfdom. I owe my bank money, but I don't owe them my life, as they cannot require that I pay them back under such an inefficient and disenfranchising mechanism.
My daughter signed up on an ISA with Kenzie Academy (it's a digital marketing program in Indianapolis). The terms were the school gets a percentage of her earnings over $X and under $Y for two years. If she doesn't make $X, then nothing paid. Contrast that against a $20-$30k in student debt...
Some of the ISAs being done by colleges just look like dressed up student loans in comparison.
There’s lots of things to reasonably debate about this. This is already an accepted practice for coding boot camps like AppAcademy, which I attended. At the time I couldn’t get a good job and was running out of savings. I was an adult cleaning golf clubs with high school students. Couldn’t get anyone to even look at my resume. AppAcademy’s application was purely merit based, they just wanted to know you could solve problems and think. After the program you pay 15% if your income for the first year, if you could get a job that paid over 50K a year.
I got in. I remember I was telling some millionaire member of the club what I would be doing and he told me that he thought that was illegal and they were ripping me off. I genuinely liked most of the members, but I really wanted to tell that guy some very rude things.
It changed my life. By the next spring I had a great job I loved that was paying me way way more than the golfing club. I had to pay 30% of my first 6 months instead of 15% over the full year, which is tough after taxes. Take home pay was like 45% of my paycheck. But even during that first 6 months I was making way more than I would have otherwise. I’d do it again in a heartbeat.
Bottom line, I got a chance I wouldn’t have gotten otherwise. There’s plenty of ways to take advantage of desperate people. The term could have been longer, the rate higher. It could turn into a type of slavery. But if these things are limited in some way they can be a good thing. Especially if they time out, and are subject to you actually being paid. Then they are better than most other loans, and the people who you owe have interests that are slightly more aligned with yours.
That program has changed a bit since I went through. Also, I think the biggest drawback was I was expecting them to really help me get a job, but it was more throw us all out there and see who sticks. So, probably much less ideal in fields without the same insatiable demand for workers.
Any instrument can be made favorable. You can calculate out expected values. Sounds like yours was a reasonable deal.
But... assuming they don’t set prices using things other than degree, and that they’re priced to be on average equally profitable with an equivalent loan, you’ll be better off getting this arrangement if you expect to earn less than your average peers, and worse off if you expect to earn more. It’s basically a case of moral hazard. Long term you would expect people with less fiscally ambitious goals to pursue this (e.g. those who want to do more charitable, less fiscally rewarding careers) which means the average rate of return would need to be more punishing than traditional loans.
Mostly this just seems ripe for abuse against the loan providers to me, and that the terms will be made very unfair to compensate.
They didn’t help much at all, but the program was still new. Their support might be better now, not sure. I do think taking the program highly highly increased my chance of employment. I would not have made the right choices about what to take, my pace would have been much slower, and my self confidence for actually applying for jobs would have been way less. I am confident about this because I was taking Coursera courses and online tutorials before the AppAcademy program. Coursera is awesome and I learned some great stuff. I also realized that I was good at programming, which gave me the confidence to apply to AppAcademy. But AppAcademy was truly a boot camp, very intense, and pushed me through everything I needed to get a job. And I was also contractually obligated to at least try to get a job.
It's insane that in the wealthiest country in the world, young people have to be indebted in order find a job. It's a modern day form of indentured servitude. It just shows how old the HN demographics are by the amount of overt support for this kind of program.
Make the college free and provide students with a living stipend. Return higher education subsidies (and tax brackets) to their 1950s levels. Join the rest of the developed world.
Free at the point of use, the way normal people mean it.
Re: the responsibility thing, it’s a fundamental difference in ideology and subjective preference, I get it, and I’m not going to argue it. I used to make the same argument, actually. My own subjective preference is to live in a developed nation where everyone has a good on-ramp towards work that they find fulfilling and interesting, and where everyone pays it forward. Other countries get better outcomes in this regard so I want to follow their lead. Anyways see you at the ballot box.
Could you provide an alternative to this "violent" taxation with real world, contemporary examples of a system that provides the benefits of a modern nation?
Most people don't know and don't care where their taxes are going, because they were conditioned to behave this way from the early childhood. Ever wonder why government funded schools don't teach about fiscal responsibility?
"Taken by force" is a strange (very American?) way to put it.
As a European, I'm happy to pay taxes because it's a convenient and efficient way to get money out of my bank account and into the hands of people who need it more than me; I'm helping my fellow countrymen with literally zero effort on my part, which makes my country a better place for me to live in. If we cancelled taxes and required people to make individual donations, I would still want to, but I would probably be too busy / lazy to do it :P
(Not to say that the government does a PERFECTLY efficient job of distributing taxes to those in need, I actually disagree with much of their spending - but on the whole it does a considerably better job than I would if I had to do it all myself)
Firstly, please don't put words into other people's mouths, it is very disingenuous.
As to the actual point - I'll also go to jail if I murder someone. But I wouldn't say "the government is using force to stop me from murdering people", "the reason to avoid murdering people is because you will go to jail if you do" - I'm happy to go around not-murdering people of my own free will, because I believe that society is a better place when we don't murder each other.
> Calling at least a third of your earnings "literally zero effort" is a bit disingenuous.
The GOAL is to spend a third of my money, so I'm not counting that as effort - taxes take a third of my earnings in between my employer and my bank account, so by the time my monthly pay reaches my bank account, it has all been taken care of.
Compare to the charity approach, where I need to research, make decisions, do bank transfers, keep up-to-date with the changing needs of a changing society... If I want to do a not-half-assed job of it, then I'm going to be spending so much time on it that it cancels out the benefit. A few people organising national spending at scale, even if they are only barely competent, is more efficient than everybody doing it individually.
Chris, I understand what you are saying. Of course we care to help other people. Collectively, the US might be seen as "selfish" but I think at a certain point, you have to understand you do not want to harm yourself just to help someone else. I really feel for people who will go to great lengths to help others, even if it reduces the quality of their own life just because it's the "right thing to do"
My mother-in-law is like this. She would let a convicted murderer that was down on their luck move in with her because "everyone deserves a roof over their head"
Again, I GET IT. But do you understand why some may have these selfish viewpoints?
> but I think at a certain point, you have to understand you do not want to harm yourself just to help someone else.
What's special about the US among highly developed nations is that we've convinced ourselves that most of us would be harmed, when it's likely that only a very well-off minority would be harmed (where "harmed" means "be slight less well-off, but still well off").
You're making it completely about monetary value. I'm talking about people taking time away from their own families, going to extreme lengths just to help another human being. That's crazy to me.
Plenty of things are free. Free does not mean it costs nothing, it means the client does not have to pay. Just like it's free for you to move in the city but the city still has to pay for roads.
We already collectively pay for K-12 education (in the US). I'd rather pay a little extra and see progress equalizing opportunity in a world where complex skills are increasingly needed to succeed. Anyone who was able to go to a great school and get a great education without mountains of debt because mom and dad subsidized it should count themselves among the lucky. Everyone capable should get this chance.
Public universities are run like businesses now, with trillion dollar endowments and tuition expanding at insane rates. My own state school tuition has gone up 250% in the last 20 years, outpacing inflation by several times. Something needs to change to bring this under control.
My parents didn’t have mountains of wealth. We grew up in a home where sometimes my mom forced me to go to school even when I was feeling sick because I could get one of my meals there.
In your view of the world, people like me essentially wouldn’t have access to opportunity that would be reserved for the wealthy folks.
You shouldn’t have to care about me individually, but if there are enough people like me, it takes a huge toll on society. You won’t be able to hide from it.
> In your view of the world, people like me essentially wouldn’t have access to opportunity that would be reserved for the wealthy folks.
That is just not true. Historically, working your way through college was completely feasible. It still is feasible, unless you need one of those fancy 50,000$-100,000$ degrees, in which case you need a loan.
In Germany, a lot of students are working and living modestly through college. You don't have to rush your degree, employers do value actual work experience.
> You shouldn’t have to care about me individually, but if there are enough people like me, it takes a huge toll on society. You won’t be able to hide from it.
Look at it this way: In society, not everybody can or needs to be an academic. If you're not willing to work your way through college, or get a loan, or get one of these ISAs, then society isn't worse off if your place is taken by someone else.
Just look at the situation right now, there are tons of Americans with advanced degrees that are bartending and they're deeply in debt. Clearly society didn't need them to get that education, so it's better off not having paid for it.
$50000 is not a fancy degree, that's just about the floor for an in-state public school without even accounting for cost of living.
>If you're not willing to work your way through college, or get a loan, or get one of these ISAs, then society isn't worse off if your place is taken by someone else.
It absolutely could be. People are not interchangeable pieces. Our society is built on the achievements of improbable people doing improbable things. You need only imagine a world where Einstein was born on a struggling farm without the resources or encouragement to prosper to understand the problem.
At some level it's a statistical game of trying to distribute opportunity to get the relatively few outliers into position for us to reap the rewards of their output. If you narrow the funnel you minimize the probability of great intellectual work getting done to help steer society, which holds all of society back.
And if you don't understand how it could be infeasible to be able to pay your way through $50k on top of living expenses before starting your career, or how it could be unbearably risky to take on $50k+living expenses in debt as a 20y/o, even if you expect to exit that pipeline with good career prospects, you really need to explore outside of your bubble.
That’s exactly what I did. It took me a long time and various jobs on the side along with serious will power to graduate with a degree in computer science and mechanical engineering.
My first semester, I took pre calculus instead of calculus 1 because my high school didn’t offer anything higher than trig, and growing up in poverty and going through and underfunded school district were the main reasons. My second semester I was in a data structures course and my professor was confused when I asked him to tell me what the sigma symbol was because I had never seen summations before.
I would like to assume people post generally on this forum in good faith, but your comment is incredibly ignorant and out of touch with reality. The wealthy send their kids to preschool. On the other hand, those of us who go through a regular K-12 system in middle America don’t have the proper prerequisites to succeed in college. We aren’t taught about finance, credit, the economy, investing, etc. Math and STEM education in general takes a back seat. Taking loans for college can be pointless unless you’re 100% motivated to learn not just what your college courses offer but the prior knowledge you need to wrap your head around the concepts.
But you don't have to pay for college out of your pocket and you don't need to be rich to go to college. My parents were on the poverty line too, and I got in thanks to student loans that I will have no trouble repaying very quickly.
> In your view of the world, people like me essentially wouldn’t have access to opportunity that would be reserved for the wealthy folks.
I hate to break it to you, but this is already very much the case. Do you think the education you got was even CLOSE to what a Bill Gates or Mark Zuckerberg received? You are dreaming.
I think the crux is that having an accesible education is for social mobility, who knows maybe his children can gain access to the type of education bill gates and mark zuckerburg got.
Do you pay for your own roads & police? It’s very likely you’re using some publically funded resources more than others. If you actually got your wish and paid for all of your own responsibilities, isn’t there a pretty good chance it would completely bankrupt you? Think about it and be honest about what benefits you’re actually receiving.
Paying for education for all is something we could very easily afford by moving money from other publically funded programs, so you wouldn’t have to pay an extra cent in taxes above what you’re paying now.
So the question is why not divert some money from the military or other programs? It has been demonstrated many times over that we don’t need new taxes to cover a national education program.
So is it possible you’re mistaken and that public funding for education might not just be free but even have financial returns, that it might even make us richer in the long term not poorer?
Based on the demographics of HN (and software in general) it is highly likely that whoever you are talking to is a net contributor by a long shot, not net recipient.
We're all net contributors. Even "the poor," who spend their lives in the jobs to which they're corralled. Dollar-for-dollar, perhaps they pay fewer individual taxes, but hour-for-hour their labor's just as constitutive of the commonwealth. Moreso, perhaps.
Even if true, that doesn't really contradict what I said in any way. Net contributors still use some resources more than others, and they are still the recipient of benefits. It's quite common for people who oppose public services on principle to dramatically underestimate the public services they're receiving themselves.
Also, net contribution has nothing to do with whether you can afford to pay to build private roads, or pay for doctors without insurance, or pay for private education. Almost nobody could afford to pay for their own roads, freeways cost billions; that's precisely why we share the cost, even if not every single person uses them. It should be somewhat evident that transportation and distribution businesses and the executives that run them benefit financially more from public roads than individuals do.
By using the term "net contributor" you're comparing tax payers against each other and painting a picture of what's more or less fair from person to person. What I'm suggesting is you should compare the services that come with taxes to what you get with no shared services at all, which is the logical conclusion of the GP comment. I care less about the fear of paying 2% more taxes than someone else when I think about the fact that the services I get would cost me many orders of magnitude more money than I have if I had to pay for them individually and privately.
For the sake of conversation, I wouldn't mind hearing why you think HN demographics makes people net contributors. I'm quite skeptical that services for the poor cost more than the sum total of tax breaks and infrastructure the rich enjoy, if that's the direction you were headed...
And, of course, the entire concept of contributor/recipient is irrelevant if we fund education without raising taxes, and moreso if a national education system were to bring in more money than it costs, which may be the case in Norway & Finland among other places. Fretting over what's fair and worrying excessively about freeloaders might be costing us a lot more than it saves.
The fact that you're using cliched "conservative" meme tropes like "basket weaving" indicates you're not interested in having a non-ideological discussion about this. As of 2016, the most common bachelor's degrees in the US were in the areas of business and healthcare [1]:
Basket weaving isn't a "conservative meme". It may have once been (in a time before memes) but that phrase is in common usage as equivalent to "any degree of little to no value".
It was never a conservative meme, and it isn't one now. It's just a stupid over-generalization today, as it was in the past, regardless of the politics of the person who uttered it.
Nonetheless, the parent posts' point and evidence still stands, that the largest groups of degrees granted are in subjects of value.
And allow for students to file for bankruptcy on their student loans. That will force colleges to slash their insane budgets and stop building luxury dorms, new stadiums, and lay off the countless and unnecessary admins.
Salaries for adjunct professors teaching the classes cannot get any lower, so the quality of education could remain about the same
Your proposal is unworkable because virtually everyone graduates from college with close to zero assets. No matter what someone's ability to repay their loans were, they would have a huge incentive to declare bankruptcy on the day they graduate to discharge the debt.
This is the natural fix. People then don't get the loans they can't afford. There is no limiters in place for a liberal arts major taking out 100k loans.
The future is in income sharing agreements. Let the market and investors decide if they can be paid back.
If college loans could be discharged via bankruptcy it wouldn't just be liberal arts majors with 100k loans who did it, EVERYONE would. Even people graduating and taking high paying jobs who could easily pay back the loans.
Saying that college loans should be dischargeable is basically saying that student loans shouldn't exist (which is a fine point of view, but people should be clear on what their position is).
You can't have a loan at high APR and then not have it be dischargeable. It's either a special type, but at low interest, or alternatively, high interest but normal.
I like the way this girl did it. Great deal and she was smart about it.
No, no, no. Before the seventies student loans could be discharged and less than 1% of lawyers and doctors discharged them through bankruptcy. In general these loans were paid back.
Second point. Saying a loan should be dischargeable does not mean the loan shouldn't exist. It is a cost the lender has to assume. And before you point out that this will be inflicted upon the borrower in the form of higher interest, I have my doubts. The bearer of an additional transactional cost depends on mostly on elasticity, but basically there is so much profit in student loans right now the lenders will just make a lot less money, and nothing else will change.
Student loans were much much smaller in the era you refer to (before 1976 when the law was changed). Behavior would be much different today with the much larger debts people take on.
1) loans should be dischargeable via bankruptcy so that
2) lenders refuse to make such large loans so that
3) tuitions are forced down
Then I think that's a perfectly fine point of view (as I already said above). It's just important to be clear about it and not simply say that loans should be dischargeable with the expectation that everything else will stay more-or-less the same.
Making this change would have an enormous impact on how higher education in the US functions.
The problem is the same as companies. Admins won't get slashed, but educators will. Then in many months to years later they wonder why they are on a sinking ship and fire more workers.
Absolutely not, at least not without making college much more difficult. Otherwise it is just subsidizing adult daycare.
Many people do not belong in college and learn next to nothing, but go because they're shoo'ed along into it and the universities are in on the joke, and in on the money-making, and undergoing a drastic reduction of standards as a result.
Most people are (somewhat) stupid in their early 20s. I don't disagree that not everyone belongs in university, however, most people don't realise that until it is too late and are already in debt.
Free higher education works well in the European countries that offer it.
What better investment could a society make than allow someone to pursue a field they are passionate about, and letting them start life with a clean slate? I'm by no means a socialist, but I think university should mostly be free.
The only thing (student) debt does is tie someone down. To a lifestyle or employer that they actually should have no loyalty to.
Tax brackets don't need to rise, resources just need to be moved from alternative things (i.e. military spending).
>Free higher education works well in the European countries that offer it
It depends what you're looking at. I think it hurts local communities by exporting all the young talent and gets people plugged into the white collar, global economy.
Don't get me wrong, I enjoy what I do, but I think a lot of the time in college could have been better spent learning how to build houses, make furniture, grow food, etc.
If the government is going to pay for it I would like it to be a better resource for enriching the nation, not just a tool for generating more wealth.
Are there statistics that compare open admissions and selective schools?
(If performance at an identifiable subset of schools is better, then it's more that spending resources on the other schools is questionable than it is that higher education is in a crisis)
Look at the income distribution of new attorneys. It's very easy to get massive amounts of loans for the countless law schools out there but significantly harder to get a decent job as an attorney unless you go to a top 14 school.
Median salaries pool are much higher at the top yet tuition is really similar across all schools.
This is true with undergraduate programs as well. Median starting salary after graduation at University of Florida is 52k. FIU and UCF, both a few hours away with similar programs? 46k.
University of Houston? 53k. Rice University a few miles away? 64k.
I've named schools that are all pretty good...the story gets much worse with private universities that are not selective. There are always people who do fantastic regardless of which school they go to but in aggregate schools matter a lot.
1: Make college much more difficult.
2: Allow people to enter it and fail. People need to be made aware that just because they passed their undergraduate work, they really aren't as smart as they think they are.
Many people also do not belong in an Engineering program, and that's why the 101 classes are designed to weed people out. That system already exists in higher education. At my (liberal arts) school, we have a two-strike policy. Strike 1 is when you have a sub 2.0 GPA in a semester; that gets you an academic suspension for 1 semester. You can rejoin only if you retake similar courses elsewhere and meet a minimum grade requirement.
If you are allowed to re-enroll, you have 1 strike left. Another sub-2.0 GPA and you're gone.
If the US brought such a generation-transforming policy like this to the table, the easiest part of it would be to set that minimum standard across all participating schools. Most likely already have something close to this in place now.
Anyone with a pulse can get a 3.0 GPA in college. Due to grade inflation a "C" has become a B. A 2.0 GPA in college is basically straight Fs. In order to average less than a 2.0 in college I would imagine you would have to not show up for your exams and refuse to do any assignments.
That's just not true. Have you ever taken organic chemistry, electromagnetics, or differential equations? They're incredibly hard courses, no matter how you slice it, and I'm just speaking from experience at a low-to-mid-level school. The entry-level computer science course at CMU (15-112) supposedly takes around 40 hours per week to complete homework for. Courses on the pre-med track will have pretty unforgiving curves too.
Agreed. College has become just another high-priced consumer good. And universities are happy to act just like day care if it means more happy, paying customers.
What do you mean by "the college"? Community colleges are already affordable. Other institutions only charge that much because of price inflation caused by reckless lending.
> Join the rest of the developed world.
Let me tell you about the situation in Germany with its "free" universities: First of all, there's a three-tier school system with the lowest tier barred from higher education altogether, the middle tier requiring further schooling to access second-rate colleges only and only the high tier allowing university access. Usually, children are separated into these tiers by their teachers, at the end of primary school. While it's technically possible get back on the higher track when they're 16 or so, it is rare. Parental income/education and race is a huge predictor on which bucket a child ends up.
So let's say you were a "good child" and are allowed to the universities, prepare for long waiting times (years) unless you have a near-perfect grade average, in case you want to study something "popular" like medicine, business administration or law. Don't expect to get a seat at one of those crowded auditoriums, prepare to sit on the stairs. Also prepare to be "weeded out" early, especially in the technical fields. Fail a test in a course three times and you will not only be thrown out of your degree program, you are permanently barred from getting any degree that has that course in it. Failed your law degree? Maybe try computer science then!
Okay, let's say you went through all those filters, you finally get a degree. If you're got one of those "popular" degrees, it turns out that job competition is actually quite tough, because far more people have a degree than what the job market actually can absorb. It's still better than in Spain, Italy, Greece etc, where degrees are handed out like candy but actual jobs are as rare as gemstones.
Bottom Line: "Free College" just produces over-education, because most people choose popular degrees beyond what the market actually needs. With ISAs, at least there's an incentive to only support those degrees that are actually in-demand.
How would you get back on track if you were lumped into the "bottom third" after primary school? That seems far too early to make judgement calls about someones future, however I am not a child development expert by any means. One major problem with this is immigration. If a child moves to Germany at age 10 from and didn't know any German before the move, I doubt he would be stand a fair chance in this system.
Most of the rest of the developed world. Seems to be a common situation where I find myself reminding Americans that their bad ideas about government have spread to the UK. Higher education costs in the UK are rapidly spiralling.
I'm having a hard time thinking of ISAs as much more than a ridiculously high interest loan, especially for those who are self-motivated have a high probability of landing a job after doing X course.
E.g. Lambda school is $20k if you prepay and maxes out at $30k over 2 years, which is effectively a 45% interest loan. Even if you didn't have the cash (or didn't want to fork out) the cash, a typical loan taken out today will have a single digit interest rate.
Personally I'm completely happy with my federal student loan terms for the $20k or so I have left to pay. I stretched it out to 20 years, pay a 5.5% interest rate, the interest rate is deductible you make below a certain income, and barely think of it outside of doing my taxes.
I have plenty of friends who took out student loans, attended college with me, and ended up dropping out and not having lucrative careers for plenty of reasons. They would have been better served by something like this, since they wouldn't ever have to pay it back.
In a way, this is a pessimistic bet, and either way you're a winner. If you don't get a good paying job, you win because you don't have to pay; if you do get a good paying job, you win because you have a good paying job, so it's OK to pay a little more.
The details matter though; if the program is really restrictive and everyone who gets funding ends up with a good paying job, the borrowers are being exploited and there's likely an opportunity gap: people who could have done well with the education, but weren't able to access it because the funders risk model wouldn't let them.
It's a financial instrument, so it'll probably be bought and sold at some point. Some investors will want to increase their risk, and others will want to decrease it.
Upvoted you because you are correct, but the trick with indentured servitude was that they could sell where you work to a third party, and that in the meantime you had to work for them and no one else. That's what made it just another kind of slavery - the removal of freedom of association.
Not quite. You can find it if you're looking for it, but I've known and heard of some companies helping out with student payment programs or scholarships under the pretense that you will work for them at an agreed upon salary, albeit a bit lower than standard.
The initial case in the article suggests something similar where investors will "invest" in a student and bank on a successful career with repayments, similar to a student loan. I can't see this as being a negative that Indentured Servitude was.
The notion that paying back a loan based on percentage of money earned is indentured servitude seems to skirt very close to the libertarian memes that taxation is theft/indentured servitude.
How does this correlate to interest rates in the market? I am working on a student loan refinance marketplace and am really looking to make a significant dent in this problem.
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[ 0.24 ms ] story [ 275 ms ] threadOTOH... I just went back to university and am getting straight As or A+s after my first year doing Physics, Chemistry, Biology. So ... investors ... my trajectory will put me somewhere between Elon Musk and Ted Kaczynski. Who wants to bite?
This sort of financing might also lead to a better understanding of what sort of programs are effective. I could see financing being available for particular programs. Arts would probably suffer. That said, I think humanities might get a renewed interest -- those who can communicate effectively and solve problems are the bedrock of traditional business.
Private investors? There are lots of things that work great with private capital -- I'm skeptical that financing education is one of them.
That worked out so well for the taxpayers and citizens of the US with student loans, and for the students. Giving universities another legal massive legal advantage over alternative means of education is a great idea. That couldn’t possibly go wrong.
Sarcasm aside ISAs are not a terribly new idea and universities have tried and failed with them before, Yale and Purdue, in part because no one in universities really cares about getting it right. If you don’t get paid more if you do well and don’t get fired if it’s a catastrophe your motivation is reasonably limited.
ISAs do need regulation but just presuming non profits and the government will do it right out of the goodness of their hearts... It’s ignorant.
It's an alignment of incentives much like how some people say colleges should be penalized or on the hook for having a high percentage of students that default on student loans. It would supposedly incentivize schools not to just charge students $300k for an education that gets does not prepare them for the job market.
Personally I think over-aligning these incentives and making college into a machine to make you a profitable worker sounds brutally dystopian, but something has to change about the current world.
Of course, both types of funding can be benevolent and/or predatory depending on how you structure the terms, just like anything else. Unfortunately, our laws don't do a very good job of educating or warning young adults who are all entering predatory loan agreements that can't be voided even in bankruptcy.
If a person's new grad salary is high enough to pay off student loans inside of 2 years, then this arrangement is a lot worse financially than a simple student loan. The job market for CS, also makes it so, that a loan is pretty low risk. a half-decent job is nearly guaranteed.
Flip the major to something with a lot more income insecurity, and these schemes make sense.
> Vemo Education, which vets students at Purdue and a handful of other schools on behalf of potential investors.
This statement does worry me though. It seems like they would only invest in a candidate if they were already on their path to success. These candidates were probably never at risk of not paying their student loans in the first place. I wonder if they expanded their pool to more risk prone students, would such an investment system be sustainable at all ?
Edit: Avg comp sci grad salary from Purdue is $72k, assuming 5% raises on average including promotions, you'd pay about $14.6k for this loan, which is roughly equivalent to a loan with an 11% interest rate per year over 88 months.
Edit2: I was a business major, and if I used the finance major's payment percentage and term length, I would have paid $20k back over the term of 8 years which is basically like a 20% interest rate per year.
And after paying students $18,000 and spending nine months getting them job ready and helping them find a job they only have to pay back
> Upon completion of the program, students will pay 10% of their salary for a five year period once they're making at least $50,000 per year. The max possible payment is capped at $50,000.
https://lambdaschool.com/stipend/
Or if you don’t get the stipend
> There are no up-front costs required to attend Lambda School; we only get paid when you do. Once you’re earning at least $50k per year you’ll pay back 17% of your income for the first two years.
> Total tuition possible is capped at a maximum of $30k, so no matter how much you’re getting paid the most you could possibly pay is $30k.
https://lambdaschool.com/about/
I think it's just the first salvo in a disruption that's been waiting to happen for a while.
In this case, if you graduate AND work AND at an average salary AND have no health problem, you payout will be higher than on a loan. But if any of these condition is not met (eg: you have trouble finding a job, your starting salary is lower than expected, ...) then you don’t have to pay as much. It’s more expensive in a best case scenario, but much more comfortable and safer in any other case. The risk is shared between you and the « lender ».
On one hand, I could see this working for students going for degrees with less job certainty than comp sci. But on the other hand, this does seem like treating a symptom rather than the causes, like we're encouraging too many people to go for degrees that don't lead to gainful employment or self-sufficiency.
[1] https://www.usnews.com/education/best-colleges/paying-for-co...
The solution to that problem in my mind though is to regulate out of existence exploitative student loan conditions. Instead this mechanism creates a whole new way that lenders can rip students off. The Yale example is good but let me pick at this:
>Purdue, for example, caps total payments at 2.5 times what a student borrowed, so the most successful don’t feel gouged. That would be a 15 year loan at 15% APR. That IS gouging.
There is a good reason why super high APR loans are heavily regulated - because they're almost certain to cause debt spirals and are only entered into by those who are desparate. The nature of finance companies creating these schemes is that the schemes will be designed to favour the finance companies not the students. So in no way does this solve the problems that students face.
15% APR isn't gouging. That's a typical APR for an unsecured personal loan, which this is. Well, it's actually worse than an unsecured loan for the lender since payment is tied to employment. So, not egregious.
It's also not 15 years. The term maxes out at less than 10 years for English majors. The person being interviewed is on the hook for 8 and a half years.
EDIT: Where did you even get the 15% APR from? 2.5 times what the student borrowed does not work out to 15%, unless the debt is paid off in under 7 years.
A 15% APR over 15 years would be over 8 times the original loan amount.
My credit card is 15%. An unsecured personal loan is more like 4-9%.
Adding to the above, as noted the edit to my previous comment, even the 15% APR number is wrong in general. An English major would have to earn over $500,000 in 7 years to hit that APR.
Every high street bank in the UK offers a student overdraft facility, e.g. HSBC[0] offers a guaranteed £1000 0% overdraft, with up to £3000 depending on how long you've had it. Other banks offer credit cards with 0% interest for students too.
Finally, student's aren't the same category as > an unemployed person with uncertain future prospects and neither a work history nor any assets
While that is a technically true statement, it's ignoring the fact that <4% of recent graduates are unemployed. While that makes them higher risk than an engineer in SV making 6 figures, it absolutely doesn't have students in the same risk category as an unemployed disabled veteran.
[0] https://www.hsbc.co.uk/current-accounts/products/student/
(2) 1000 GBP or even 3000 GBP is not nearly enough to pay for college
Students which are likely to use this type of financing are very much in the same category as an unemployed person with uncertain future prospects and neither a work history nor any assets. They don't have any assets or income, otherwise they would not borrow on these terms. They are unemployed and will not be employed for an undetermined period, possibly years. They are more likely than not to be too young to have any real work history.
Obviously they are different from the long term unemployed, disabled or veterans, but neither was I claiming that.
Paying back 250% over 8.5 years? That'll be a 26.2% APR [3]
So that 250% payback limit only kicks in if you've got a pretty raw deal.
[1] https://www.wolframalpha.com/input/?i=$10000+loan+over+15+ye...
[2] https://www.wolframalpha.com/input/?i=$10000+loan+over+10+ye...
[3] https://www.wolframalpha.com/input/?i=$10000+loan+over+8.5+y...
† Of course, one could argue APR is a poor measure for precisely this reason.
Of course I also wonder if it's only a matter of time before a short market emerges - which it will - if investors need to hedge against a recession or something that would not be covered by traditional insurance products.
So what happened? We decided that it would be a good thing if anybody could go to school without having to pay for it immediately. It's a pretty well intended motivation. And so how did we do this? We tried to solve it through regulations. The idea was pretty straight forward. To help ensure anybody could afford to go to college the government would give loans unconditionally, aside from financial need. To try to ensure people wouldn't just take the money and squander it, the law was adjusted to prevent these loans from being able to be dismissed in bankruptcy.
And indeed college attendance shot up after these laws were passed. But this did two things. It sharply increased the demand for post-secondary education, and it also increased the supply of money available to pay for it. Predictably costs started to gradually rise. And so as this happened, it began to be that government loans alone were no longer sufficient to ensure everybody could go to college without having to immediately pay for it. And so we now did the exact same thing with private loans - they could no longer be dismissed, which meant that from a lender's perspective, giving a loan was practically free money.
And we've seen what happened here already. Costs skyrocketed since there was now an effectively unlimited amount of money that students could borrow. The only reason costs stopped accelerating as fast is because we reached 'peak college' in 2010-2011 with enrollment figures with enrollment continuing to decline since then in spite of an increasing population.
----
The point I'm making with this is that the one and only reason we're in this situation is because of well intended regulations. It's easy to say just "regulate out of existence exploitative student loan conditions" but things like this are far easier to say than do. For instance, as you make loans less profitable for lenders, they end up becoming more selective on who they lend to. In turn we end up going back to where we started where college is no longer something for everybody. And in my opinion this is probably the right direction, but at the same time I think many people would disagree with this. If you happen to be one of these people then you end up in this tough situation of trying to create a system where lenders can/will lend to people who they probably should not be lending to. Getting a degree in underwater basket weaving isn't going to likely lead to a life such that one could repay years of debts taken on to obtain such a degree, even if the cost of education was relatively "affordable."
If we're gonna require a bachelors degree to work at McDonalds, it's probably time to treat undergraduate education like K-12; as an entirely publicly funded endeavour.
I read an article about how artists are struggling in the high cost San Francisco Bay Area (sorry no link, because it was really an eye-opening article). The article did mention student loans, but focused mainly on gentrification brought about by high tech.
However, they did profiles of various struggling artists, and I was frankly stunned by the debt levels. People with fine and performing arts degrees frequently had student debt levels of $70,000-$90,000. Holy crap.
Is it a good thing that we've created a non-dischargeable, federally guaranteed loan that allows people to go $90k in hock for a degree that they wouldn't otherwise be able to get?
I was very intrigued when I learned that libertarians often look askance on weakening bankruptcy laws. I always figured they were a "that's the bargain you made" soft of crowd. What I learned is that libertarians aren't especially keen on lending (pun intended) the government's monopoly on physical force in service as a collection agency for people who make stupid loans. I'd say that making a $90,000 loan to someone so they can (channeling David Sedaris here) take photographs of rotting produce spilling out of garbage cans is the height of stupidity.
Like, if you make that loan, don't come crying to me. We already have a fairly punitive bankruptcy system, but we are not interested in marshaling the power of government sponsored men with guns to pursue foolish borrowers who don't pay foolish debts to the ends of the earth so that foolish lenders can get their money back. That, to quote pornstache from orange is the new black, "sounds like a whole lot of your problem".
If you don't think ordinary bankruptcy, along with credit and a history of repaying debts, is enough to incentivize repayment, seriously, don't make the loan.
> the power of government sponsored men with guns to pursue foolish borrowers
please correct me if I'm wrong, but I belive tax evasion is the only debt-related (but still requiring a criminal intent to avoid paying) situation that will result in arrest. If you don't pay your student loans, even gov't backed ones, it will be a thorn in your side forever and result in civil actions, but I don't believe you can be arrested or criminally charged for not paying.
This discussion does take me past my knowledge boundaries, though I believe failure to pay child support can also be "criminal". The main reason I'm not confident (and used quotes) in what I'm saying here is that there's a difference between criminalizing failure to pay a debt itself, and criminalizing various kinds of fraud that go into hiding money that would otherwise be garnished by court order. This difference can be complicated legally and I just don't know enough about it to have a meaningful discussion.
Seizing someone's assets in response to a failure to pay debt does eventually require law enforcement, so I do stand behind my claim that government force is ultimately to collect money based on foolish lending and borrowing practices, under draconian non dischargeable conditions.
Perhaps the issue is how we already treated K-12 education such that having a high school diploma has such low value now.
How is "regulation" the answer? Private student loans are effectively dead since Obama. Over 92% of student loan debt is owed to the federal government as the lender.
> There is a good reason why super high APR loans are heavily regulated - because they're almost certain to cause debt spirals and are only entered into by those who are desparate.
The crucial difference is that only borrowers who end up making a high income will pay that high APR. People who end up with lower incomes pay less. That's a perfectly reasonable arrangement.
Also the entire point of an equity like arrangement is that the investor gets a larger fraction of the upside and in exchange for agreeing to eat the downside if the investment doesn’t work out. Comparing it to the APR of a normal student loan misses the point entirely. With a regular loan you have to pay the same amount whether you’re making minimum wage or 200k/year, whereas with an equity-like arrangement you only have to pay the max amount if you make a lot of money.
The math including payments is a bit more complex and will depend on how much you are paying during the loan term. I.e. if you paid 2.4x on day one and 0.1x the final day looks a lot different from 0.1x on day one and 2.4x the last day due to the time value of money.
I think that's the point, isn't it? Even if the student overestimates his potential, investors with more neutral incentives and more broad experience in predicting such outcomes won't.
Lots of startup founders overestimate themselves too; the social purpose of VCs is to make judgments on who can use capital the best. What we have now is like a government agency that gives capital to literally anyone who wants to start a company, promises them riches, and makes them pay half the tab anyway so they end up hugely in debt in addition to wasting the taxpayers' share.
In the end, you're agreeing to a sliding scale based on salary. Those financing are definitely having an interest in your field of study and the duration for completion.
Correct me if I’m wrong but the anecdote in the front is also a much worse deal than the table later on. 279/month = 3,348/year. Thats 6.7% of her 50k salary, which is before tax to begin with.
Tons of other loopholes I’m curious about. Like salary vs other comp?
It would also create weird incentives. If two people have these loans, and they get married... would their payments double?
https://www.npr.org/templates/transcript/transcript.php?stor...
Makes me laugh at people who think that non STEM subjects have no value. Perhaps opening a book in one of those non STEM fields once in a while would help you avoid reinventing things consigned to the dust bin of history without realizing it.
Nearly but not quite as rich as when ride-sharing companies accidentally invent the city bus.
Furthermore, banksters aren't coming up with these mortal-debt schemes due to not knowing history or ethics, but because owning people is quite lucrative.
As far as mortal debt schemes go, this actually seems nicer than student loans denominated in straight dollars. But of course it will be nicer to start off - longer term it will probably converge on a similar income siphon as traditional loans, just with a nice bonus payday when one of the subjects makes it big.
The public service student loan forgiveness (and simmilar private programs, although the latter seem uncommon). Is closer to indentured servitude, as you either have to work an eligable job for a particular employer (eg, the government) or face a significant financial cost.
https://en.wikipedia.org/wiki/The_Unincorporated_Man
Definition:
1. A person in a condition of servitude, required to render services to a lord, commonly attached to the lord's land and transferred with it from one owner to another.
2. A slave.
Isn't this obvious?
I think you missed my point, and took what I wrote too literally, without doing a deeper analysis of what my intention was.
Some of the ISAs being done by colleges just look like dressed up student loans in comparison.
I got in. I remember I was telling some millionaire member of the club what I would be doing and he told me that he thought that was illegal and they were ripping me off. I genuinely liked most of the members, but I really wanted to tell that guy some very rude things.
It changed my life. By the next spring I had a great job I loved that was paying me way way more than the golfing club. I had to pay 30% of my first 6 months instead of 15% over the full year, which is tough after taxes. Take home pay was like 45% of my paycheck. But even during that first 6 months I was making way more than I would have otherwise. I’d do it again in a heartbeat.
Bottom line, I got a chance I wouldn’t have gotten otherwise. There’s plenty of ways to take advantage of desperate people. The term could have been longer, the rate higher. It could turn into a type of slavery. But if these things are limited in some way they can be a good thing. Especially if they time out, and are subject to you actually being paid. Then they are better than most other loans, and the people who you owe have interests that are slightly more aligned with yours.
That program has changed a bit since I went through. Also, I think the biggest drawback was I was expecting them to really help me get a job, but it was more throw us all out there and see who sticks. So, probably much less ideal in fields without the same insatiable demand for workers.
But... assuming they don’t set prices using things other than degree, and that they’re priced to be on average equally profitable with an equivalent loan, you’ll be better off getting this arrangement if you expect to earn less than your average peers, and worse off if you expect to earn more. It’s basically a case of moral hazard. Long term you would expect people with less fiscally ambitious goals to pursue this (e.g. those who want to do more charitable, less fiscally rewarding careers) which means the average rate of return would need to be more punishing than traditional loans.
Mostly this just seems ripe for abuse against the loan providers to me, and that the terms will be made very unfair to compensate.
What do you think your odds would have been if, e.g. you did a coursera track or followed some online tutorials to build your first app instead?
There is no "free", it just means I have to pay for it.
I prefer to pay for my own responsibilities, not for people to get underwater basketweaving degrees.
Re: the responsibility thing, it’s a fundamental difference in ideology and subjective preference, I get it, and I’m not going to argue it. I used to make the same argument, actually. My own subjective preference is to live in a developed nation where everyone has a good on-ramp towards work that they find fulfilling and interesting, and where everyone pays it forward. Other countries get better outcomes in this regard so I want to follow their lead. Anyways see you at the ballot box.
Even in healthcare! "I have my money, if they die it's because they chose to be poor."
If people in Europe cared to help their money would not have been taken by force via taxes.
Can one person come to your house and take your money? Can ten? At what point it becomes "not by force"?
As a European, I'm happy to pay taxes because it's a convenient and efficient way to get money out of my bank account and into the hands of people who need it more than me; I'm helping my fellow countrymen with literally zero effort on my part, which makes my country a better place for me to live in. If we cancelled taxes and required people to make individual donations, I would still want to, but I would probably be too busy / lazy to do it :P
(Not to say that the government does a PERFECTLY efficient job of distributing taxes to those in need, I actually disagree with much of their spending - but on the whole it does a considerably better job than I would if I had to do it all myself)
Because you will go to jail if you won't.
> taxes is a convenient and efficient way to get money out of my bank account and into the hands of people who need it more than me
If this is something other than a very elaborate satire, I would be very surprised.
> literally zero effort on my part
Calling at least a third of your earnings "literally zero effort" is a bit disingenuous.
Firstly, please don't put words into other people's mouths, it is very disingenuous.
As to the actual point - I'll also go to jail if I murder someone. But I wouldn't say "the government is using force to stop me from murdering people", "the reason to avoid murdering people is because you will go to jail if you do" - I'm happy to go around not-murdering people of my own free will, because I believe that society is a better place when we don't murder each other.
> Calling at least a third of your earnings "literally zero effort" is a bit disingenuous.
The GOAL is to spend a third of my money, so I'm not counting that as effort - taxes take a third of my earnings in between my employer and my bank account, so by the time my monthly pay reaches my bank account, it has all been taken care of.
Compare to the charity approach, where I need to research, make decisions, do bank transfers, keep up-to-date with the changing needs of a changing society... If I want to do a not-half-assed job of it, then I'm going to be spending so much time on it that it cancels out the benefit. A few people organising national spending at scale, even if they are only barely competent, is more efficient than everybody doing it individually.
My mother-in-law is like this. She would let a convicted murderer that was down on their luck move in with her because "everyone deserves a roof over their head"
Again, I GET IT. But do you understand why some may have these selfish viewpoints?
Psychopathy.
A complete lack of empathy for fellow people
What's special about the US among highly developed nations is that we've convinced ourselves that most of us would be harmed, when it's likely that only a very well-off minority would be harmed (where "harmed" means "be slight less well-off, but still well off").
Public universities are run like businesses now, with trillion dollar endowments and tuition expanding at insane rates. My own state school tuition has gone up 250% in the last 20 years, outpacing inflation by several times. Something needs to change to bring this under control.
There's little evidence that modern college provides skills to succeed; There is increasing evidence that there is a shortage in trades.
In your view of the world, people like me essentially wouldn’t have access to opportunity that would be reserved for the wealthy folks.
You shouldn’t have to care about me individually, but if there are enough people like me, it takes a huge toll on society. You won’t be able to hide from it.
That is just not true. Historically, working your way through college was completely feasible. It still is feasible, unless you need one of those fancy 50,000$-100,000$ degrees, in which case you need a loan.
In Germany, a lot of students are working and living modestly through college. You don't have to rush your degree, employers do value actual work experience.
> You shouldn’t have to care about me individually, but if there are enough people like me, it takes a huge toll on society. You won’t be able to hide from it.
Look at it this way: In society, not everybody can or needs to be an academic. If you're not willing to work your way through college, or get a loan, or get one of these ISAs, then society isn't worse off if your place is taken by someone else.
Just look at the situation right now, there are tons of Americans with advanced degrees that are bartending and they're deeply in debt. Clearly society didn't need them to get that education, so it's better off not having paid for it.
>If you're not willing to work your way through college, or get a loan, or get one of these ISAs, then society isn't worse off if your place is taken by someone else.
It absolutely could be. People are not interchangeable pieces. Our society is built on the achievements of improbable people doing improbable things. You need only imagine a world where Einstein was born on a struggling farm without the resources or encouragement to prosper to understand the problem.
At some level it's a statistical game of trying to distribute opportunity to get the relatively few outliers into position for us to reap the rewards of their output. If you narrow the funnel you minimize the probability of great intellectual work getting done to help steer society, which holds all of society back.
And if you don't understand how it could be infeasible to be able to pay your way through $50k on top of living expenses before starting your career, or how it could be unbearably risky to take on $50k+living expenses in debt as a 20y/o, even if you expect to exit that pipeline with good career prospects, you really need to explore outside of your bubble.
My first semester, I took pre calculus instead of calculus 1 because my high school didn’t offer anything higher than trig, and growing up in poverty and going through and underfunded school district were the main reasons. My second semester I was in a data structures course and my professor was confused when I asked him to tell me what the sigma symbol was because I had never seen summations before.
I would like to assume people post generally on this forum in good faith, but your comment is incredibly ignorant and out of touch with reality. The wealthy send their kids to preschool. On the other hand, those of us who go through a regular K-12 system in middle America don’t have the proper prerequisites to succeed in college. We aren’t taught about finance, credit, the economy, investing, etc. Math and STEM education in general takes a back seat. Taking loans for college can be pointless unless you’re 100% motivated to learn not just what your college courses offer but the prior knowledge you need to wrap your head around the concepts.
I hate to break it to you, but this is already very much the case. Do you think the education you got was even CLOSE to what a Bill Gates or Mark Zuckerberg received? You are dreaming.
Paying for education for all is something we could very easily afford by moving money from other publically funded programs, so you wouldn’t have to pay an extra cent in taxes above what you’re paying now.
So the question is why not divert some money from the military or other programs? It has been demonstrated many times over that we don’t need new taxes to cover a national education program.
Several countries in Europe have publically funded university, and they are ranking higher in education than the U.S. https://en.m.wikipedia.org/wiki/Education_Index
And that doesn’t seem to hurt those countries; wealth per adult is higher than the U.S. https://en.m.wikipedia.org/wiki/List_of_countries_by_wealth_...
So is it possible you’re mistaken and that public funding for education might not just be free but even have financial returns, that it might even make us richer in the long term not poorer?
Also, net contribution has nothing to do with whether you can afford to pay to build private roads, or pay for doctors without insurance, or pay for private education. Almost nobody could afford to pay for their own roads, freeways cost billions; that's precisely why we share the cost, even if not every single person uses them. It should be somewhat evident that transportation and distribution businesses and the executives that run them benefit financially more from public roads than individuals do.
By using the term "net contributor" you're comparing tax payers against each other and painting a picture of what's more or less fair from person to person. What I'm suggesting is you should compare the services that come with taxes to what you get with no shared services at all, which is the logical conclusion of the GP comment. I care less about the fear of paying 2% more taxes than someone else when I think about the fact that the services I get would cost me many orders of magnitude more money than I have if I had to pay for them individually and privately.
For the sake of conversation, I wouldn't mind hearing why you think HN demographics makes people net contributors. I'm quite skeptical that services for the poor cost more than the sum total of tax breaks and infrastructure the rich enjoy, if that's the direction you were headed...
And, of course, the entire concept of contributor/recipient is irrelevant if we fund education without raising taxes, and moreso if a national education system were to bring in more money than it costs, which may be the case in Norway & Finland among other places. Fretting over what's fair and worrying excessively about freeloaders might be costing us a lot more than it saves.
[1]:https://nces.ed.gov/programs/digest/d17/tables/dt17_322.10.a...
From the table in the link:
Business - 371,694
Health Professions - 228,896
Public Admin/Social Services - 161,230
Biological + Medical Sciences - 113,749
This is Hacker News. Please respect the community here and attempt to present some data to support your comment.
Nonetheless, the parent posts' point and evidence still stands, that the largest groups of degrees granted are in subjects of value.
I strongly disagree with that. "Business" majors are an effectively general education humanities degree, that is pretty worthless a lot of the time.
The same goes for biology, actually. Yes, it is a hardish science, but the career path for biology majors is pretty grim.
Salaries for adjunct professors teaching the classes cannot get any lower, so the quality of education could remain about the same
The future is in income sharing agreements. Let the market and investors decide if they can be paid back.
Saying that college loans should be dischargeable is basically saying that student loans shouldn't exist (which is a fine point of view, but people should be clear on what their position is).
I like the way this girl did it. Great deal and she was smart about it.
Second point. Saying a loan should be dischargeable does not mean the loan shouldn't exist. It is a cost the lender has to assume. And before you point out that this will be inflicted upon the borrower in the form of higher interest, I have my doubts. The bearer of an additional transactional cost depends on mostly on elasticity, but basically there is so much profit in student loans right now the lenders will just make a lot less money, and nothing else will change.
Making this change would have an enormous impact on how higher education in the US functions.
Many people do not belong in college and learn next to nothing, but go because they're shoo'ed along into it and the universities are in on the joke, and in on the money-making, and undergoing a drastic reduction of standards as a result.
Some data on just how bad higher ed is getting, from 2017: https://medium.com/@simon.sarris/higher-education-erodes-a7c...
Free higher education works well in the European countries that offer it.
What better investment could a society make than allow someone to pursue a field they are passionate about, and letting them start life with a clean slate? I'm by no means a socialist, but I think university should mostly be free.
The only thing (student) debt does is tie someone down. To a lifestyle or employer that they actually should have no loyalty to.
Tax brackets don't need to rise, resources just need to be moved from alternative things (i.e. military spending).
It depends what you're looking at. I think it hurts local communities by exporting all the young talent and gets people plugged into the white collar, global economy.
Don't get me wrong, I enjoy what I do, but I think a lot of the time in college could have been better spent learning how to build houses, make furniture, grow food, etc.
If the government is going to pay for it I would like it to be a better resource for enriching the nation, not just a tool for generating more wealth.
Then go do a degree on agro engineering ?
(If performance at an identifiable subset of schools is better, then it's more that spending resources on the other schools is questionable than it is that higher education is in a crisis)
Median salaries pool are much higher at the top yet tuition is really similar across all schools.
This is true with undergraduate programs as well. Median starting salary after graduation at University of Florida is 52k. FIU and UCF, both a few hours away with similar programs? 46k.
University of Houston? 53k. Rice University a few miles away? 64k.
I've named schools that are all pretty good...the story gets much worse with private universities that are not selective. There are always people who do fantastic regardless of which school they go to but in aggregate schools matter a lot.
If you are allowed to re-enroll, you have 1 strike left. Another sub-2.0 GPA and you're gone.
If the US brought such a generation-transforming policy like this to the table, the easiest part of it would be to set that minimum standard across all participating schools. Most likely already have something close to this in place now.
> Join the rest of the developed world.
Let me tell you about the situation in Germany with its "free" universities: First of all, there's a three-tier school system with the lowest tier barred from higher education altogether, the middle tier requiring further schooling to access second-rate colleges only and only the high tier allowing university access. Usually, children are separated into these tiers by their teachers, at the end of primary school. While it's technically possible get back on the higher track when they're 16 or so, it is rare. Parental income/education and race is a huge predictor on which bucket a child ends up.
So let's say you were a "good child" and are allowed to the universities, prepare for long waiting times (years) unless you have a near-perfect grade average, in case you want to study something "popular" like medicine, business administration or law. Don't expect to get a seat at one of those crowded auditoriums, prepare to sit on the stairs. Also prepare to be "weeded out" early, especially in the technical fields. Fail a test in a course three times and you will not only be thrown out of your degree program, you are permanently barred from getting any degree that has that course in it. Failed your law degree? Maybe try computer science then!
Okay, let's say you went through all those filters, you finally get a degree. If you're got one of those "popular" degrees, it turns out that job competition is actually quite tough, because far more people have a degree than what the job market actually can absorb. It's still better than in Spain, Italy, Greece etc, where degrees are handed out like candy but actual jobs are as rare as gemstones.
Bottom Line: "Free College" just produces over-education, because most people choose popular degrees beyond what the market actually needs. With ISAs, at least there's an incentive to only support those degrees that are actually in-demand.
E.g. Lambda school is $20k if you prepay and maxes out at $30k over 2 years, which is effectively a 45% interest loan. Even if you didn't have the cash (or didn't want to fork out) the cash, a typical loan taken out today will have a single digit interest rate.
Personally I'm completely happy with my federal student loan terms for the $20k or so I have left to pay. I stretched it out to 20 years, pay a 5.5% interest rate, the interest rate is deductible you make below a certain income, and barely think of it outside of doing my taxes.
In a way, this is a pessimistic bet, and either way you're a winner. If you don't get a good paying job, you win because you don't have to pay; if you do get a good paying job, you win because you have a good paying job, so it's OK to pay a little more.
The details matter though; if the program is really restrictive and everyone who gets funding ends up with a good paying job, the borrowers are being exploited and there's likely an opportunity gap: people who could have done well with the education, but weren't able to access it because the funders risk model wouldn't let them.
https://en.wikipedia.org/wiki/Indentured_servitude
Good job.
Words have meanings. You don't get to just ignore them to make an emotional point.
The initial case in the article suggests something similar where investors will "invest" in a student and bank on a successful career with repayments, similar to a student loan. I can't see this as being a negative that Indentured Servitude was.