Paying a percentage of income, isn’t that a tax that only few pay?
8
This is yet another way in which the exploitative logic of capitalism invades a realm that once was seen as a space and time of life when young adults could develop their intellects, pursue their interests, and make a contribution to their society. Now post-secondary schools will have an overwhelming incentive to push students into the most mercenary occupations. Educating the next generation in the liberal arts should be seen as good for us all and should be financed by us all through progressive taxes as was the case until a few decades ago,
32
It is important that these offerings be regulated in the same manner as loans and provide "truth in investing" statements akin to "truth in lending" disclosures. These should include a reporting of the implied interest rate of the payback.
I have seen this idea used in a developing country with a resulting implied interest rate near 30%. Nicholas Kristof praised one of these programs as nifty. https://www.nytimes.com/2014/12/21/opinion/sunday/nicholas-kristof-the-gift-of-education.html
Money is money. It is rarely free. Clearly the taker must be informed, not simply aware. A guaranteed student loan at market interest rate my still be a better deal.
These ideas should not distract efforts to make higher public education tuition free.
7
I think this a great start to an idea, it really neat to know from other commenters that Australia is currently using this system successfully for higher education.
One fear, that this will discourage school from enrolling "at risk" students is in my opinion over blown. Sure, if a school could only enroll straight A students from a wealthy background it would, but excluding schools like Harvard that is not possible, today. A huge precent of potential collage students would be "at risk" so schools would either have to dramatically be reduce their class size (an income) or accept at risk students.
More importantly the biggest risk for a student is America is being at risk of not having enough money to finish collage. This system eliminates that risk. So many fewer students would be "at risk".
This also provides huge incentives to collages to find ways to increase the the success rate of "at risk" students. If a student 3 years into a 4 year degree has drop out to care for a sick relative it would actually make selfish finical sense for the collage to spend money accommodate the student's needs so they don't drop out.
Finally collages are going to enroll thousands of students per year this will allow them to average out this risk so they as a whole the class isn't risky at all.
3
Yeah - Australia has had this system since 1989.
https://www.studyassist.gov.au/help-loans/hecs-help
3
This is not a radically new approach at all. The coding bootcamp App Academy (and some others) have been doing this for years with great success. However, I believe this practice is disappearing due to regulatory pressure.
2
Students could reasonably elect to take partial support from an ISA program to meet gaps in their funding and thereby reduce their pay back percentage once they are employed. It need not be an all or nothing deal.
Maybe a student who could not qualify for ISA funding during a freshman or sophomore year might earn high enough grades in a marketable academic major to gain ISA funding support for the remainder of his/her education?
Sometimes half a loaf is more desirable.
2
The pay-as-you-earn part of this sounds similar to the program in Australia, which was described, and praised, in the Times in a July 10, 2016 Economic View column by University of Michigan professor Susan Dynarski.
6
@Benjamin Ochshorn except this has nothing to do with the government.
This is similar to the income contingent loans we have in Australia. Students borrow from the government but only pay back if their income exceeds a threshold. In the Lambda School case the risk is borne by the college rather than by the government, seems this will align incentives better.
7
@David - true, and it works fairly well. Interest does accrue. It can be harder for women to pay back out of lower wages. There have been scams set up by “education providers”.
By contrast the Whitlam period in the 70s with essentially free tertiary education gave a huge boost to entrants to professional occupations.
This might produce an increasing output of coders and data scientists.
It still doesn’t address a fundamental question. Why does it cost $50000/yr to sit in a lecture hall with 200 other students?
18
@Kim If you are talking about traditional higher ed, you have a fair point. Only about 30% of tuition goes to actual instruction.
If you are talking about Lambda, the economics are very different - it's smaller classes and a tremendous amount of staff support, not just lectures. And the costs of acquiring students shouldn't be overlooked.
Together I can go far management at work. Education is too expensive in this country. They want to defend against Russia? Make it free. It can be free.
1
I believe this was formerly known as ‘indentured servitude.’ What an enlightened, contemporary concept! No doubt it will become part of the Republican National Committee platform for 2020.
What next, federal debtors’ prisons - privately owned and operated and enormously profitable, of course?
15
@chambolle You nailed it. Slowly but surely, Silicon Valley is bringing back feudalism and serfdom. I've got a running wager with a friend that, within ten years time, we'll see the return of "company towns," but of course SV will treat it as "making the world a better place." (Amazon's recent rollout of Amazon Cash is probably a precursor to this)
6
@chambolle Students are free to pay out of pocket as they go like traditional universities.
The traditional university system pumps out graduates for more money without helping them get jobs. Career services at most universities is a joke. Do you prefer that system?
@chambolle I can't agree with you on this "indentured servitude" has several distinct attributes that make this diffrent. If you define "indentured servitude" broadly enough to include this arrangement you are also going to include mortgages, traditional collage loans, and likely credit cards. If you want to argue all of these should be considered immoral (which I presume is the point of grouping them under the category of "indentured servitude" fine but I doubt there is much agreement.)
While both involve you getting a receiving a service and paying back over a *fixed* number of years. This loan arrangement does not require the borrower to work for the lender. This means if the lender's ability to exact pain and suffering to the browser is limited, compared to if the lender got to choose what labor you did to pay them back, as is the case in indentured servitude.
Further, payment is *conditional on an improvement in income* if the course doesn't work out for you there is zero cost to you. You can literally just go back to your previous job with zero penalty.
Also unlike student loans the total amount you can owe over your lifetime is capped. Where as student loans can keep growing until you die.
2
This is hogwash. You are still strapped for years and handicapped financially. The finance folks probably won’t let it happen because they really are enjoying these student loans that won’t release anyone!
4
With the exception of a few petro-states, every wealthy country in the world competes economically by investing in the education of its children and good governance.
Our children ARE our golden geese, all of them. It is simply penny wise and pound foolish not to put them through high school free then be too cheap to finish the job with university.
13
Something that rarely, if ever, gets pointed out in these higher education debates is that, no matter the model, some entity has to facilitate the granting of money, the transfer of money, the paying back of the money. You are talking volumes of millions and millions of borrowers, many of whom have multiple loans. And there are rules and regulations. Status changes. The systems to support this are extremely complex and require a huge amount of technical and operational knowledge. Even for a non-profit student loan servicer (and there are many) someone has to pay these professionals. And there needs to be money available to keep lending, Without borrowers paying interest, where is that money supposed to come from? I understand that part of my payments for healthcare go to infrastructure, systems, and admin- not just doctors. I understand my insurance payments are the same. My phone payments. When people want free public education, where is the money going to come from to pay for the programs to be managed, and to continue to have money to lend?
1
There are similar vulture companies like Pando and Big League Advance that are doing this with minor league baseball prospects. For instance, Big League Advance gives poorly-paid minor leaguers a current income in the minors in exchange for a percentage of future earnings. And Pando basically peddles an insurance product where high potential players subsidize low potential players who don't pan out. Really innovative ways for the private sector vultures to get in on the action where the government (in the case of higher ed) falls down on the job or, in the case of MLB, where MLB doesn't take care of its own.
1
Reminds me a lot of a well-known and well-functioning scheme I've heard about from Europe:
Free higher education for all. Then medium-high progressive income taxes - for all. Incentives aligned, right?
Also - sounds like a good investment opportunity. Until a recession strikes and an entire cohort of students generate little-to-no earnings straight out of college.
13
Why should others pay for someone’s education through increased taxes? That removes personal responsibility of those who take on education and makes the society to pay for it.
1
@Martin I dunno - maybe everyone benefits from having an educated workforce? I like knowing that doctors and nurses can care for me if I get sick, that teachers can teach my children and engineers build bridges. Corporations sure benefit from a pool of fresh graduates each year.
Call me crazy, but I'm even grateful for the lawyers educated at "my" expense. Yes, even the lawyers.
15
This is not a fundamentally new idea. Various law schools have loan forgiveness programs in which an individual's loan payments are a function of income after graduation for some period of years (often 5-10 years). So the student has no up front costs and what he or she ultimately pays is purely a function of income. Most are limited in some way to nonprofit or public service work, but some (e.g., Harvard's) are not.
In any event the vurtues of such a system depend entirely on the details of how it is set up and the vakues that guide the program. If it is viewed as an "investment" then all the negatives that people are discussing are probably major concerns. Why take a chance on a deserving student who is the first in her family to go to college when you could admit a surer bet -- someone whose banker father can always give them a job at the firm if all else fails?
But if the systeset up so as to be insulated from such pressures -- e.g., it is open to everyone and the people who are responsible for admissions have nothing to do with it -- then it has the potential to be far more just than the current loan system, in which I-bankers and poets and mathematicians are left with the same amount of debt.
In short, if we value education for more than just its ability to command a higher salary, an income sensititve payment plan should be structured to reflect that.
4
Here's a wild idea, what if we made high earners pay a portion of their annual income towards a pool of common money that could be used to pay for education, healthcare, etc for *all* Americans. We could call it a "tax bracket," and earnings over $750,000 a year would be "taxed" at 50% or higher.
25
Ah, Silicon Valley pushing another scam while pretending that they care about you! This works out to a 13% 2 year loan at the lowest income level of $50k and a 22% 2 year loan at $90k. Fed subsidized student loans are running about 6.9% for grad school with a much longer term, so you'd be a lot better off to pay the $20k upfront financed by a student loan (if the school qualifies).
3
@Joe
The article does not state that the students at Lambda are charged interest. The percentage of your salary is not interest as is the 6.9% that you site on student loans.
@Stephen The upfront cost is 20k. You payback up to 30k after 2 years. That’s 10k of interest. Check out the lambda website
1
@Joe It is sure you can pay up to 10k of "interest", I don't think you can formally call it interest, but it is also possible that the you pay zero. In order to pay the maximum for the course you need to make over 88k per year after the course. If on the other hand the course is a failure you keep making your old salary, of say $30,000, then you pay $0 no interest and no *principle*. (If you just make the payment threshold of $50,000 you only pay $16K over two years which is less than the upfront cost)
This needs to be compared not to the ideal, fully government funded education, but the current reality, where predatory schools charge large up front fees (financed through loans) then provide no meaningful education. Under this model this type of predatory behavior would not work any more because students would not end up owning any money if they could not find a higher paying job.
4
There are so many problems with this. First of all it is absolutely a form of indentured servitude, which is just a tiny step above slavery. You may caveat that a graduate only pays the tuition for the first two years of work, but once we've gone down this road you know perfectly well that the duration of time and the percentage of income will probably keep increasing so that the venture capitalists keep seeing profits. Given that some graduates will not get good paying jobs and pay nothing, the remaining ones will have to pay much more to cover both their own tuition and the tuition of those who haven't paid, plus a healthy profit to keep the investors happy. So there will be successful, hard working students effectively paying the tuition of those who did not work as hard. And something tells me they will end up paying a huge chunk of their income for many, many years. Do we really think colleges and investors will allow themselves to lose money on this scheme? And then there will be the pressures on universities to accept only those students who seem guaranteed to produce a return on investment. No English majors, no women's studies majors, just lots of scientists and tech nerds please. What will that do to liberal arts education? College is not job training and it was never supposed to be. It's an investment in one's brain, in one's character. It should be the one place where the profit motive is put aside so we can focus on what really matters in life.
11
@Samuel Russell
"you know perfectly well that the duration of time and the percentage of income will probably keep increasing so that the venture capitalists keep seeing profits"
No, neither I nor you know this because it isn't knowable. And if the payback % or the years of payment creep upward, then students will stop signing up, because they can always opt for a traditional degree, so this would seem on the face of it to be self-regulating. What you REALLY don't like is that this is geared toward tech careers in high demand. Well I for one have NO problem with that at all as I assume I may someday need the help of a nurse, and I would prefer that my bank have enough tech horsepower to keep my account from being hacked. Also, I don't read the intent here to replace traditional university education and I see no reason these kinds of programs can't exist alongside traditional 4 year university degree programs. As for your perspective that "college is not job training and it was never suppose to be", try telling that to the displaced worker waiting for an open spot in a nursing education program. The vast majority of community college and undergraduate enrollees are primarily motivated by employment, and some might prefer this model.
6
I see a lucrative career opportunity for actuaries. Gosh I wish I would have pursued actuarial studies in college.
1
Just tax the rich already! Readers talking about their cheap state educations in the 1970s would do well to realize that high earners were taxed at 70% at that time. If we had a fair tax system, we could provide free education to everyone who wants it.
18
In the 60s/70s you could get a grant to earn a teaching degree, work 5 years in an inner school setting and have the grant forgiven. Win-win. There are many solutions, including finding ways to lower the cost of higher education.
I agree that schools get the money on the front end and have no incentive to provide support for student achievement. Perhaps we could look at Europe for some ideas?
5
This method of "paying" for college reminds me of Wimpy's method of "paying" for hamburgers from the Popeye cartoon. "I'll gladly pay you Tuesday for a hamburger today." I predict this plan will crash and burn. Here's the man himself... with his 5-second catchphrase...
https://video.search.yahoo.com/search/video?fr=mcafee&p=wimpy+popeye#id=2&vid=bb4098431c38ee7e67d01673c4d8cbe2&action=click
And of course, there was that episode of the Little Rascals where the kids put on a show saying you can pay AFTERWARDS, IF you liked the show. Yeah, good luck with that.
1
They do solve a significant problem for employers: how to hire entry-level engineering talent at a reasonable compensation level. Most of the data employers need to evaluate talent is available through Lambda. Plus, employers can incentivize retention by paying for a portion of the tuition. If they can scale the employer partnership channel (and have those employers fund tuition to alleviate Lambda's working capital drain), Lambda could be very valuable. Those employees can easily return to Lambda (since it is remote) for additional coding skills.
3
@Alex P, doesn’t that make Lambda a kind of staffing agency?
“Why should I work hard in high school?” - son/daughter
“To get in to a good college.” - parent
“Why should I work hard in college?”
“To get a good job.”
I'm not sure whether this is a good deal or not. What I like, however, is that some of these students have a CHOICE between traditional school loans OR this newer plan.
It sounds like students (and their parents) should visit an accountant/CPA and see what works best for them.
3
Education is very much like healthcare. The solution to rapidly escalating costs is to address, head on, the COSTS. I don't see this proposal addressing that issue. In fact, the proposal could exacerbate the cost escalation because everyone knows that when you subsidize something, costs tend to escalate.
I yearn for the days when I attended my State University from 1966-1970. I could easily pay the tuition costs and fees by working a minimum wage summer job, part-time.
Unfortunately, in the ensuing years, tuition and the size of university administrations have increased at a far greater rate than wages.
When I tell students that tuition for a semester was $375, the response is disbelief.
The only good aspect of this proposal is that it appears as if there are people out there trying to do SOMETHING.
7
@James Remington
And you were being subsidized the janitors at t your state university, and the groundskeeper... etc. All folks who could never go to university but were taxed so that you could and you cohort of small and manageably sized fellow attendees - estimated at about 11% of the population.
When suddenly everyone wanted to go to uni (now trending to 40%) there were simply not enough janitors and groundskeepers to pay for them as well.
The education for such task-specific jobs on benefiting the employer and much or more than the student. Why not charge the employers the 17 percent, just like they pay recruiting firms?
@Julia in ABQ, that would be nothing more than a tax wiggle, in effect. The repayment would be a hidden, untaxed part of the emplyee’s salary. It would make more sense to deduct the 17 percent pretax, and run it through the equivalent of an HSA account. Right now, only the interest on student loan debt is deductible, and it’s capped at $2500 per year.
1
I see a lot of defaulted repayment agreements in Lambda’s future. Seventeen percent of income is a big ask, especially in the first few years of a graduate’s employment. And the Purdue program looks like just another student loan deal, with perhaps fewer protections than the government backed loans.
Back in the early 1980s I knew several grad students who accepted somewhat similar packages, but they were offered by the banks and financial businesses the students would work for (investment banking was the big thing back then) rather than a university or an investment group like Lambda. A student’s tuition for an MBA program (the students I knew were at Harvard and Stanford) was paid by the company, and in turn that student would work summers for the company and agree to work for them (for a minimum period) after graduation. That sounds great, but one fellow I knew decided mid-stream that he didn’t want to follow the path set out for him. I don’t know how that was resolved, but I suspect he owed the sponsoring company a lot of money.
The job training and life skills part of Lambda’s program sounds great, though. Something similar should be enacted in all four-year institutions. Too many college students graduate with no direction, and no idea how to build a career.
3
@Passion for Peaches
17 percent is about half of what I pay in reoccurring regular medical bills. I make about 2.5k/month. I still maintain a roof over my head and pay the rest of my bills. I'm pretty sure people could manage that on a 50k salary.
Besides it's only for two years. That's 17,000 total for a 50k job. My current loan balance is 11k. From a practically worthless first attempt of a year and a half.
I would choose the 17. It's a stable number, no loan agencies calling you over every little thing....even when you're at work...and you tell them you're at work and can't be on the phone.
1
So, yet another scam from the private sector trying to indenture students for a poor education through cost-shifting, with no assurance that they can ever pay it off. All those job "guarantees" are just pie in the sky, and I'm astounded anybody believes them anymore.
We as a society have had no luck making the corporate sector responsible for its own scams. There will certainly be an eventual call for a government bail-out. I for one hope we let them fall apart when the time comes because, as a taxpayer, I refuse!
How exactly would the venture funding of higher education differ from "involuntary servitude," prohibited under the 13th Amendment?
Wikipedia tells us that the "Supreme Court ruled in Clyatt v. United States (1905) that peonage was involuntary servitude. It held that although employers sometimes described their workers' entry into contract as voluntary, the servitude of peonage was always (by definition) involuntary."
This sounds like a better deal and makes more sense. Taxpayers already are burdened enough unless you're talking about six figure incomes. And, this free money to individuals who will become executives at the cable conglomerate that will overcharge us for their services, lawyers and doctors who have insurance as an obfuscation of what they earn doesn't sit well with me. If they can afford to pay it back then of course. Anything else is just dumb.
1
oh boy, here it is: goodbye "education." no more students, just employee training. make better workers, better robots to do jobs to create wealth. this is transactional capitalism at its worst. "living" has no "value," so forget about it.
6
@saxonsax I see this as a massive improvement. People need good jobs to live. People need good skills to get good jobs. Now people can get job training when they want job training. Classical education can return to being voluntary or a privilege for those unburdened with the need for income.
1
This would end up being abused and turned into indentured servitude. A better idea is to tax the wealthy, and close tax loopholes and use some of the money to invest in community colleges and state universities to bring the cost of tuition down. This would force private universities to bring their costs in line or fold.
4
Yes, there are potential pitfalls and ways it could be deceptively marketed and abused - but...I have a family member who got their masters degree at an established, normal non profit university through such a private capital arrangement. The theory is if the education improves their income, the investor and student both win. It’s closed ended - ten years, and whatever the investor gets back in that time, that’s it. Simplified a lot. As to the potential problems, we surely have learned enough from the for profit colleges who’ve bankrupted students with phony promises while stealing government backed loans to put some protections in place for the students.
5
@Science Teacher What was the name of the funding company? In retrospect what does your family member think of the ISA funding?
This is a fine idea, but it is just insurance in a different form. If you can't afford the risk of your education paying off in the long term you might need this program. If you go to a low cost college and study something with great prospects you don't need it. I bet there would be limitations on who gets into this sort of system, and what they would be allowed to study. Probably more restrictions on your job in the future.
@vulcanalex
A " low cost " college doesn't exist. Even with community colleges. Excluding living costs, a full term cost me about 2k. That includes expensive textbooks, supplies,student fees. And I wasn't in a program that had tool and class fees that basically doubled the cost.
With cheap roommate public transport taking living, in my area 1000-1300$ a month is the minimum you need to be stable. So a term was easily 5k, a portion was grants but most were loans. Besides cc ft and working doesn't work for alot of people
Even so, cc's rarely have any true long term career programs. Especially with nursing programs having extremely limited enrollment, industrial job programs being shut down all across the country after being whittled away for a few years. Cc's are for jobs that only need a a bit of formal education, or cheaper 100 and 200 level classes for students who transfer to a university.
My legal job education reqs only require a yr.
In a year, the requirements for everything are going to a 2 year formal associate degree. That will create more barriers in my job market for new techs, because a 15/hr job costing someone 20k isn't really affordable.
So long story short, no college is actually low cost. While the credit hour may be cheaper than the local uni, it's still expensive , you still have living expenses, and the cost of student loans is still a terrifying wall that you constantly have to climb to gain an education and degrees in this country.
1
@vulcanalex, I went to a ‘low cost college’ - it was the undergraduate college of Columbia University; and it was $2400 a year. Today, make that more like $65,000 a year. I later went to a ‘low cost’ state law school - which cost about $2700 a year for in-state tuition and about twice that for non-residents. Today, make that about $30,000 for residents and $60,000 for out of state tuition.
Your ‘low cost college’ exists in La La Land, where most fanciful right-wing solutions to not at all fanciful problems dwell.
1
Trump just gave away the $1.5 trillion to people who do not need the cash. Those monies would have freed young college educated people who are the engine that drive our economy and our culture forward. Let's get something straight here. No one thinks a free education is on the table. I'd like to see debt forgiveness and low tuition fees for those who EARN a place in college . . . if that bothers you I am sad, maybe we could ask graduates to do a few hours of public service a month in return. I signed up and served for 6 years. We need to give our young people all of the support we can. They are our future . . . duh, huh?
1
This is exactly what the federal government was essentially trying to do by basing eligibility for loan programs on employment prospects: you pay nothing up front (i.e., a loan) and then when you get a job (which, on average, you will) you pay it back.
The main differences are a) this is immune to for-profit college lobbying, b) it's less scalable and c) it cannibalizes the financially healthiest parts of similar education at, e.g., community colleges and thus reduces the breadth of available programs in the longer term.
Wow, they have invented a private version of public education funded by income tax.
5
In the 1960s land grant colleges, such as the UC system in CA, used to receive a portion of federal tax revenue for operating costs. In this way semester fees for residents were easily affordable. Reagan became president and decided to shift from a revenue sharing system to one of block grants so the states were not obligated to use the funding for education. Guess what? The money was used for budget deficits and programs other than education. The universities then hiked tuition fees and partnered with banks to become a mutual" for profit" arrangement with the banks hooking students for high interest loans and the universities raking in higher and higher tuition fees that increased annually above the cost of living. Now we have a massive indebted graduate population that cannot pay back their loans, and universities that only care about raking in money for their endowment fund. Education is the most important duty of a society to its people. Everything comes from and educated populace. The Lambda approach is not new. Several on line boot camps that offer real training in web architecture and AI development do the same thing. Some have job guarantees for graduates with a payback system that takes a percentage of the graduates income for two years once a job has been acquired. In the case of Thinkful ,70% of the students complete the course and greater than 90% of the graduates land jobs paying 90-150K. The Lambda and Thinkful models are a good start.
One of the biggest tests of this arrangement will be whether Lambda can keep changing its coursework often enough to match employer demands. Traditional education is just that - tradition. Not a bad thing but it doesn't operate at tech savvy speed. For those who don't want to go to college and want a better skill level, this could work. It could also work for people who need to change careers or re-enter the workplace. Is it a replacement for 4-year colleges? Of course not. Will it be producing workers who get paid $100K in their first job after finishing this program? Don't think so.
@Mrs. Cat follow Lambda, many of their graduates are making that and more.
Andrew - why didn’t you mention this likely playbook? We’ve seen it before!
In order to make this economically successful there needs to be late night infomercials and “financially incentivized finders and enrollers” of these students – similar to the no income verification or money down mortgage brokers. Remember them? They were compensated to enroll - anyone.
Students enroll, graduate and guess what – 17% of their gross income is way too much for them to pay after taxes so our beneficent and helpful friends offer to convert their 2-year payback obligation into a longer-term loan with total long-term payments not beneficial to our new workers.
Magic – the PE firms now have a loan book, likely with workers diversified across the country. Next step find friendly and helpful rating agencies and underwriters (we all know the cast of characters from the mortgage catastrophe) to securitize these loans and sell them to the public.
One bright side - it’s better the PE firms and investors get stuck with default and not US taxpayers.
10
I predict a remarkable increase in jobs offering $49.999K salaries with AWSOME benefits. Company cars, company apartments, ...
6
@Richard E. Willey, coincidentally, a starting teacher’s salary where I live is a little over $44k. So that job, which is often a sort of fallback position for the career confused (with an emergency teaching credential), would put students safely in the do-not-pay-back zone.
The potential income for an entry-level registered nurse in my state begins, according to the charts I consulted, at $50k. The average pay for a computer coder is, according to another chart, around $55k. That $50k minimum figure was not picked out of thin air.
1
What a great idea. We can implement it by fairly taxing businesses and using the taxes to pay for universal higher education and improving elementary and secondary education.
8
One thing is for sure. Wall Street will find a way to capitalize on this
6
It would work in the short run until all the students over time are Caucasian and Asian. Then the courts get involved and literally destroy it.
Interesting but not a universal solution to education -- universities do more than just prepare students to get decent paying jobs. They maintain research labs, for many long shot topics which may not pay out in immediate cash but push humanity forward, resulting in advances that eventually make their way into the economy. Moreover, the proposed model will likely be biased towards the short term return (to get paid), and ignore skills that are important to further push a career and/or foster in the student a healthy disregard for the ambition to take on riskier but potentially more productive opportunities. That's why education should be a core part of a society, sponsored by all, where worthwhile individuals have reasonable access to it (both a right and privilege).
5
It would be much simpler, and better, if this plan were socialized instead of privatized.
The venture capitalists are making a simple calculation: what is the education worth, in market terms? As a society, though, we recognize that some educations are valuable irrespective of the market. Not only do some jobs pay less than others, but some courses have no market value at all. What is the value of 20th Century British Literature? What profits from reading Homer or studying early modern Europe? Yet we subsidize those courses just as much as CS 101.
A much better plan -- one that lets universities and students, not the market, decide what to study -- would be for the government to pay the tuition for any student, directly. After graduation, charge a 2% surtax on lifetime income. Education lasts a lifetime: you benefit all your life, and you recompense the state for that benefit, all your life.
2% of, say, $100,000/yr x 40 years is $80,000. That's enough to cover tuition at most public universities. In any case the surtax could be adjusted after actuarial analysis.
Lifetime repayment regardless of income is the fairest possible policy. It doesn't place higher value on "marketable skills". It doesn't favor the wealthy, who currently can self-finance. It doesn't burden the young with debt, or push them to try to forecast what course of study will justify that debt. It doesn't ask those who don't go to college to "subsidize" those who do.
19
@James K. Lowden
Brilliant! But what to do about private universities and colleges? Would the government pay regardless of where you go to school? How could they control costs?
2
I think it’s a wonderful solution and I’m interested to see how it evolves. A system that caps payments at $30k and forgives those who cannot pay is a step forward.
It appears most commenters’ knee-jerk negative reaction is down to the fact that they believe that college should simply be free, and that any contract for future repayment is ‘indentured servitude.’
Anyone who has been on American under-graduate campuses recently will know the extent to which binge drinking, tailgating and hook-up culture dominate student life. For a significant amount of students, college operates as four-year summer camp. Even with looming six-figure student debt, millions of young adults choose majors that are relatively easy so that they can concentrate on those diversions. Colleges actively encourage this ‘resort’ feel because, as Mr Sorkin states, they get paid upfront. Persuade the kid to enroll, and then if he wants to play video games and party for four years, that’s no skin off its back.
Free college tuition is a laudable goal, and should be pursued where possible. But what effect would that have on campus life and campus culture if applied universally? I think it’s safe to say that the brain-cell destroying activities would only grow more popular, and at the expense of the brain-cell building ones.
The program Mr Sorkin describes is the first I’ve seen that directly ties the health of a college’s bottom-line to its ability to prepare its students for self-sufficiency. Excellent.
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@Jay- "Free college tuition is a laudable goal, and should be pursued where possible. But what effect would that have on campus life and campus culture if applied universally? I think it’s safe to say that the brain-cell destroying activities would only grow more popular, and at the expense of the brain-cell building ones."
Not true. if you take a look at countries that have "free" tertiary education, you find cut-throat competition to get into such schools, and the students have to work themselves into exhaustion to stay there.
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@laguna greg | good for those countries. but it’s not relevant. I lived in a middle eastern country for three years that had free higher education, and I lived in the dorms of one of those free universities for six months, and those schools were dreadful. they failed their students entirely. and the students only ever studied for one week a year before finals. the doctors they produced, friends of mine, who were operating on patients months later, knew almost nothing. does that mean all free schools are terrible? .. of course not.
what matters for our purposes is the American context. and the current trend in American campus culture is students partying themselves into penury. remove the penury? great. but they’ll still party themselves rotten.
but give a school a vested financial interest in the professional advancement of its students, and you might actually get a few schools outside the Ivies that value physics over football. and on top of it, those who can’t pay are forgiven. it seems like a true step in the right direction for American education.
The best solution is free university education for qualified students.
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There is no practical difference between a student loan and an agreement to pay the school a percentage of income from the student's perspective.. In both cases, the student's spendable income is reduced. At least a loan will eventually be paid off.
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The ISA is specifically capped at $30,000 or 17% over two years. That seems much more finite than most student loans.
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@Colin Dismuke- that's more debt than the average graduate carriers, and for much less education. Tech and job markets will change in 5 years after graduation, and what will happen to these people then? You'll just have more poorly educated unemployables, and a call from a small education sector for government to bail them out. For heaven's sake these debts are not guaranteed by anybody but a corporation, and as a society we have had no success in making that sector responsible for their own scams (which this is).
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The solution for unfairly burdening college students with unaffordable loans is to provide free public college-university educations for all qualified students, certainly not Wall Street-backed student loan investment approaches which require profits for their backers and all the predatory abusive features that would entail.
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I have rarely seen a simple solution to a complex problem succeed. That doesn't mean the proposal in the article is wrong. In fact, it could be part of a larger multi-faceted set of solutions, including substantial federal government financial subsidies to public colleges and universities, similar to what states do with community colleges.
In a related option, in my military career, DOD paid for some professional schooling in return for my agreeing to serve a number of additional years. In another example, DOD agrees to pay for civilian medical school in return for newly graduated MDs serving for several years on active duty.
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As noted by one comment, Yale University experimented with this idea in the 1970's. It was viewed as a huge failure. Rather than reinventing the wheel (or a broken wheel), Sorkin, Inc. should go back to the Yale program, see what went wrong, and see if it can be fixed.
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@White Buffalo the Yale solution was grouping all of the students together until the group paid back the amount in full. Totally different.
Venture capital and education. What could go wrong?
Everything.
Get and keep "private" money OUT of OUR public and private education systems. Money pollutes. Money makes sure everyone else stays stupid.
Why should a few insatiably greedy BIG "investors" profit from OUR education systems and destroy them - just as they have OUR medical complex and every segment of OUR society.
WE THE PEOPLE must DEMAND protection from BIG greedy investors. The first step is hiring/electing Socially Conscious democracy-loving, financial regulation champions in 2020 and demanding that they protect 99.9% of us.
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@njglea I agree with your concerns. In addition, and when first introduced, these agreements might appear altruistic rather than predatory, but they probably won't stay that way given the money involved.
It also seems politically timely that this approach is being floated at this time as the idea of making state colleges tuition free is gaining momentum - its a less socialist (Democratic) and more capitalist (Republican) approach to education - sort of like privatizing Social Security.
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Wrong. Capitalism has created more prosperity and health than any other system ever created.
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The best way to reduce student debt is to reduce the cost of education. The best way to reduce the cost of education is by increasing public subsidies to public universities -- a significant number of which are no longer really public universities.
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@caplane
Increasing subsidies would decrease the cost to the student, but not the overall cost of the education. The total cost is just shifted away to the taxbase when you increase subsidies.
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An interesting piece and take on a difficult problem. Education costs money, period, and someone has to pay that cost, be it students, taxpayers, or donors. I doubt there is a one-size-fits all approach, but this seems to be a good plan for a subset of post-secondary paths, such as those in the trades or CompSci (which is really just another trade).
Fundamentally the question is about how we view education: is it a public investment into the future of the American workforce, or is it an individual pursuit and therefore an individual responsibility? Your answer likely indicates how you feel about who should be paying for education.
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It's definitely worth a try. But its credibility is seriously undermined when Ashton Kutcher is its public face. What does he know...about anything?
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@WmC I know Kelso doesn’t seem like an intellectual working for social good, but Kutcher and Moore have been quietly working on and funding highly effective social programs… Google what they’ve done on child trafficking. It’s impressive and they choose not to publicize it heavily.
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This is ridiculous. Public education is a public good and should be paid for by society like it is in most civilised countries. If American students want to escape the debt trap that American public education has become, I have two recommendations: Learn another language fluently, I recommend German, and go to school in Europe. Many of their under-graduate programs are at least the equivalent of ours. (I hold undergraduate degrees from the both countries so I write with some experience here. Also, apologies for my bluntness but Germany never asked me to kill anyone for my G.I. bill.) Apart from the extreme advantage gained over your American peers of speaking two languages properly, the student will be a much more culturally educated individual with enough exposure to other ideas to be better inoculated against some of the ways in which america tells fables to it's citizens. As such, the student will have a much more accurate view of what's really happening in the world. That clear view is almost worth more than the money you'll save on your bachelor's degree because education is supposed to educate, not create debt peonage or a false sense of superiority based on the vast sums of money you paid to gain your education. Oh, and I forgot to mention one last benefit. If you finish your education in Europe and can find a job. You can stay in work if the life suits you. Except for the extreme maturity required of the individual abroad, I don't know why anyone pays American prices.
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This was how I paid my Yale Divinity School tuition in the early 1970’s—-TPO—-Yale’s tuition postponement option. The fixed percentage of my clergy earned income was, of course, a far smaller annual dollar amount than my higher income earning law, medicine and business school colleagues—so our “class loan” obligation was paid off before I actually paid back the original balance of my tuition postponement. I think it’s a great way to address and help solve multiple income inequity issues in our society.
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@Sim Gardner Yeah, I know that the Ivy League law schools follow a similar model of debt forgiveness if a graduate takes a public service job. I'm surprised that this isn't discussed here.
We don't need an innovation that excites venture capitalists - we need innovation that excites educators.
There are a lot of problems with ISA, problems that venture capitalists don't see as being problems.
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@Ed Watters
I would say that venture capitalists are excited at the idea of getting smart people a quality education so they have more investment opportunities down the road. You can innovate on both the financial side of the house (as ISA is doing) and on the education side - they're not a monolith.
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@Ryan
If you think that venture capitalists are excited at any other idea than making money on this, then you don't know any venture capitalists.
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Financial innovations are not necessarily positive for educational outcomes. Reread the article.
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Isn't this just a privatized progressive tax on a smaller population?
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@Gignere
Yes - just like student loans, except tailored to the student's capacity to pay and limited to two years.
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@KogoHogan
Except the better solution is public progressive taxation on the whole population.
17% of a $50K salary is awfully harsh, about triple what servicing $22K a year in debt would cost and a big burden for someone earning an income that after all isn't that high.
A more graduated payment plan would be more fair, e.g. 5% under $50K, 8% $50K-$70K, etc.
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@Aly 17% of $50k is $8.5k. The payments last two years. So $17k total. How is that triple $22k? Am I missing something?
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It's utterly false to claim that no schools are "incentivized" to help their students succeed.
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Great concept - thank you for sharing it Mr. Sorkin. Lambda's a start, but it's just scratching the surface.
The US Government must stop its student loan program immediately.
The Urban Institute estimates that 40% of student loan borrowers will default on their debt by 2023 - that's hundreds and hundreds of billions of taxpayer dollars -taxpayer dollars wasted, as many of those students never even graduated.
We are burdening our children with debt they cannot repay -it's criminal. I've been in lending for 40 years - you don't lend to a borrower who doesn't have the ability to repay the loan...no exceptions.
The US Government should provide grants to students based on need - those grants stay in force with students maintaining minimum credits and GPA's.
Grants are not repaid. Students who want to go to college and can't afford it, can go. They will have to work to maintain GPA, but they will graduate with no debt.
There are still affordable colleges in every state for every student that wants to go. The government will save money in the long run by setting up grants based on need.
Stop federally insured student loans - get the government out of student lending and set up grant programs with counseling required to help students select programs where there is hiring demand.
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Oh, good! "The Market" has come up with a new idea to fund education! Yay!
But, wait, doesn't this feel just a teensy bit like indentured servitude? I can see the lobbyist calls for debtors prisons by hedge funds when students can't pay it back.
Yep, that's what it is. So again, as a society we have told our youth that the market will solve your problems and you get stuck with the bill. How nice.
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How can a debtor not pay back a loan if they have the funds to pay it back?
I was fortunate to be educated in the 70's in the Univ of Cal system. I took loans, but the burden was relatively light. Why? Because the State considered college education to be a worthwhile public good and funded it in that way. I paid back my loans, but was not hindered by them in my choice of work, where to live, whether to raise a family.
If education is seen as another venture capital investment, rather than a building block of our society, we will all suffer.
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@RAL
Yeah, that happened when education loans no longer became dischargeable in bankruptcy.
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it will take more supply and more competition to lower the cost of college education. Working on the demand side with "free" tuition or easy-access loans or indentured servitude will raise the demand and raise the price, and the extra costs will find their way into the pockets of faculty and administrators and financial engineers.
Sounds good, but it isn't. It's only a way of extracting all the excess value over cost from the students.
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While I'm excited that the private sector is starting to care about student loan debt twenty years too late, we already have income based repayment plans that Obama initiated. Its simply not enough. Loans should be no more than 1% interest, public colleges should be free (which would give incentive to private colleges to keep costs reasonable), and public servants like teachers and nonprofit workers should get true forgiveness (not the joke of a program we have now). I'll add that trade schools should also be 100% free.
We need to not only free future students of these debts, but take a real look at the shackles of debt we've put on millennials which are affecting every industry from housing to retail. This money should be going back into our economy, not into high interest loan payments for banks and the government. Everyone I know cant afford a mortgage because we graduated with loans that are more than a down payment.
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This is just public education and taxes, but without the pesky need to guarantee that everyone has an opportunity.
On the other hand, it’s a wonderful way to perpetuate inequality.
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Somebody didn't do their homework here. Private universities are not fully funded by tuition and fees. A significant source of their funding (can be 50% of the operating budget) is alumni donations. Obviously that source of revenue would dry up under the ISA model, and paying 17% of a starting salary for two years is not going to fill the gap for the four-year-educated graduate. This just wouldn't work for all schools-- may only be good for the kind of training described here (6 months and gone).
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@NotMyRealName
It will work just fine for state schools and engineering/ comp sci programs.
You can get a solid engineering degree at pretty much any accredited school that is the equivalent as a fancy private school.
So - no need for $50K for a private school and excellent job prospects when you graduate.
This is the reason why the program won't apply to English Lit majors paying outrageous tuition at private schools.
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Public college and post-high school vocational education should be free of the threat of financial servitude for all who aspire to advance themselves. Let the states- or the Federal government- float 30 year bonds to pay for tuition then have recipients of a tuition-free education pay a percentage of their income to repay the loans. That way someone who decides on a career that may get paid less than someone who chooses a higher paying career is not penalized by outrageous debt for that choice. Society needs Math teachers and financial analysts, medical secretaries and medical specialists, philosophers and physicists, and one should not have to choose which career path to take solely on the basis of worrying about how one would pay back for their education
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A better approach would be to limit the amount colleges can charge combined with a forgiveness program for students that complete a degree and get a job in a needed profession like teaching or first responder.
Around the country I see universities swallow whole towns in their quest to grow ever bigger. Is that really the mission for universities? Growth for growth's sake? Build giant endowments? Out sized pay for administrators?
A small university can prepare students just as well as enormous ones.
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@napskate
Putting a price ceiling in place would not be a good plan, given the basics of economics. However, capping the size of the endowment would probably achieve the results you're looking for by forcing a divestiture from the markets and into tuition discounts, better wages for non-tenured staff, and infrastructure upgrades.
I think this ISA idea has some good intentions, but there're two major drawbacks that Mr. Sorkin missed. It could end up driving college costs even higher and hit lower earners much, much harder than higher earners.
First, by replacing tuition with a percentage of income owed, ISA would obfuscate how much students are actually being charged. Students wouldn't be able to compare colleges by how much they cost. ISA creates an incentive to raise and hide tuitions. When a student gets a bill for $15,000+, it's a visceral experience; when a student sees "17%", it seems fairly reasonable at first.
The second problem is that it's regressive. 17% of $100,000 is much less critical than 17% of $50,000. So if you make a lot of money out of college (which has less to do with how well you did and more to do with who you met), you're gonna be just fine; if you struggle, it's going to hit you pretty hard, and it's going to be just as relentless as loans.
The solution to skyrocketing tuition costs is to lower tuition, not to hide it. All colleges and universities are for-profit institutions, even at the Ivy League. They keep raising tuition to justify expansions which are designed to improve their image so they can raise tuition more. Colleges are businesses, just like banks and investment firms.
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@Andrew
"Payments are capped at $30,000, so a highly paid student isn’t penalized for success"
From the article to the left.
And as noted elsewhere - Ivies enormously subsidize their undergrads to the tune of greater than 50%.
1
This sounds like turning people into indentured servants for life. Although I suppose whether this is really the case could depend on the details. But it looks like successful students will pay more than if they had taken out a loan. While others may pay less. The system sounds similar to the one practiced in England in the UK. But will probably be more harsh. Education in many European countries is completely free. Why can't US have a system that is at least similar to the one in Britain?
11