There is nothing new about this kind of program. I graduated in 1976 and financed part of my education with one of these loans. Back then it was called a Contingent Repayment Option.
It was a good deal for me and my college. For me, it freed me from worrying too much about payments early in my career. Later, the payments went up as my pay went up, and my college got a share I thought was fair.
It wasn't simple to administer, though. I sent my 1040 form each year along with my payment, and somebody had to check it. The arrangement had to last 30 years, which is a long time to maintain a workable and fair business process. The loan office relied heavily on graduates' cooperation to get their payments. And, I know from talking to somebody at the loan office about 15 years in that they discontinued the program for new borrowers because of the administrative hassles.
I hate to be cynical, but a program like this in the hands of federal political appointees could easily morph into a swindle. With a 30-year loan lifetime it could turn into a very long con. If they proceed with it, I hope it can be under the governance of non-political people.
Why do commenters keep writing about what banks are doing? President Obama kicked the banks out of the guaranteed loan business when the ACA went into effect in 2010. You see the “bankers” funding these loans when you look in your bathroom mirrors each morning. The government sets the interest rates at a price to fund the defaults. When you suggest writing off loans, giving lower rates or giving out grants, you are the ones footing the bills.
Sometimes it's easy to tell how horrid an idea is by who promotes it.
DeVoss = bad bad bad, 100% of the time.
66
Um...Is it me or does this sound like modern day share cropping
1
"Income-share agreements, promoted by Betsy DeVos..."
The promoted by Betsy DeVos part of this statement tells me all I need to know.
No thanks.
3
Betsy Devos is evil. Just another 'person of evil' running the country into the ground in order to support the elite and exploit the rest of us.
3
Yea, I didn't get past "private-sector financial product" and "education start-ups". Those poor kids. We have to stop doing this to them. Betsy is a nightmare.
7
To have those who earn more to pay more, is to penalize them, not through "fault" of their own. Why shift the burden to those to someone else??
It's far more sensible to have the loan repayment be tied to the borrowers' AGI to a certain percentage, so that the repayment will not become too burdensome. (Australia, for example, takes the latter approach.)
1
Perhaps college education, as with health care, has become too expensive for its own good and, for the country's good. Both need a serious reworking if they are to remain effective and useful. Out of country education may become a worthwhile alternative.
4
There is nothing new or innovative about paying for post-secondary school education with an income-share agreement.
In Germany people have been doing this for many generations.
Except that it's not called "income-share", it's called "income tax".
1
@TD
This is incorrect. Income tax is levied on everyone, regardless of whether they attended university or other post-secondary education, and is independent of the choice of field of study. Income tax goes to a general fund that supports all kinds of benefits, independent of who pays the tax.
Instead of developing new ways to tie young people to debts for decades why not look at finding new ways to provide them with good educations without onerous financial burdens.
Other countries manage to do it with regularity.
We should be able to figure out a way other than profiting lenders first.
6
I remember back in the late 1970's a few schools like Yale tried it for a few schools like Medical and Law. It did not work out. I saw suggestions that those students going into low paying areas such as public service law or medical missionary work chose the shared income route while the guys and gals looking at Wall Street or Brain Surgery did not.
The real question is why and why is this scheme different. The article hints at some of the terms such as non dischargeability. I would like to see the details. If they are as bad as hinted at then count me out.
3
@John Goudge Hi John, The Yale scheme was not like what Purdue and the bootcamps are doing as Yale itself took no risk - it simply shifted the fixed obligation that exists under a conventional student loan from the individual to the cohort. That meant that successful students had no cap (maximum) on what they were due to pay - if some of their peers earned little, they had to make up the difference. Purdue and the bootcamps take the risk on themselves so if some graduates earn little it is the institution that suffers a loss (and so has an incentive to do a better job) while the terms faced by the successful are unaffected by peer outcomes.
1
@Peter Ainsworth I had one of these for Yale College, that is, the undergraduate institution; I paid 2.2%/year or a minimum of about $187. I heard it was invented by James Tobin, who's was definitely a liberal. The loan differed from many in that the principal was paid off first, giving extra tax advantage to the later 'interest' payments (the law changed after the program ended). There was a cap on repayments, at something like 2 x original debt plus interest. I did well during the dot com bubble, and my 2.2%/year (of megabucks) paid me off.
@Regine Hi Regine, yes, it got a lot worse after the tax treatment change, you may also have been in a "good" cohort with few delinquents (those who pay back little), unfortunately there were also "bad" cohorts" where the burden on the payers was significant and perceived to be unfair. The fundamental contrast between the Yale scheme and what Purdue are doing is that in the former case the risk (of underpayment by some graduates) was borne by higher earning graduates in a given cohort, whereas in the latter the risk is borne by the institution.
This isn't a "loan" at all. It's an indenture, or a form of sharecropping. And we all know how that works out for the sharecroppers.
6
Call it what it is: Indentured servitude. You're sacrificing future labor for intellectual assets today. How is that different than selling years of your life away for geographical transportation? We're regressing to a 15th century labor market.
As you might recall, the end of indentured servitude did not give way to greater liberty and freedom. In fact, the practice ended up accelerating slavery to greater prominence in the US economy. We all know how that ended. Or rather, how slavery didn't really end.
The loan system is dysfunctional to begin with. We need to hold students accountable. That's why we have grades. Holding students financially accountable is a gigantic mistake. Federal and state governments are the lender of least risk but the entire premise is fubar.
Students are students. You're expected to learn financial responsibility after paying a bank to learn financial responsibility? That reasoning makes no sense.
As someone who has learned finance, DeVos is attempting to privatize the loan industry by other means. The banks don't expect students to ever pay off their income-share agreements. They plan to milk the principle for profit over the course of a life time. Your payments are adjusted to make sure, no matter the income, you will never pay off your debt.
Anyone with half a brain supports tax funded higher education. Republicans are apparently missing both halves.
7
A modern form of Indentured servitude.
5
This is far more fair, but with either approach, it all rests on how collections are demanded and how much. And that is turned over, as far as I know, to private, unregulated companies who hound people and ruin their lives. What one is never told is that the debt can be discharged if you become medically disabled.
2
Mandatory (on schools which receive taxpayer support) credit-by-exam for all courses required for graduation would bust the $1 trillion per year US K-PhD credential racket. Unfortunately for taxpayers, college professors and administrators would sabotage any program which threatens to reduce the revenue stream which taxpayers pour into the K-PhD credential industry.
"Proponents note that colleges have a financial stake in the success of students whose education is funded this way . . . "
This is only true if "success" is defined by the student's subsequent income.
4
@Camille If courses do not enhance income enough to pay for themselves, they qualify as recreation. Why should taxpayers pay for someone's recreation?
@Malcolm Kirkpatrick Yes, what folly it would be for society to give any benefits those in need! Why not take this farce a step further and fund national recreational parks? I mean, who needs civics teachers? You can just google things and there's like, no "content created" or "value added" by having ethics or morals. With DeVos brand income share agreements, I can sell my soul, and she only takes a small cut!
1
Kudos to all the commenters who saw this plan for what it is -- yet another form of indentured servitude. How about we go back to what used to be -- affordable (almost free) higher public education. If you went to any major public university through the 1960s you received an education for a fraction of the price students pay today.
My students are always surprised to learn that once upon a time, not too long ago, government at all levels -- from local, state and federal -- generously subsidized higher education because, surprise, surprise, having a well educated population was thought to be a good thing.
And -- even better -- tax dollars from a system of progressive income tax, where the wealthy paid a larger share of their earnings than the measly 34% they do today, were directed to education, health and other public programs intended to allow people to live a better life.
Public education, like health, should be largely free. It shouldn't matter what people study and what jobs they end up in. We should support education because as the ad said "a mind is a terrible thing to waste."
6
By the definition held by commenters here, every loan is indentured servitude. You take cash and repay it, with interest, by a certain date using a portion of your income.
@historyprof "Public education, like health, should be largely free. "
Dunno what you mean by "free". If you mean "free to taxpayers" (i.e., unsubsidized) we agree. Education will always have an opportunity cost to students, the time that they spend studying. Improved curricula would reduce that.
School is expensive. Most education is potentially cheap; Dover will sell the undergraduate Math curriculum for less than $400. A used book store will sell the undergraduate History or English curriculum for less than $400. Credit by exam would bust the $1 trillion US K-PhD credential racket.
@historyprof, good points, but the rich are actually paying between 0 (loopholes and corporations) to 15% (capital gains rate) in taxes.
Most of the teachers at my local community college are cobbling together a living with part-time work at multiple institutions, and have no benefits. Government support for higher education used to be much more robust.
We as a society need to value education for it to become affordable. Present POTUS is the poster child for how we feel about education.
Betsy DeVoss isn't an educator; she is a rich lady looking to profit from her investments. I'd trust her to be looking out for students about as much as I'd trust the people who scammed taxi cab medallions in NYC.
5
I can’t read the full article. I stopped after “lain sharing agreements are about income and time”. Another way to indenture people for education. How about a plan where the corporations who hire people to work for them pay off the hires student loans and still have to pay taxes?
5
How about the gov only backstop loans that follow the Fed rate, ie <2%>
1
College tuitions went up in sync with total amount of loan a student could take out. Anyone surprised? Thought not. The problem with Warren and Bernie's forgiveness plans is that they indirectly punish those who have struggled and worked to pay off their student loans (makes them look like suckers), and rewards those who have not, including those that have no intention or ability to. Well, that's the way it looks fair or not. Then again, Bernie is not about fairness but simply offering more free stuff.
7
Why not allow graduates to allocate their half of the FICA payroll tax to paying towards their student loans? This would be much more beneficial for millennial than the few dollars of SS they may otherwise receive at retirement.
Questions. So many questions....
This feels like a company store agreement. How is it not?
If some argue that higher taxes encourages people not to work harder (why bother?) how does tagging income do anything but?
Can this be done without "fees"? My experience is that the fees, not the rates, makes the difference between fair and exploitive. No?
2
We are encouraging far too many students to go to 'college' whilst simultaneously neglecting compulsory primary and, especially, secondary public education. Nothing of significance will be accomplished no matter how we jigger the issues of tuition and financing until we return substance and rigor to education at the primary and secondary levels. Specifically, we need to end, cost what it might socially and financially, the now-engrained practice of 'social promotion'. In doing so, we will return meaning and value to the high school diploma and render to it once again due status as a signifier of learning and accomplishment.
5
"The model legislation, sponsored by the Republican senators Todd Young and Marco Rubio and the Democratic senators Mark Warner and Chris Coons, would allow banks and colleges to set terms that are vastly more onerous than what Flatiron, Purdue and others are offering today. Payments of 7.5 percent of income could last for as long as 30 years, ..."
Co-sponsored by two Democrats? For shame!
Colleges are too expensive because they can charge too much; investigate them, send some presidents to hard labor, and watch the fees come down.
2
Let' predict a downside.
Students will have an incentive to accept a lower paying job initially, and move to higher paying jobs at 4-5 years - the typical hiring sweet spot for employers looking to hire workers with some experience at lower wages. Since the loan is essentially capped, employers can leverage that to cap wages.
This will continue a trend to sprout up a lot of lower paid job opportunities for college grads at the entry level.
What we will be creating is the potential for a 4 year period of indentured servitude.
Let's try this: issue loans at 0% interest, with low interest beginning if the loan is defaulted. Keep the 0% interest loans at a capped amount so that schools simply don't increase the average cost to eliminate the benefit. Forgive interest on federal loans, for people who are not in default. Consider bankruptcy for people in real default resulting from inability to pay (as opposed to inability to remember or desire to pay.)
We don't need anything complex - we just have to take profiteering out of education.
2
New Mexico used to, perhaps still does, have a pretty nice system of free higher ed (undergraduate) for residents, all paid for by lottery proceeds. The catch is this: you must earn the grades. One might think that earning a 3.0 (B) average is no mean task, but I'd wager it is a bar many would fail to reach, and that is the only smart way to make something free: you must earn it.
Yet, it is pretty simple. And certainly, states could attach different conditions to such a benefit, e.g., graduates must remain in the state for X-years in their profession (although that would require the state to guarantee the graduate a job, which in some professions could be a win-win).
But anyone taking this farce of a "new loan" is pretty much a fool. It smells quite like a Trumped up (pun intended) version of a title loan, but mostly, it smells like the Student Loan sector terrified that their lucrative world may be destroyed, so they'd love to usher in a new user-friendly method of attaching a massive ball and chain to students, probably with more legal teeth for the lender and much less for the borrower.
4
This is indentured servitude. Plain and simple.
5
How about going back to outright grants of money to students instead of all this fancy language. It's still a loan and it's still going to hang over students heads. Or why not be realistic and stop pushing students into college and give them a better education in grades K-12? Make that education just as rigorous for students not going to college as it is for those on an academic path and start training in high school so that students can graduate into the job market. Or is that too sensible an idea?
Most jobs do not require a college education. Employers are asking for more and more credentialing to avoid training employees and to satisfy themselves that potential hires have a basic education. Our public education system is failing students if they are forced to go to college to land a minimum wage job with no potential for advancement. Stop teaching by lecturing. Start expecting students to do more than spit back what they've been told. If we want innovation, creativity, and critical thinking from employees and citizens we have to foster it. Our current system does not. It does a wonderful job of forcing people to conform to get decent grades.
5
Personally, I think the colleges should take this risk. They are the ones who benefit directly from the outrageous tuition and other fees. The administrators within colleges are often highly paid but provide little if anything in the way of educating students.
4
What a great idea! Just don't let private banks screw it up. Let the government pay all student tuition in return for a percentage of their income for life.
Sounds like public education and income tax; two foundations of a successful society.
1
indentured servitude was outlawed a long time ago. No need to bring it back.
3
I guess teaching will be low priority for ed institutions that adopt this financial model Same for nursing and other socially valuable jobs that don't pay alot.
3
The interest rate should be a little over the prime rate. If we can give money to big companies at low rates, why are students treated any different.
The students loans will continue to be an issue as tuition rates are high, and that there are many predatory for-profit institutions. We need to increase pell grant amounts to encourage needy students get an education.
Society has to change too. We should let our children stay in their family homes while they are getting an education at a local school. They should contribute to the family and follow the family rules as well. This could be tried by parents for half of the degree period to give kids an experience of living independently as well.
Student loans should not be subsidized for one group over another as it would shift the burden to those who are making better choices. Do have the repayments connected to salaries and have a low interest rate.
1
@Autar Kaw
My student loans (fully guaranteed by the US govt.) are 7.3%, my mortgage, guaranteed by me is 3.75%
Why are big banks getting this huge break by the federal government?
6
@Drbill. A wonderful point. However, you do have to keep in mind your mortgage is backed with a fixed asset - your home.
2
Anything that Devos approves of is suspect.
2
Observations:
1. Whatever happened to student loans that went directly from the bank to the school, rather than through the hands of the student to the school? My neighbor's kid uses his loan money for a lot of discretionary expenses, including spring break trips, an almost luxurious apartment with his buddies. It's no wonder many students get in over their heads; they have lost perspective of the purpose of the loans.
2. A decade or so ago I would have said income-share agreements are anathema to getting a real education and more appropriate for a trade school training. But as higher education has devolved more and more into "what do I get for my four years" instead of "what can I learn in four years", I suppose income-share agreements are now reflective of what people expect of time at higher education institutions.
3
Nobody should take out a student loan. Loans are the business model of higher-ed profiteers; their continuation perpetuates the problem of higher costs. Debt is an economic disaster for most, that is exploited by the wealthy. If there is not enough family support for attending a community college or state university, work part-time, even full-time (many have), and take one or two classes a semester. Graduate in about 5 or 6 years with a wealth of real-world experience that cannot be obtained by full-time student status. And ultimately, we need to force our state legislatures to mandate on-line college courses for at least the first 2 years.
2
They should lower interest rates on student loans (some are 6-8%) and stop compounding the interest. This would help tremendously.
My understanding is that Congress sets these terms.
5
The problem with this is that it doesn't discourage students from making bad investments in their education, and it penalizes students who make good investments in their education. Some people simply should not go to college, and some majors perhaps should only exist for the independently wealthy.
A student who wisely chooses an in-demand major, works hard and makes sacrifices by choosing a lucrative career will end up paying for the education of a student who chooses a fluff major, doesn't work hard, and doesn't command a good salary.
10
We need people who understand literature, history, art, the human mind, and cultural dynamics. I don’t want the keepers of our collective knowledge to be only rich people. The higher ed cost structure threatens to eliminate or wall off our cultural dna. We need such wisdom to make successful human societies even if it doesn’t equate to a good paycheck.
9
That’s all well and good, but who pays for it? Yes, I agree those topics are important, but I’d be a fool to take out massive student loans to pay for that major if I have no hope of paying them back. And as someone who chose a career that does pay back my student loans, I absolutely don’t want to effectively pay back the loans of people who did choose those less lucrative majors (which is what Ms. DeVos’ idea equates to).
Maybe some major really are meant for the independently wealthy, or people who truly don’t mind the pauper lifestyle.
2
@Darcie I agree, but let’s face it, such things as gender studies and the like are pretty much worthless.
2
A fully-functioning, tax-funded education is effectively an “income share” program. The de facto promissory note requires us to be willing to pay taxes to support the next generation’s education once we are employed.
2
7.5% of say, 65,000 salary is $4875/yr x 30 = $146,250 total repayment. Approximately. Not to mention, the article states that this is a "reasonable financial option" AFTER you've exhausted traditional student loans? These are for undergraduates? Why do they keep dancing around the bush? NO MATTER HOW YOU LOOK AT IT: COLLEGE IS EXPENSIVE AND IT SHOULDN'T BE! I'm not even saying that it should be totally free but according to the United States Census Bureau in 2017, the average salary was $56,516. SO CLEARLY....... WHO CAN REALLY AFFORD COLLEGE with a MAX of $56 K to spend over 4 YEARS of undergraduate when the tuition/COA for even some public schools can exude that in about two years? They need to do better at making school truly affordable. Students shouldn't have to practically sell their soul just to pursue a degree basically cause we live in a society that says you'll get x-amount more money when in reality you never see if for the next 30 years due to repaying your outlandish student loan. Scholarships are fine and well but unless you're getting a full ride, you're still likely to have to pay some type of money. This is the "American Dream" though: getting your post secondary education... no matter what it cost.
4
@AlexNWanderland so right. Feds looking for students to replace the contributions state/fed previously made. Either way, a taxpayer is on the hook.
Resurrection of indentured servitude is not the answer to cuts in state support of higher education.
14
How do I go about emigrating to a sane country? I am getting tired of subsidizing the wealthy.
15
What’s an indenture? What’s a lien? What’s that other word for a court-ordered slice of wages? Is it different if you sign up? The young people who see advantages here need a third party input before they sign.
9
Education costs more in the US for reasons similar to our higher health care costs. Competition for admissions increases costs for services and staff that are not directly involved in teaching. European universities also have larger classes and do not provide dormitories, food service, athletics, etc. etc. There are also large disparities in costs of education between states. Here is an interesting article summarizing what is known about cost disparities from the Atlantic: https://www.theatlantic.com/education/archive/2018/09/why-is-college-so-expensive-in-america/569884/
7
I took on a lot of student debt and just paid it off early. What bothers me about this proposal is that: it's something my previously-broke self would totally have gone for, to the serious detriment of my presently not-broke self. I think we should ban selling off a percentage of your future-earnings for the same reason we ban selling your kidneys: it's just wrong. Like payday loans, we should be very wary of financial products offered to desperate people that have much better short term than long-term consequences. Instead, let's fix the broader structural problems that cause so many people like myself to get into serious debt in the first place.
30
@Matt - I also paid off my student debt early with a modest salary for a non-lucrative graduate degree. It was very satisfying to see the loan principle slowly disappear over time. I can imagine how I'd still be paying many years later with the income share model.
6
Confession time: I do not trust Betsy De Vos on anything.
To me she is the boil on the body social of the rich parasites in this country. The damage she and her ilk are committing will be incalculable, and will ultimately harm the already disenfranchised and impoverished among us, as well as make middle class families all the more poorer because of her policies.
Remember how people believe Hillary Clinton is the very epitome of evil? She's got competition in people like Betsy De Vos.
Just search for "DeVos Held In Contempt Of Court For Enforcing Loans On Defrauded College Students."
She is the "Satan that keep disguising" herself as "angel of light."
15
Confession time: I do not trust Betsy De Vos on anything.
To me she is the boil on the body social of the rich parasites in this country. The damage she and her ilk are committing will be incalculable, and will ultimately harm the already disenfranchised and impoverished among us, as well as make middle class families all the more poorer because of her policies.
Remember how people believe Hillary Clinton is the very epitome of evil? She's got competition in people like Betsy De Vos.
Just search for "DeVos Held In Contempt Of Court For Enforcing Loans On Defrauded College Students."
She is the "Satan that keep disguising" herself as "angel of light."
One of the key root cause issues is students are graduating with skills that aren’t justified by the job market. Hence those graduates have paid too much for the return on that education. If students were more concerned about that, different courses would be taken and/or different schools attended.
The above issue is not addressed, in fact it is perpetuated by the income percentage method of payback. We don’t use that method when buying a house, car or TV. Why use it elsewhere? The government would go a long way in reducing the student debt problem by; 1) assuring financial understanding of debt and payback as a qualifier for the loan, 2) applying known credit practices to the borrowers, 3) having the schools assume some of the loan liability thereby incentivizing them to align with the students’ best interests. In doing these simple practices the students are less likely to be burdened by inappropriate and excessive debt, the taxpayers are fairly considered as they are the funding source for losses, and society benefits from a better optimization of human resources.
The current bandaid approach doesn’t deal with an inherently troubled program. Money for everyone to spend anyway they want on post high school education isn’t working as hoped, it’s harming a large number of people and our society. Change the assumptions, change the availability. Continuing as it is will not reduce the misallocation of resources.
7
retired attorney F/71
I financially support students who choose college with monthly living expenses while studying tuition free in Germany. Four years undergraduate classes taught in English.
Always all ways encourage students to break the tether to U.S. so-called higher education schemes and scams, starting with any "school" that advertises on late night TV. To use their Summer money to work at former clients paid internships and travel by rail around Europe. Not one has returned in almost eight years, all getting well-matched job offers often arising from internships at places like Siemens, Bayer, Pharmacia, Astra Zeneca.
Great education. Great growth while living and traveling Europe. Great cadres of new friends who support each other.
No Debt when each starts life-after-school.
No "subprime-children" stigma that is unique to this very very unbalanced country. A phenomenon likely to last for generations as trumpism's anti-education and anti-elite (critical thinkers) cult followers wreak havoc in young lives.
10
@n.c.fl re: "I financially support students who choose college with monthly living expenses while studying tuition free in Germany."
How does one do this? I have a child who just finished his very first semester at a very prestigious college. He's a very self driven student. Always has been. Its' very expensive and I'd love to explore some other options because I know he'll be successful wherever he goes.
I have a better idea: income taxes that will fund everyone's opportunity to go to college--either cheap or free. It's sort of the same thing if our income tax scales are progressive enough--those who don't make much don't pay anything--those who make a lot, pay a lot. Fair is fair.
12
@Terry Lowman
You heretic! That would suggest something like an old world 'social contract', stipulating that the stronger ones chip in to support the weaker ones, and that there is a grasp on what it means to be a society. Next thing you want is taxpayer-funded health insurance, tsk, tsk.
9
One step would be to match the interest rates charged for federal loams to the 10 yr t-bond rate at the time of issuance. Simple, fair and a big a savings over time. Many students are very willing and able to pay their loans back—the federal government shouldn’t make a profit from them. Nor should those students cover the defaults of others.
5
We had this type of loan in the eighties and when hyperinflation arrived thousands were ruined. Bad idea.
1
@Bill
There is no default rate on a 10 yr t bond. The default rate on student loans is sky high.
The federal government isn't making a profit on student loans.
@Radio7 the rates are fixed and should continue to be. Inflation would do nothing to existing loans.
The only solution is to nationalize all private colleges and universities. A single educator would best serve The People.
5
Since these "income share agreements" are typically in addition to conventional student loans, many of the students who have them will never become homeowners, and will struggle to pay their rent.
4
This is just another private sector scam. When will we ever learn? The answer is to provide our children with quality free education by taxing the rich who got rich off the rest of us. We do not need yet another so-called private sector solution that will eventually lead to another problem.
12
Once upon a time, in 1847, the President of the Board of Education in the City Of New York asked the state legislature to charter a Free Academy. For over 100 years the College of the City of New York did not charge tuition. That is how I believe it should be.
6
@Eugene
NYC is free to do so. They are not entitled to expect the federal taxpayer to pay for it.
if the esteemed education secretary is supporting this approach, there is money to be made somewhere. Otherwise, she would be on the other side.
All students and former students -- run, run, run - do not believe for a minute that you - a lowly student/former student - will benefit in any way
9
Or, you know, we could get rid of the lotteries and get corporations to pay taxes like they did 40 years ago, pre St-Ronny...
5
Instead of providing free college like every European and Nordic country we have reinvented indentured servitude. Shame on you Marco Rubio. Do you think that Americans hate their children so much as to accept this? Yet another reason that today’s Republican Party will be notorious in history books and you Senator Rubio will have top billing.
11
@Radio
European countries only provide free tuition to students qualified to attend college. They don't provide living expenses, nor do they offer remedial classes for unqualified students.
4
The author says that 'by definition' an income-share agreement at Purdue would cost the borrow more because the school doesn't plan on losing money, but that is not appear to be true at all. Since the students borrow federal or private loans, the university doesn't make any money. So if the student borrowed form the university then any amount paid by students that exceeds the principal, even if less than what they would pay on a federal loan, would benefit the university.
2
Here is the bottom line re public higher Eduction that history has taught us imo.
It should be low cost but not free. If it is super expensive like it is now, we are creating a country of lifetime debtors paying off their loans. It you do the opposite make is free for everybody you get people that should never be in college and free load.
Open free admission in the 1970s with CUNY almost destroyed it.
5
As Ronald Reagan would say “There you go again”. Leave it up to the current U.S. government to take an idea that has worked elsewhere and transfer it into something that will work badly, for private sector gain at the expense of students. The so-called income-share agreement model is here driven by a completely unregulated private sector (and no small amount of greed). Such schemes have worked better elsewhere, where the “sharing” is between the student and the government. Loans are paid back, as a geared-to-income surtax. Make a killing in digital or biotech, and payback is quick. Spend life as a poor street poet and it never gets paid off. In neither case does it accrue under abusive terms and at onerous interest rates.
4
So indentured servitude. The new price to live a happy and fulfilling life, is to go back into indentured service. Awesome.
6
If Betsy DeVos likes it, I don’t.
Public colleges should be tuition-free. Criteria for entrance can be high and competitive, but if one meets the academic requirements, tuition should not be charged.
11
Kevin Carey notes that colleges have a financial stake in student success with ISAs but not student loans. That is true only if the college funds the ISA and does not fund the student loan. If the college funds the student loan, defaults matter to the college. If the college does not fund the ISA, the college is paid up front and is not affected by how much its graduates earn. This is typical of the spurious arguments often made by supporters of ISAs.
An ISAs is a loan, just one with slightly different terms. Some lenders, such as colleges, are initially pricing them at rates that are more expensive, on average, than traditional student loans. ISAs have a lot of potential, but they also come with a lot of perils. As a new product, ISAs carry new risks for abusing borrowers. Just because an ISA is offered by a college doesn't mean that the ISA is in the student's best financial interest.
1
It seems like one could easily game this type of loan to pay back the least amount if I understand it. A wealthy student could live on his trust fund, have his parents buy a condo in which he will live, get a part time gig as a bartender, er mixologist, to show a minimum income basis while raking in hundreds a night in undeclared tips. Williamsburg is full of kids like this, I’d say. Maybe open a pizza restaurant which is just breaking even, etc. Fuhgeddaboudit!
2
Wealthy students don't pay tuition.
1
Oh we aren't fooled. The reason the government "can't solve" the student loan crisis is they love the absurd amount of profit they take in from it. Credit card style interest rate calculations combined with an inability to escape your own government all comes together to make young low income people the perfect prey.
11
It does nothing about cost.
It is a scheme that only an economist of a certain stripe could love (the rest of us should be duly horrified, other economists included).
It would invite predatory business practices (where "predatory" is no longer used metaphorically).
It could be potentially illegal under various international treaties and covenants should the U.S. ever join them, and you could make an argument that it is prohibited by the 13th Amendment to the U.S. Constitution.
What else...oh, yeah: it's a horrible, indecent idea.
Remember the meetings of the Springfield Republican Party on The Simpsons where the headquarters is a spooky castle and at the conference table are Mr. Burns, some guy in a cowboy hat, Sideshow Bob, and an old vampire who drinks a blood martini? Yeah, the vampire is the one who came up with this. He got it from the guy back in the 90's that figured out that offering low limit credit cards to poor people could generate billions in fees, who got it from the mob, who got it from the Romans, who perfected the economy of slavery in the ancient world.
15
Here's the root of the problem: Amazon and other companies pay no taxes, and your kid is crushed under student debt (or forced repayment, whatever you call it.) Put two and two together.
22
18 year olds being sold financial products, really?
After being told to stay in school and strive to get to college, the DOE is then leading these students (who haven’t even gotten to take their first Econ class) to the convoluted quicksand of the banking industry? This has to be a joke.
11
We used to have that when parents paid for their children’s education but then the Boomers decided they wanted to spend it all on themselves and let their children fend for themselves.
6
@Rich Murphy
Whine much?
The time when parents simply paid for their kids to go to college was before there were Federal student loans which began in 1965 (or post-WWII VA loans for veterans)
AND only those from wealthy families went to college - the top 10% income in the US before WWII Va student loans and then Federal Student loans (1965)
So had NOTHING to do with the Boomers having their college paid for by their parents.
They were the FIRST generation where college was available to all BECAUSE they could get Federal Student loans (and had to pay them back)
The last generation to have college solely funded by mum and dad would have been born before 1944 (not Boomers) or now beover 100 (pre-WWII)
5
That's not what happened. The Boomers did not pay for their children's college in full not because they were spending on themselves, but because tuitions became higher than they could afford.
1
@AnnS
I graduated in '82. My parents paid for my education and my brother's. The tuition was low and reasonable. Today's middle class salaries have not kept up with college tuition.
3
And the decision to take these loans will be made by 18 year olds --- people we don't think have the judgement to be allowed to by a bottle of beer.
20
Saddling students with debt before they even get a job is senseless and borders of negligent fraud in my mind.
I don't know how this arrangement betters our country other than in the short term for lenders.
With 40% of those who borrowed defaulting in the near future, clearly something is very very broken.
When did education become a partisan issue? Shouldn't we ALL be invested in having an educated populace?
...unless of course more highly educated people tend to vote more liberally...wait a minute here...I'm beginning to suspect something else is afoot
12
I’d like to see one of this agreements. It sounds like another time bomb for students and if DeVos is pushing it, it can’t be good!
13
This makes an ongoing error in assumption that distorts everything - the vast majority of debt is very manageable - it is only a few wilful dreamers that take on crushing undergrad debt then chase it with a useless post-grad debt that skews the system.
The median [median not average - very important] borrower with outstanding student loan debt for their own education owed $17,000 in 2016. [Pew Research]
The amount owed varied considerably, however. A quarter of borrowers with outstanding debt reported owing $7,000 or less, while another quarter owed $43,000 or more.
So - guess what solution presents itself when you actually look at distributions - as any entry level McKinsey-ite like Mayor Pete could tell you - MECE - you tackle the obnoxious end of the distribution.
You don't make policy based on AVERAGES as any stats undergrad could tell you.
7
I am highly skeptical. It seems to me a plan to let the rich get their degrees without incurring obligations while the rest are trapped in something like indentured servitude. And yes, the article nails it: open the door a crack to let something like this happen, and the plans will evolve into something even more horrible.
8
Please call this what it is: indentured servitude.
16
I like the idea of Income share loans, especially when it is the college that is making the loan. Anything that forces the school to have a vested interest in the student's success and which gets the taxpayer off the hook for student loan defaults is a good idea. Income share agreements should be mandatory for all for-profit schools.
This is not good. This reeks of indentured servitude. Besides, where's the motivation on a kid to have a good paying job if that means more money goes to the school and not in their pocket?
3
Horrible idea. Trying to force someone just starting out in life to pay a massive loan immediately is what started the student loan crisis.
This is not a new idea. Yale University, among others, tried a variation of the income-share loan years ago.
One real problem of the income-share structure is adverse selection; a student who expects to have a low income career will opt for the income-share loan, while a student who expects to do well financially will look for a traditional principal and interest loan. Varying the repayment rate by major is only a partial response, since it doesn't distinguish the liberal arts major who plans to go on to law or business school from one who plans to become an elementary school teacher.
8
What does the writer envision WILL "bring new money to the challenge of making college affordable"? There is no "new money" to do so, there are just old sources of money that put the cost of college on someone other than the student, like the taxpayer, or other students, or the school employees. Maybe if schools stop spending so much money (in the case of many not-for-profit schools especially) or delivering so many profits to shareholders (for-profit schools), that would reduce the costs.
Ideas could include professionalizing profitable sports and getting rid of the rest of the sports, or reducing them to lower-cost club status and/or making students who want those sports (and other amenities) pay for them with non-scholarship dollars.
1
In my opinion, for the first 5 years (or so) interest on loan should be very low, say 1.5% and then it will go up to whatever current rates are, similar to ARM. This will encourage students to pay off the loan early during the low-interest time period.
1
Except, how many newly graduated people are able to land a high paying job? How many teachers, doctors, or journalists are making top dollar their first 5 years of work?
That's a horrible penalty to pass on to young people.
3
This just strikes me as a pyramid scheme to cover bad loans. It also discourages students from quickly paying back their loans. I constantly have to tell young people they have limited their options by overpaying for their education.
6
Why does an undergraduate degree need to cost $150,000?
That is an absurd amount of money for what has essentially become a basic necessity in the professional job market.
What we need is for one or two fairly competitive, private universities to lower their tuition. Now other universities with ridiculously high tuition (to cover the costs of poor financial stewardship) will be forced to compete for students either by lowering tuition or providing more scholarships through alumni or other philanthropic giving. Those that can control costs and lower tuition will be able to compete. Those that cannot, will not. Yes, this might be an oversimplification. But this is how competition works. And it's good for the consumer. And academics who loathe to think of students as consumers are living in a fantasy world.
So why are the current solutions being put forth focusing only on "better" loan programs vs. scrutinizing those high tuition bills - as if the absurd cost of education is just taken as irrefutable truth? Doesn't the federal government want (and deserve) to know what they are really spending trillions of dollars to shore up? As a taxpayer, don't you?
13
I would only sign an ISA loan with council from a competent lawyer. The devil will be in the details, and when it comes down to an unregulated business, you are going to see a lot of providers padding the boilerplate in order to make sure they get their money.- Think 'Binding Arbitration' agreements that many of us agree to unknowingly for services we use daily.
3
Great idea. We could do the same for healthcare and all sorts of stuff. We just hand over most of our earnings to our "lenders" and get to keep the scraps. Even better if we can hand down unpaid "debt" to our children.
Oh wait. That's basically the system we already have.
9
Closer and closer to indentured servitude we go, when will it stop? When the wealthy get rich enough?
16
the rich will never get rich enough. are you also must recall that rich people need for people to keep them rich and to make it possible for them to avoid the quote dirty Jobs
7
Maybe for huge private school loans, but public 4 year schools should be free.
7
@Suzy Nothing is free, free public schools mean higher taxes. Fine by me -- I am happy to pay more for that -- but it is not free, and I would like, if I am paying for it, at least to feel the satisfaction of doing so.
1
We already pay high taxes. Maybe the government could send less of it to build gas stations in Afghanistan and use it to actually make our country better.
3
Linking study and income means even less incentive to study the humanities... Why study French literature or East Asian cinema or classical Greek or African peace and conflict studies when none of them pay the bills?
What a loss for the collective culture, for cocktail party conversations... What a boring world we’re headed for when college educated people know only how to make money...
11
@Myles How does an income share loan discourage students from studying the humanities?
@Joel A poor philosophy major pays a greater percentage of his/her income for longer than a rich computer science graduate, perhaps?
@edwardc A greater percentage of lower income; the total payments could be the same or less, depending in how the repayment percentages are set.
Maybe we can relieve student debt by lowering the cost of college. When Devos went to college it cost a fraction of its cost now. So she is using that wisdom to make sure there is a system that further lines the banks. Please resign.
9
Student Loans are a total scam and rip off. Burdening our children before they even get out in the working world.
We started Ameritrade Coverdell accounts for both kids when they were born (you are only allowed to put 2k a year into them) and I stock-traded my way up until now (still 4 years before college). 2 years are saved...
They will go to community college and then transfer into a UC after that and hopefully graduate with no debt.
6
What a stupid idea. Just what we need is government getting into the paychecks of millions of Americans before the actual workers get their money. IRS over reach should have been the tag line. America owes its children the best education possible, FREE. An educated citizenry is the best way to maintain democracy and our economic leadership in the world. Wages will result in higher taxes that will help repay the investment. Keep government's hands off our paychecks.
8
If DeVos favors it, it must be a scam.
22
ISAs works well under some circumstances for some, if structured fairly--which requires some regulation.
The Flatiron coding school (an probably those of other coding schools) seem structured fairly.
The problem of subprime children isn't. Enough online courses and tutorials, free or nominally priced, now exist so that a prospective student can be screened for likely success or directed to training/tutoring to improve one's skills.
Also relatively inexpensive online education has already replaced all or some of college.
Great Idea! Make it more convoluted and confusing and porous of profit for those who already are gaming the system at the expense of the hopes of a generation, or more.
3
This idea has some hallmarks of how the UK handles student loans but is unnecessarily more complicated. Let's just follow a better model. First, the loans are locked in with a very low interest rate- 1 or 2%. Second, repayment is a tax on income. You pay noting below a certain threshold, say $40,000, and you pay 10% of all income above that amount. The loan lasts until it's either paid off or 20 years, at which point the rest is written off. If your income falls below $40K, you don't pay. If you spend your career in a low paid profession like social work or teaching you will pay back less. You could even tie university funding to outcomes so they have the incentive to make sure their students can repay loans, such as through better borrower education and lowering costs.
5
I can see someone with an ISA taking advantage of incorporation and conducting business as a separate entity and paying themselves a minimal salary until the completion of the ISA. Once the ISA is complete, the individual can pay themselves a large dividend.
Better yet, the individual can just loan themselves the money from their corporation, pay the IRS required interest, and set terms to balloon after the ISA completes. Cancel the loan after the ISA completes, pay the requisite taxes, and said individual would be in compliance with tax law and the ISA.
These agreements would be great for those who have the ability to do the above.
1
To me, the key sentence in the entire piece is "Colleges would pay the federal government back and effectively become the bank, taking on the upside and downside risk." This concept is long overdue. Currently, it seems students take out enormous loans which are backed by the Federal government and, as the article says, the colleges are paid in full, up front. It's the Federal government (or private lenders) that assume the risk of default. The colleges should bear that risk - that might spur them to pare down programs that have no practical application in the real world, which might in turn force applicants to take a hard look at what they want to major in. How many colleges will want to fund an applicant's desire to major in critical gender studies if they're left holding the bag upon default?
3
@HC45701 Decreasing the diversity of majors is counter-productive. Universities would offer STEM and business type majors only and our world would be much narrower and less competitive. It's in the economic interest of the nation to have a variety of perspectives and backgrounds in the workplace. Most people end up in a career other than their major anyway. I have a friend who graduated one year ahead of me with with a degree in Philosophy and ended up working on Wall Street making a lot of money for his clients.
1
Why should the philosophy major pay more? Shouldn't it be the opposite? Price the degree according to the market value for graduates. If it gets you into a higher paying occupation, then it should be pricer. If it qualifies you to become a well educated barista, then it should be rock bottom or free, since there is no demonstrated added value to income. It's learning for the sake of learning.
Employers who require a bachelor's degree as a lazy way to pare down applicant pools or to avoid analyzing what precise skills, experiences, and qualifications are needed for a job, should be required to have loan repayment as a standard employee benefit. You want people to go tens of thousands of dollars into debt to work for you? Fine. Pay it back, then.
2
@Elizabeth Cole
No.
Every student and family, with or without ISA programs, should do a cost-benefit analysis for potential majors, degrees, and careers. The ISA payback variations simply provide more info.
If somebody spends a lot of time and money just to become a barista, they don't need college--they need some remedial personal economics.
Education, like health care, relies on “funny money”. How does this plan disincentivize colleges and universities from boosting costs far above regular rates of inflation? The problem is, as everyone knows, but no one admits, that there are too many colleges and universities and too many “students” attending them. Let capitalism work. Stop doing corporate job training, and return the university to its original purpose. If that can’t sell, let it fail. Let business the tech industry pay their own job training costs.
1
Once upon a time a college student was not a commodity, not just another opportunity for profit generation. Higher education was recognized for what it was; a significant investment in the nation’s future. No one dreamed of being buried under a mountain of student debt. In fact because it was seen as being such an important societal investment, tuition was kept as low as possible. The state colleges in California actually offered tuition free education for residents. I was helped with a student loan, the interest on which was lower!!! than the interest I was earning on my local savings and loan account.
I was, and still am, thankful for the generosity shown me, and I have tried to “pay it forward”.
We as a society should be doing everything possible to encourage every one of our citizens to get a higher education, one that is both in alignment with their interests and abilities, and inspires them to follow their dreams. We will all be better for it.
I am not one to advocate for “free” college education. I do, however, strongly believe that there should be no monetary profit from the support of students seeking a higher education. The education of our citizens should still be seen as the very best investment we can make for the long term betterment of everyone. The long term profits will be realized by everyone.
66
@Ppotts
Perhaps students became a commodity (more realistically, a mass market consumer and spender) when we foolishly pushed every student towards college AND provided lots of easy money to entice them to spend.
The number of colleges, universities, and programs expanded, tuition and other costs soared, institutes got into amenity wars to attract students, and nobody kept their eye on the ball, i.e. making sure students completed degrees that provided some future career potential.
Almost all public and private colleges are non-profit, but they do have to break even.
2
Non-profit does not mean they don't make money or just 'break even'. Non- profit means they make money, usually lots of money, but have better ways to keep it tax free. check out non-profit hospitals and see how much the CEO and other positions make or even Goodwill.
7
@Courtney
You exaggerated with "usually lots of money". I don't believe the "usually lots". If not for that, I would have agreed.
Isn't this the same as the indentured service contract that used to exist in the past?
6
Lets rewind the tape. Didn't we nationalize student loan lending so the government could then use the savings to fund Obama Care? Now we're on the hook for what one trillion dollars in student loan debt. Students spent the loans on studies that I guess are worthless. Maybe this income-share agreement will at least put these Universities on notice that they should provide some semblance of economic value to their students.......
1
@bruce Didn't we nationalize student loan lending so the government could then use the savings to fund Obama Care? NO
2
@bruce Not sure if this is a joke. Federal student loans were started long before Obama came along.
4
This proposal is *completely* outrageous. How about instead of garnishing people's wages 7.5% for their entire working lives, we simply increase the highest tax bracket by 7.5%? Why is one proposal treated as serious by the New York Times and the other as fantastical?
18
When something is described as an “alternative”, it means it will be used “instead of” not “in addition to.” This new plan is designed to be used instead of regular student loans, not in addition to them.
This is obviously an out-and-out scam. It's sick the way the rich and powerful in this country feel entitled to the productive power of an entire generation. Can't we just earn an income and -- get this -- actually *keep* the money, instead of having it suctioned up by slumlords, student loan sharks, and "healthcare" profiteers? Here's an idea: tax the rich and make education free!
16
indentured servitude is in vogue again!
8
It’s about time the colleges and universities had skin in the game!
2
Somehow anything from Betsy DeVos and Silicon Valley does not sound like a good idea for anyone else.
14
Smells like the return to indentured servitude to me. stinks like a long dead skunk
9
There appears to be no method for ISAs to be refinanced. In other words, if your repayment percentage (the fraction of your future income you agree to pay for a long period of time) is set when interest rates are high, and interest rates later drop, you cannot take advantage of that drop to reset your repayment percentages (or at least, the article does not mention that this would be possible). Traditional student loans can be, and often are, refinanced in such a manner. This appears to be a flaw with this idea.
8
It's odd that our Congress people can't see how a student debt can drive down the economy over the long run. And, by not having the availability of higher education to our citizens (even trading services to serve our country) can drag the economy down.
11
Good luck on not losing money on this plan, suppose I want to get a Computer Science degree. Unless the school forced me, why would I want to enroll in such a program which potentially could cost me 50% more in the end than traditional loans? I foresee only the "subprime children" would want to get such loans, making it like a health insurance without any young and healthy people in the pool.
5
Are we finally ready to admit that Sanders and Warren are correct about college and loans? This type of crackpot idea can only be trotted out after the minds of the populace have been rotted out. It is indentured servitude that is proposed as a solution to sharecropping.
32
Another corporate scam driven by greed. After Ronald Reagan became president, educational grants and scholarships vanished, replaced by the onerous, ruinous student loans. Now almost S 1.5 trillion is owed, without an ability to lower interest, or file bankruptcy. This is criminal, who thinks up these evil schemes? Forgive the debt, and restore sanity to higher education, for the good of the country, not just the wealthy.
27
Yale did this way back in the 1970s. It was called a Tuition Postponment Option and later Contingent Repayment Plan.The percentage of income one repaid was based on the loan amount - .4 percent of AGI for every $1,000 borrowed. It did not go well, despite (or because of) being the brainchild of Nobel Prize-winning economists. Yale cancelled the program more than a decade before it was scheduled to end and forgave the debts of thousands of borrowers. read more here: https://www.nytimes.com/1999/04/13/nyregion/yale-to-erase-alumni-debts-in-2-loan-plans.html
20
New Green Deal will eliminate college.
3
Why not provide a tax write off for anyone paying off someones student loan?
2
@clarity007 Because then the taxpayers are footing the bill.
1
@Stevie not really - the pool of money you paid taxes into isn't beng drawn from to pay off the student loans. This is a tax break for any companies who want to pay off the loans of potential employees, as a hiring incentive for example. There's likely little to no net loss in the public coffers when state and sales taxes on the increased spending the loan forgivees are figured in. Nothing is being taken from *you here, with this proposal.
2
Clarity007 wouldn’t this perpetuate the privilege of rich families, who can afford to pay off the loans of their family members?
Corporate indentured servitude. This is a popular theme in dystopian science fiction becoming a terrifying reality.
67
@okcrow It's like the Black Mirror episode with the guy on a bike. Excellent to watch, sad to contemplate.
As someone who has worked in several different higher education institutions, this new type of debt (that's not debt) is a terrible idea. It is essentially wage garnishment agreed to by young people who might not be able to even vote, and who have possibly over-inflated optimism about their future job prospects.
The real reason this new system is being promoted is because the institutions offering it are not accredited or qualify for federal student loans--or because it is being pushed by schools who are seeing that their prospective student pools are not able to afford the full cost of tuition--and the school does not have an endowment large enough to absorb additional financial costs of the school.
There is a lot of creative financing going on in higher education now because during the 2008-2009 recession, a lot of people stopping having kids or reduced their college savings. So there is both a shortfall of prospective students for schools (look at all the small liberal arts colleges that are closing) and less money from parents/grandparents to pay for tuition.
These revenue (and yes students are revenue) shortfalls are also compounded by schools have to compete in the education marketplace with dorms that look like high end hotels, rec facilities that look like high end gyms, and educational talent that attracts research dollars (but not dollars that can pay other parts of the budget). We're witnessing a contraction of the education market for the future.
21
This already is a thing - it's the income driven repayment plan. That's what I'm doing while working towards public service loan forgiveness. Is this really that novel? Maybe I'm missing something.
1
And then my cousins in Spain went to university and medical school tuition free. No debt.
38
@Zejee
Someone paid.
5
@Zejee - free stuff everywhere! free! free! Nobody has to pay for it...oh wait...
6
@DRS Yes, they pay less per capita for education, and get better outcomes.
As a conservative, I'm all for the US modeling our education system -- higher and otherwise -- after those countries who pay less and get superior outcomes (which includes nearly every Western country).
This is just common sense.
5
This creative financing plan is a great idea!
Why not use it "paying backwards" to handle the $1.6 trillion in existing student loan debt, or at least to provide a payout option for those who are currently in default or for whom it provides a better option.
Include everyone in the pool, even those who would not opt in because their income is high. "Looking backward", the government could pick up this cost, which would be a lot less than blanket loan forgiveness.
This is a terrible idea, and simply another attempt to saddle our youth with indentured servitude to the financial institutions...and the university system is the woefully willing enabler. The real way to deal with this problem is to start with the price tag of a college education; the cost must be driven downward. Instead of giving Wall Street another big hand out, why not start with capping all student loans at something affordable thereby forcing colleges to reduce the price tag to something more reasonable. We cannot keep forcing our youth to take on so much debt; the effect will not only cripple our economy, but it will hasten the already outsized income inequality gap.
32
Let me guess: it shifts the burden from the wealthy to the poor?
15
@Randall
Answer. No!
2
@Randall kinda the opposite, read the article.
1
and why are student loans not dischargeable by bankruptcy
many corporations, even our leaders escape debt all the time via bankruptcy
not students since 1976
34
@Lost In America
Ok if schools hold the debt.
Businesses back their loan with collateral, such as a piece of equipment, inventory, buildings, etc. If a business goes bankrupt, the lender will take the collateral to attempt to recoup the debt. Student loan debt is not backed by collateral and you cannot take knowledge back after it’s learned in school. Student loans are high risk. If they were dischargable in bankruptcy, no lenders would take the risk and there would be no student loans at all.
2
@Lost In America Many, perhaps most, students graduate from college with few assets. If student loans could be discharged in bankruptcy it would be very tempting for many students to get rid of them by filing for bankruptcy before they started to make any meaningful income.
2
Sounds like what people did to pay their way to get to this country... it's called indentured servitude and is not favorably looked upon from modern times.
Although.... I guess I do hear that it happens in the black market still to people trying to come to this country.
8
There would be no need for student loans if college costs just rose at the rate of inflation or even medical costs. Since 1998 if only inflation college costs would be one-half of what they are now. Relative to even medical costs, only 60%. And for those that say there are so many new additions to the 'benefits' at school text book costs have gone up at the same rate. Students and their parents are getting shafted and there is no outcry from them or an expose from the NYT. Disgraceful.
8
So if possible one should try to get a contract that pays with free accommodation, a car, free food, etc with a smaller cash payout.
That way those expenses are not taxed by the bank.
As someone who has been economically fortunate enough to pay off students I have a simple and uncomplicated solution to the problem: have very low interest on the loans, say around 1-3% and cap interest payments after 10 years. Interest on the loans is what kills most borrowers--those paying off loans, effectively, for the rest of their lives. Capped after 10 years, with low interest in the interim, this gives borrowers a fixed, finite amount to repay their loans, something that can be accomplished before the need to garnish their social security benefits. Student loan programs should be there to benefit students and not investors. That goes for the Purdue indentured servant (lite) plan as well.
45
@Cicero
Hmmmm. Wait 10 years and walk the debt
@Cicero Your solution does nothing about holding down costs or about restoring federal and state support for our institutions. Nor does it do anything to make sure that only the qualified actually attend.
@Cicero This is exactly the system in most civilized countries.
The federal loan program has serious flaws and needs to be stopped until the loans that were given 10 years ago are fully recovered. Employers who hire individuals with college loans should make loan repayment an employment benefit. I mentored a student with limited finances from a farm region for a doctoral degree. He then went on to get a MD degree for which he had to take a federal loan. With an MD, Ph.D. The federal government to encourage physicians to pursue a career as a Physician Scientist repaid his student loan in just 4 years. Federal government as well as the private employers should ease the burden of unpaid federal loans. I am all for it.
Dr. Rand Paul, senator of Kentucky has another brilliant idea to pay off student debt from the parents tax sheltered retirement portfolios and in exchange get no penalty or tax.
Education is the best gift a country can give to its citizens and legal residents and we have free public education up to high school level and that is a great. Yesterday I was talking to a gentleman who showed me statistics that the reading skills and math skills from public high schools in the US are lagging behind. I would be all for building strong schools that will have a firm foundation to developing marketable skills later in life. Just as I say Democracy is not appropriate for every country on earth, I say college education should be restricted to those who will appreciate the benefit of a college education and make the best of it.
5
@Girish Kotwal
and who gets to decide which students will, in your words, "appreciate" the benefit of a college education?
what will the criteria be to decide that mandated level of appreciation?
will it devolve into a race or class based decision system?
13
Everyone can benefit from a college education. Bernie’s plan is free community college or vocational education for all. This way all of our youth will have the opportunity to take the first step toward forming a productive and satisfying life.
6
@Girish Kotwal uh.... people not having enough money for retirement is another huge socioeconomic issue... seems like we are just shuffling the issue from a younger generation to an older one with Rand Paul's suggestion.
I also think it's kind of unfair to expect parents to mortgage what little future they have left for their children, to whom they've already given so much. I say this as someone who is not a parent.
8
"Like a loan, it is a legally binding contract that obligates students to make monthly payments until their obligation is fulfilled."
Or is exhausted. ISAs are limited by amount (maximum obligation caps), number of payments, or contract window (longest possible the obligation survives).
"This could effectively extend an income-share agreement for someone’s entire working life. Payments as high as 20 percent could last longer than a decade."
False, the bill sets limit to the window of the obligation to 2x the term or 30 years, whichever is less. The seemly high income shares with longer terms anticipates ISAs for professional and medical degrees that are incredibly expense and these terms may prove competitive to loans.
"Repayment is also more complicated than with a regular student loan, because students have to regularly provide tax returns, payroll stubs or other evidence of how much money they earn."
This is the same as any IDR or IBR plan under federal aid.
"While Purdue advertises it as a “potentially less expensive option” for college financing, the university does not plan to lose money on the program, which means that, by definition, it will not be less expensive for the average student."
Kevin misunderstands how the current loan system works if he doesn't think there can be a profit seeking, price competitive option to Parent PLUS and Private loans.
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@Annoyed
the bill you reference is not the final outcome and as the article notes there could be 100 iterations.
DeVos and her ilk will do everything possible to make the debt permanent like current student loans. They will make them UN-dischargeable in bankruptcy court like current loans. They will make those who experience physical trauma that makes them permanently bedridden responsible and will make any SS or SDI payments attachable
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@mike
All student debt held by a school should be expunged upon bankruptcy
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Never missed a payment, always obeyed all rules
My Student loans are now triple and increasing fast...
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@Lost In America
pay more than the minimum and that won't happen.
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@mike
I did until 2008
It will never be paid in my lifetime
My time is now short
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In General, for education costs higher than 10K this is a bad idea.
Further, unless Congress mandates that providers/schools create a system for borrowers to automatically notify the school of their weekly pay check and at least every 3 months submit expenses paid, there will be massive problems for the borrowers.
Our nation has, tragically, moved to a value system that says degrees are needed to hire people. Instead we need to move back towards hiring based on credentials, like certifications in training, and corporations need to join this by grooming these apprentice-type employees into being eligible for promotion and higher paying positions.
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In a world with rigorous and trustworthy financial regulation, plans like this might make a good deal of sense. But the sorry record of the past 20 years, in which unscrupulous financial operators, big and small, treated gaming the rules and mistreating their customers as their business model, do not give me a lot of faith. This is especially true for plans designed by Betsy de Dos (an active supporter of gaming and mistreatment in the for-profit sector) and Mario Rubio, whose steadfastness and intelligence leave much to be desired. Thanks NY Times for pointing out that what's being offered now is bait to get approval of rules that will allow much more abusive contracts and treatment of students.
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Just a band-aid for the real problem. Education should not cost what it does, period. I couldn't legally drink when I was 17 but I was allowed (and encouraged) by my school and government to take out thousands of dollars in loans. I was a first generation student so my parents didn't know what to tell me. It is a predatory practice targeting vulnerable kids who just want to make a better life for themselves.
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@K
so answer this re: you position on cost.
don't you think the instructors and staff need to earn a good income?
don't you think the schools need to be able to support growth, change, and still pay those salaries and costs to operate their school?
I don't mean the million dollar salaries, but schools are expensive to run.
If you say no to either, how do you realistically expect those schools to stay around?
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@mike When universities are significantly outpacing inflation (they have been for the past 20 years), they are part of the problem. As long as there is a way for students to access the funds to attend, the schools will do nothing to reign in costs. This problem needs to be addressed on multiple fronts.
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@mike I have no problem with instructors and staff making a good income. Everyone deserves a fair wage for the work they do. I am not trying to say it should be "free" but like another comment said, schools are doing nothing to address rising costs. And even at the school I attended I heard several complaints of professors claiming to not be paid well. If so, where is my thousands of dollars of tuition going? I think the students deserve to know. There is no transparency.
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The week before we graduated from Harvard Business school, my classmates each came out of the student loan office shocked and howling when they were finally told their loan repayment schedule. If graduates of the "West Point of Capitalism", who have been taught how to do a cost/benefit analysis, didn't understand the implications of their student loans, how can we expect a teenage kid or a "non-traditional" student to? Or their parents?
No matter what the scheme - the same basic problem remains. We are asking uneducated (by definition) people usually below the age of legal competence to take out loans without the disclosures required of commercial lenders, nor the protections of bankruptcy and usury laws. Their school is compensated, their lenders are compensated - the students too often have been sold snake oil.
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@Bonnie Luternow
so as a Business student at one of the most prestigious institutions in the world, you DIDN'T know before the last week of school what it was going to cost you?
seems to me that business is not the field you should be in.
16
@mike Mike, I don't want to get personal, but as a graduate of a small private college in Minnesota, neither my collegues or I learned of the repayment plans until well AFTER we graduated. Yes, that was a while back, but the same thing happened to my son just 3 years ago.
Where did you go to school? How did you get that information?
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My daughter was a loan officer at a prestigious private college in New York. One of her jobs was advising the seniors about their loan obligations. She quit. Too depressing.
9
One glaring issue that this column only glances at is that the schools bear virtually no risk for the loans.
That must change. This is a scandal waiting for exposure.
Currently regardless of the instrument, the schools are guaranteed their income--and yes it's income though schools are supposedly non-profit organizations. They bear no risk if the student doesn't or can't repay.
School ADMINISTRATORS not professors create what I call "educational products," programs that have little to no bearing on the job market. It's not just for-profit schools like Trump U doing this. Even Ivies sell these products. Some aren't even degrees or certificates but "programs." You pay $30K for a few summer classes and a piece of paper with a fancy name on it in swirling calligraphy that on the back wall of your office almost looks like a diploma. This is by design!
Administrators including Ivies shill the school's reputations as trustworthy institutions with no downside, only students, co-signing parents shoulder the downside. By law.
Administrators also shill the profs by getting rid of tenure, hiring adjuncts with no health insurance, office space, or even a decent basic income, many of whom go on welfare.
Students and co-signing parents forfeit retirement plans and homes and can never be free of the debt. Profs need full-time work with benefits, not to live out of their cars and collect welfare while administrators proliferate and get six-figure incomes.
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@Alive and Well Betsy DeVos specifically made sure that schools don't face any risk by defending for-profit schools that made predatory loans.
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@Randall
Well that is her goal - to extract as much money for the DeVos family as possible.
Her goal was never about getting appropriate training to young adults so that they can have good lives.
2