<p>“I know people who spend 3% of their pay at Starbucks.”</p>
<p>:)</p>
<p>I think it’s a smart idea. </p>
<p>Here’s hoping that others will follow suit.</p>
<p>The problem is threefold:</p>
<p>1, the avg person making 60k over the 20 years only pays in 36k for a 4 year education. I’d say this is a fair average considering median wages and the amount of stay at home people or people who are under/unemployed for periods within that 20 years (say they go back to school for 2 years, your average income over the period just went down 10%)</p>
<p>2, the money is uncollectable. They’d have to create their own provisions, and good luck if the person works across state lines.</p>
<p>3, its funded by 9bil of taxpayer debt. It ends up just being a wealth transfer from the taxpayers to the universities with free tuition. I’d rather the people going to the schools pay for it than the taxpayers.</p>
<p>This has already been done and was a flop for the reason mentioned in the very first post. Those that believed that they would be earning a large sum of money after college opted to pay now, since it would be cheaper in the long run. On the other hand, the people who knew that they would not be making a ton of money would opt in to the program.</p>
<p>The intent was good, that the program would pay for itself, but it just didn’t work out.</p>
<p>Neutron, where was it tried before? I’m interested to read more about that situation.</p>
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<p>I was a de facto social worker for three years. I went in optimistic and came out jaded, and I believe that 90% of “social work” is a scam to provide employment to an otherwise unemployable army of social workers, case workers, program managers, bureaucrats, etc., and to exploit the poor and needy, to hold them hostage and claim “without us, these people would be out on the street” when in fact the social work establishment wants <em>more</em> poverty and <em>more</em> broken homes as it gives them more business.</p>
<p>There are good individual social workers, but the program itself is rotten.</p>
<p>Neutron, I’d also like to hear more about where you say this was tried before and failed.</p>
<p>seems sketchy…</p>
<p>From the article:
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<p>Frankly this just seems like wishful thinking. Nationwide, over the next 15 years, the college-aged demographic is scheduled to contract. The echo baby boom is concluding its college run now, and student numbers will fall. Also, the scheme still places virtually no pressure on the institutions themselves to control costs, nor does it encourage students to make hard decisions about what and where to study. It also assumes that students are going to get jobs. </p>
<p>Schemes like this are being implemented in the UK as they are no longer fully funding student grants, but there is no place, as far as I know, where this funding system has a long track record of success. We also may be looking, like Europe, at huge unemployment for the college-educated young, although I dearly hope that it does not reach Italian, Spanish or Greek proportions. What happens if half the students can’t pay their 3% for years on end because they have little or no independent income?</p>
<p>In short, this funding proposal is based on assumptions about demographics and employment markets that are shaky at best.</p>
<p>The two main thoughts of mine about this was:
- It shifts the burden from the parent to the student and
- It COULD make Oregon schools highly desireable and HIGHLY selective…they can pick and choose amongst the many many good national apps for those most likely to succeed (and weed out the mediocre)…given higher education costs they may rival the ivy’s for admission numbers in a few years.</p>
<p>Why would anyone expecting a nice salary after college choose UO? You will get all those not expecting to make much–adverse selection run rampant. Rest either borrow or pay cash.</p>
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<p>But this would be totally contrary to the mission and rationale of a public university system. Why would the taxpayers of the state of Oregon consent to having huge numbers of their children shut out of a system they subsidize?</p>
<p>The taxpayers can’t lower the admission stats. The UO could admit only high achieving students. It would force the in-state students and schools to step up their game. But will that happen? Most likely not. If it were to happen, it would take years of slowly raising the bar.</p>
<p>I don’t see how the plan kills engineers, bankers and consultants. If they had to opt in, then of course it would be financially smarter to do a traditional plan. That is, of course, assuming that you got a banker’s or consultant’s salary straight out of undergrad and never left the field after that. But 90% of working adults make less than $80,000 a year, so I don’t think anyone can bank on six-figure salaries. Even people who plan to go to med school don’t always go for various reasons. If your salary averaged $80,000 for 24 years (lower years theoretically balancing out higher ones), you end up paying $57,600. That’s about what you would pay over the life of a $40,000 loan at 6.8% repaid in 10 years.</p>
<p>I still don’t think it’s a good idea, but if it’s required, I don’t think students will be saying “Oh, let me not go into a high-paying field because I’d pay more for my education; I’m just going to be a teacher instead.” It still leaves them with more disposable income than a teacher or social worker could ever hope to make.</p>
<p>I don’t like it. </p>
<p>What about scholarships? Pell grants? What happens to any of those? </p>
<p>I earned a bunch of scholarships and I’ll be able to pay off my loans in a few short years. I’d MUCH rather have that option than a percent of my paycheck for the next 24 years. JMO. </p>
<p>On a more macro level, I don’t think they have the money to do this (even on loan) and it won’t become self-sustaining in time to make this work (if it ever does). Just too risky IMO</p>
<p>Doing the math on this program it seems like it would be a great program for people who are likely to have an “average” career or are in fields with limited financial upside potential. </p>
<p>Assumptions:
- Avg. Starting Salary for Class of 2013- ~$45K (source: NACE)
- Historical Inflation (last 100 years) - 3.35% (source: Wolfram Alpha)
- % Annual Salary paid to University - 3% (source: Oregon’s Proposed program)
- Promotion: Assume a promotion every 3 years with an average 7% raise (purely assumed)
- Discount Rate: 10% (assumed)
- Years: 24</p>
<p>If you take all of these assumptions and model them out…a current college student that has an average starting salary and an average career trajectory with a promo. every 3 years would end up making ~$152K annually by year 24 (including inflation). So In total they would have earned ~$2.1M over the 24 years and would have paid the college ~$62K. Discounted to see what those payments would be worth today means that, in today’s money, you would have paid $18K for college tuition - or 50% of what tuition costs today. This is great for people who have an average career trajectory or are in fields with limited financial growth. </p>
<p>The breakeven to cover the $9K annual tuition would mean that you’d have to make ~$4.1M over those 24 years (again including annual inflation). Where the problem comes in is if you are in a field that has great upside potential and a higher starting salary - engineers, bankers, consultants, etc. </p>
<p>Let’s take the case for college grad in my field - technology. At my company (F500 tech co.) the average college grad comes in making ~$90K base salary. Even if that person had an average career, similar to the above cases, that would mean they’d make $4.1M over the 24 years - breakeven case - ok not too bad. However, the reality is that promotions, annual raises (above inflation), etc. are significantly higher and more frequent (average promo is 1.5 years at my co.) - particularly if you are a high achiever that rises up the ranks quickly. For example, one of my direct reports came in at ~$90K and within 5 years has moved to earn ~$140K (per my model if he was an average career trajectory person he’d be making $110K at that point in time). Similar case for myself, I am 7 years out of college but have had the fortune of moving up quickly and have a base salary of $200K+. </p>
<p>So the conclusion would be that if you are going into a higher paying career or are someone that has strong career aspirations, is highly motivated and ambitious you would not want to do the program as you’d end up over paying. You’d be better off paying cash today and could pretty easily do so working a part-time minimum wage ($8.95 in oregon) job during the school year (average 14 hr / week) and full-time in the summer (40 hr / week) and you’d graduate debt free…and seriously 14 hr / wk during the school year is extremely manageable even if you take a heavy course load. When I was in college I took a heavy courseload of 6 courses per semester. That meant I was going to class for 18 hrs / week - so less than 4 hours a day of classes. Add in another 2-3 of hours of studying, etc daily and you’d still have more than enough time to work 3 hours…and this is all assuming you don’t work anything on weekends.</p>