[Epaphras]

Grads May Soon Repay Student Loans Based On Income - Forbes.com

I am torn on this.

From a personal perspective, I support the fact that it will encourage more people to enter low-paying but highly-valuable professions like teaching (especially in high-need areas), neighborhood medical clinics, social work, and public defense. This is because income-based payments are made for 10 years, and then the loans are forgiven. You pay 15% of the amount your income is above the federal poverty level for your type of household. No matter how much you care about the poor, you can't be making $1,200 student loan payments on a job that brings in $1,500 a month. So in that sense, I support the new program.

From a societal perspective, I don't support the increased burden on tax-payers to subsidize the interest during repayment and the ultimate forgiveness. I'm also concerned that this will only exacerbate the rising cost of education: universities can get away with charging more tuition if there is no complaint from the student body, because students know all they have to do is pay 15% of the amount their income is over the federal poverty limit, for 25 years, then all is forgiven.

This doesn't affect me personally because we are paying 3x more than minimum on our loans right now in order to get them off our back by the end of next year, to then focus on saving up for a home. I don't want to be 47 years old and finally have my loans forgiven. My own kids will be in school by then for crying out loud.

What do you think?

[jthomas1600]

I'd rather just see the money up front. I have one child that will be going to school in the fall (hooray, he's been out of high school for 2 years) and three more that will be looking at college over the next decade. I'd be much happier if we could just bring tuition costs down to a reasonable rate for every one. This program only benefits those that take loans. I know at least one person that took 6 years to get a 4 year degree -- people like that would not benefit from this program.

[beanbag]

I agree that universities should lower costs. I'm looking at about $50,000 just from the final two years I spent in school, and I had $16,000 in scholarships granted by my school over my time there. I don't regret going there because it was a great experience and I grew a lot, but I am struggling to figure out how I will repay my loans when I can't even find a job.

maybe there should be a new university tax where the universities are required to keep tuition "reasonable" and to contribute some of their finances to a repayment program for graduates from their own schools, instead of forcing regular citizens to support the repayment.

[jthomas1600]

I've been thinking quite a bit about this today. I'm a less is better kind of guy when it comes to government involvement. But the government is already involved in higher education through grants and loans etc. So would it be unreasonable for them to say to the schools "we are generating business for you...we're spending tax payer dollars to provide you with students...we will continue to do so but you have to figure out a way to do it for X amount per student per year"? We are doing this sort of thing with the bank bail outs by limiting executive pay etc.

What is a reasonable amount by the way? Any thoughts on that?

[Epaphras]

Originally Posted by jthomas1600

What is a reasonable amount by the way? Any thoughts on that?

I think this program is trying to address that question, but with an answer that doesn't go to the core of the issue.

They ask the question, "How can we keep higher education costs low enough to promote graduates to enter high-demand, low-paying public-service jobs and also to help recent grads get established in life without being saddled by a student loan payment that is 25-50% of take-home pay?" and focus the answer on after graduation ("Let's figure out ways to make their payments affordable and/or forgive loans to encourage certain occupations") instead of before, such as, "How can we structure tuition in such a way that a student can hold down a part-time job and pay for college as they go, to avoid student loans (like many people have done for decades)?"

Of course, you will never see that. I'm pretty sure most universities own (or get a cut of) student loan interest payments, and the government probably makes a profit on their loans. Why kill your cash cow?

Tuition at my own university has gone up about 15% since I entered as a freshman in fall 2005. The reason given is that my university gets less of a share (per student) from the state as MSU or U of M, or any of the other second-tier universities like Northern or Western. The state cut funding and they had to compensate somehow, hence the tuition increase.

I don't think it's fair to blame capital/building campaigns for the tuition increase, since that is all handled separately by the university's (fund) development department. Since I came here four years ago there have been numerous buildings built and renovated; it's easy to correlate that to the tuition increase, but it'd be inaccurate to do that.

But I agree: the focus shouldn't be on relieving student loans after the fact, but energy should be directed at keeping the actual cost of attendance down in the first place. It's no service to the disadvantaged to offer an education at a premium the student can't sustain once the loans come due.

I think that if this income-based repayment program takes hold and becomes very popular, the next thing you might see is for student loans to become bankrupt-able. Currently they are not.

Here's a tickler: is higher education a "public good" and a right? Or is it a private good, a privilege only for those who can afford to pay? I'm not talking about the right to a degree (free-ride), but equal access and opportunity for higher education. Currently it seems to be set up along the lines of being a right, hence the stink raised by race quotas and scholarships and financial aid. The argument goes that everyone in 21st century America should have the chance to go to college, either out of the parents' trust-fund paying 100% tuition, or on loans, or on Pell grants and other government scholarships. Everyone can get it, "by hook or by crook" as they say. Is that a sustainable model?

[jthomas1600]

One problem I have with what seems to be being proposed (if I'm reading right) is that while it would reward those that went into public service (which I'm OK with), it could also reward those who are just less ambitious and make poor career choices. Did anyone else see that or did I miss read or miss something?

[Epaphras]

Originally Posted by jthomas1600

One problem I have with what seems to be being proposed (if I'm reading right) is that while it would reward those that went into public service (which I'm OK with), it could also reward those who are just less ambitious and make poor career choices. Did anyone else see that or did I miss read or miss something?

I noticed it too, but honestly, most people my age graduating college want jobs that make a difference in the world, and don't want to be forced to take a soulless higher-paying job just because of the enormous student loan burden they have.

In other words if the only way to get a job doing underwater basket-weaving for charity is to go to a university for a degree in Underwater Basket-Weaving, a grad doesn't want to have to get a high-paying job with Baskets, Inc. just to pay back the $80k+ student loan burden. They want a way to get the education and experience they need to do what they are passionate about, and the money is secondary or even a non-issue. There is no other way to explain why someone would choose to go to school for 5 years for a bill of $100,000 (twice that at a private Christian school!) to be a teacher to earn $30,000 a year.

The whole other angle that bothers me with this plan is stay-at-home-moms. Currently I'm sure there are a lot of young women out there who racked up student loan debt, got married, had a career for a few years, then when the first kid comes along she wants to be a stay-at-home-mom, but can't because she has to work to bring in enough money to pay the student loan payments (hubby doesn't earn enough to support the family and pay both their loan payments on top of mortgage and other debts). The children and the family suffers as a result. Being forced to work outside the home out of necessity when their desire is to be a homemaker is just as oppressive to women (in my opinion) as forcing them to stay at home as a homemaker when they want to have a career.

Anyway, this program certainly would make it easier month-to-month, and if they filed separately and she earned no income, I guess she would have no payment (right?). In 25 years all would be forgiven...but she'd pay taxes on the balance, which would probably be in the 30%+ bracket. That's $30,000 if the balance was $100,000...a lot to come up with if you didn't plan for it. But that huge hit after 25 years is quite a trap to fall into. For the first 24 years 11 months and 29 days it seems great -- no student loan payments! -- but then they nail you. You end up paying more in taxes after 25 years than you would in interest if you paid the standard way, so it's not really any advantage. It's just delaying it 15 years and at a higher cost.

[beanbag]

loans are just a bad situation all around. I got a call this morning from wycliffe translators wanting me to come teach music for them in cambodia, but I told the lady I couldn't afford it because I have loan payments to make. I could've done something amazing for the next couple of years, but the cost for a christian education is just too high.

I know a lot of women who got married and dropped out of school, because they wanted to stay home with children and decided it was too expensive to finish their educations and then quit working after a couple of years.

I think that if nothing else, the government should at least impose a maximum cost for tuition, and should change the rules for federal aid. by the fafsa's calculations, my parents were able to pay for my college education IF they sold our property and all our cars, kicked my grandmother out into assisted senior living and completely disregarded the fact that I have three younger brothers who will also need to go to college. it's ridiculous. my parents are already in the red each month, and there is no way they could've paid for my education (my loans are all in my name) but according to the fafsa I don't qualify for government grants. if you're middle class, you're screwed.

the whole situation pisses me off! law school is one of the options I have seriously been considering, but I have no idea how I will get through law school because tuition is climbing from about $30K/year average to $40K+/year average. Boalt Law skyrocketed this year. it's becoming completely unmanageable, and I agree that there should be a maximum salary limit for administrators as well.

[jthomas1600]

I have a few thoughts about your post epaphras.

First I'm not to sure about the "most of us just want to make a difference" part. I would think for all people there's some "I want to make some money" and some "I want to make a difference". For some people there's probably a lot more of one than the other. Even if your statement were accurate though and most people were just looking to make a difference. Those who are skilled and ambitious are going to pay back more. Even in public service a hard working, smart ambitious guy will make a much better salary than a loafer.

I'm also not sure how I feel about the stay at home moms. I wish our economic/social structure was more suited for stay at home moms. I think it's great. But I'm not sure I like the idea of a young girl borrowing thousands of dollars to have the great experience and privileged of going to college and then saying "eh, I think I want to stay home and raise kids now".

[ICTHUS]

Is tuition seriously that expensive in American schools?

UVic's tuition, last I checked, is 311.50 per credit for a domestic (i.e. Canadian citizen or permanent resident) student.

1.5 credits per course x 5 courses per semester = $2336.25

x2 semesters = $ 4672.50 CAD - tuition for a full year.

Canadian universities also don't charge more for out-of-province students: someone from Nova Scotia can come and study at UBC or UVic for the same tuition as a resident of British Columbia.

[Epaphras]

Originally Posted by jthomas1600

First I'm not to sure about the "most of us just want to make a difference" part. I would think for all people there's some "I want to make some money" and some "I want to make a difference". For some people there's probably a lot more of one than the other. Even if your statement were accurate though and most people were just looking to make a difference. Those who are skilled and ambitious are going to pay back more. Even in public service a hard working, smart ambitious guy will make a much better salary than a loafer.

Problem is, it costs exactly the same for everyone to attend college -- whether you're in it for the money or to make a difference, or if you intend on working hard afterward or slacking off.

It's not fair that a degree in education or social work costs just as much as a degree in business management or finance, while the earnings potential for those kinds of jobs is so vastly different. Yes, I know you are not forced to go to college and not forced into your major. But if you want to be a social worker you pretty much need an MSW which is 2-3 years beyond a Bachelor's degree. There is no other way to become a social worker due to state licensing requirements. Same with a teacher: you can't be a high school teacher without a degree and a certification.

It's not fair under this new system that the harder you work, the more you earn (this is fair, but what's not fair is this -->), therefore the more you pay back. It will promote a culture of laziness in the workplace among my generation. Under the traditional system if you worked hard and earned more, the portion of your income that goes to paying off your student loans would shrink (incentive to earn more). Now it will stay constant (no incentive to earn more, in fact it could be a dis-incentive). That's my biggest problem with this, nevermind the tax burden all this subsidizing and forgiving with present over the next 10 to 25 years.

To me it's the same as if your mortgage company upped your mortgage payments if you started paying more on your mortgage every month to pay it off early. You would be super-pissed if they said, "Well you can obviously afford to pay more, so we think you should be forced to pay more."

I'm also not sure how I feel about the stay at home moms. I wish our economic/social structure was more suited for stay at home moms. I think it's great. But I'm not sure I like the idea of a young girl borrowing thousands of dollars to have the great experience and privileged of going to college and then saying "eh, I think I want to stay home and raise kids now".

That is a problem in itself. Christians are no better and addressing this, in fact they are usually the prime perpetrators. Sending Jane off to the Christian college at $30,000 a year in order for her to get her MRS degree. It's almost a dowry for the poor guy who marries her: "Here's my daughter...and her $120,000 in student loan debt for a degree doesn't plan to use -- have fun!"

This new program will only make it worse because she can now defer her payments for 25 years as long as she doesn't bring in an income and they file separately.

I feel for the single mom who returns to college after a few years to finish her teaching degree to support her family and has to take out loans in the process. It's nice (in the moment) to know that she won't be forced to make full payments if she doesn't want to. For her, this program might be good (but again, that taxed-as-income thing after 25 years is the ticking time-bomb).

But for most "regular" college grads this is a wolf in sheep's clothing.

[Epaphras]

Originally Posted by ICTHUS

Is tuition seriously that expensive in American schools?

UVic's tuition, last I checked, is 311.50 per credit for a domestic (i.e. Canadian citizen or permanent resident) student.

1.5 credits per course x 5 courses per semester = $2336.25

x2 semesters = $ 4672.50 CAD - tuition for a full year.

Tuition at my university (state university, Division II, non-research) is $4,000 a semester for a 12-credit (four-course) load.

The per-credit rate is about the same as you ($366 per hour for 1-11 credit hours) but each course is 3 credits. 15 credits is definitely a full load. I did 12-15 a semester plus a summer course and graduated in 3.5 years. I did 18 second semester junior year but 3 was a 15 hour/week internship, so it was really only 5 classes.

The problem is, that most ignorant freshman take a student loan out not only for their tuition, but also university housing, meal plan, books, and all that. The university "helps" students calculate the cost of attendance then most kids take out a series of loans for that amount.

I have known a few students who have scholarships and grants for tuition and have jobs to pay for housing, living expenses, and books. But very few (as in, not enough!).

Canadian universities also don't charge more for out-of-province students: someone from Nova Scotia can come and study at UBC or UVic for the same tuition as a resident of British Columbia.

Non-Michigan residents pay $6,200 for the same course load as I described above.

The most expensive place you can go (besides an Ivy League school like Harvard or Yale) is a private institution. The two big Christian schools around here (Hope College and Calvin College) are $28,000 a year (including housing, I think) and climbing, just like everyone else.

[beanbag]

yeah, it is expensive here in the States, Ryan. CSUs (California State Universities) cost about $5,000/year last time I checked, not including books, housing or transportation. UCs (University of California) cost about $16,000 a year if I am not mistaken. (I've been looking at figures for grad school at UCs, which are different.) of course, each of these figures are applicable to state residents; out-of-staters pay more. private schools like the one I graduated from cost upwards of $25,000/year. my alma mater started out at $26,000 during my junior year (2006-7) and rose to $27,500 my senior year (2007-8). they granted me $6,000 transfer scholarship for my GPA, which I maintained so was automatically awarded another $6,000 for the following year, and 2 $2,000 scholarships for the music department. so, the cost of attendance rose but my scholarship assistance remained the same. basically, the $8,000/year scholarships I received covered room and board, and that's it.

when you take the expenses for earning a degree (even CSUs come out to about $25,000-30,000 total or more after 4 years) and consider the fact that graduates since 2008 have been finishing during a recession, it is altogether much too expensive because we can hardly find jobs! I began looking for a job during February of last year, and have been unsuccessful at finding anything. I am under-qualified for office jobs because I don't have a degree in business administration (which is silly) and I am over-qualified for jobs like retail and restaurant serving because I have a bachelor's degree, yet at the same am under-qualified for the same because I have no retail/server experience. it's absolutely ludicrous.

there needs to be some sort of reform, and the answer is not to tax the American public any more heavily and force them to pay for the greed of school administrators.

oh and a side note: jthomas, I think Sean is right about a lot of emerging graduates wanting to make a difference in the country/world. I think you are right in saying that there are still plenty of people who are just in it to make money, but by and large the overwhelming majority of the people I know and the people graduating from my school want to impact our communities in a positive way. it's too bad there is so little financial assistance and grace for those of us who want to go out and there and make a difference.

[Nate]

Sounds silly to say it, but there are way too many people going to college these days.

The more buyers you have in a market, the higher the prices are going to rise. Econ 101.

We've artificially pushed the market for higher education in this direction through government spending programs that are based on the assumption that it is the right (and duty, some almost seem to claim) of every American to attend college. We subsidize the bejeezes out of higher education, through state-funded colleges, federal aid programs, etc.

The result is that there are people going to school who have no economic or academic right to.

This doesn't mean poor people shouldn't go to college. It means poor and lazy people shouldn't.

Straight C students can get Stafford loans. That's ridiculous. If you don't have the economic wherewithal to attend school, that shouldn't necessarily stop you (private charity, legitimate government aid, etc should step in), but you should at least be able to display the academic persistence to merit your hand-me-outs. There's just too much student credit (let alone debt).

When just about anyone can "afford" to go off to school, just about everyone will (and does).

That floods the market with buyers, which is a sign to sellers (universities) to raise prices.

It also, in this particular instance / industry, floods the market with unproductive buyers. Colleges want students who can not only afford to go to school, but who will succeed enough to be able to afford to give back to the school. Now that even C students can afford Ivy League schools, many colleges raise prices to "hedge their bets" against the ones who will never graduate, let alone donate.

Schools have to make up for the drop-outs and the students who "graduate" to work at McD's.

I can't tell you the number of undergraduate classmates I've seen working at local restaurants.

Why on earth would someone who plans to work at a restaurant or in retail go to college? The answer is really quite simple: because they can. If it weren't for mass subsidization, people who are in pursuit of these low-paying jobs would never be able to afford college, and would go straight to work. Instead, they get to waste four (or six!) years of their time and our money in school.

Higher prices also serve, in many cases, to weed out most of the deadbeat college applicants.

In a flooded market, sellers can't afford not to be more selective (especially in this kind of industry).

Because there's so much financial aid out there (Leave aside the discussion of how to pay it back for another day; the fact of the matter is that just about anyone can "afford" to go to school. Remind you of another market? Consumer credit? Subprime mortgages?), colleges have to push their prices higher if they want to keep out the riff-raff; places with actual expectations go even higher still.

If there weren't as many lousy students in college, many places could afford lower tuition quite a bit.

They'd make up the difference in alumni giving, because their alumni would actually make money.

The financial model of a college isn't to make money off of tuition, contrary to popular opinion. The vast majority of higher educational institutions would much prefer to make money off of their students after they graduate, since that represents a continued stream of income. The fact of the matter is that most universities can't afford this business model because their alumni suck.

Just like consumer debt and subprime mortgages, the college loan bubble needs to burst.

If it bursts and only meritorious or wealthy students can afford college, things would get better.

As it is now, the truly deserving struggle to afford what should be paid for them by the successful and studious alumni who came before them and the truly solvent end up going straight to work because there are just too many lower and middle class bums in the classrooms. Colleges are left with no good students and no rich students. Bad situation all around.

I don't think it's the greed of administrators at all. I think it's the greed of students.

Everyone thinks "Oh, I deserve to go to college." That's just not the case, at all.

[AlphaSigma]

Personally,
I wouldn't mind. I mean $50,000 for my Bible undergrad. Yeah, I won't be making the big bucks in ministry, no sir.