There needs to be more public funding of education. Loans should be made only by the federal government directly to students or parents at low interest rates and for a long time. It is an investment in the future.
@lookingforward, I’m in favor of potentially longer-term repayment COMBINED with income-based repayment, not just one standalone by itself. When you combine the two, most students would pay off the debt long before the 30 years are up.
@noname87: We don’t have income-based repayment of student loans with bankruptcy allowed now, and I’m not advocating such a combination either.
I don’t see why we can’t have 2 loan systems:
- Interest-free Federally-backed loans that have a lifetime limit (say, tied in with the Federal poverty rate; 200% of the poverty line for a family of 4 is almost $50K). Income-based repayment automatically deducted from wages (like FICA taxes now) at 10% of portion of wages above 200% of the poverty line with 30Y term. No bankruptcy possible, but forgiven after 30 years. May only be used at public and non-profit schools. With those terms, I don’t think that taxpayers would actually lose more than what they are losing now on Federally-guaranteed loans.
- Private loans that are like regular loans (not government-guaranteed) and just like regular loans now, can be discharged through bankruptcy.
Nobody has to take the first type of loans if they deem the terms onerous and may just try to get private loans if they can, but the first type is around to give poor kids with potential a way to attend college. Plus, education has so many positive externalities that it really makes sense for us as a society to subsidize it.
And if you’re worried about money being wasted, the first type of loan could be contingent on students meeting certain standards or even study certain majors (so that it would be more like a scholarship) so that the number of loans given is cut back and yet the quality of the borrower is improved.
IMO, this would definitely be an improvement over the current system.
Interest free? The government would lose a lot on those loans, not only through default and charge off, but because currently there isn’t a loss, there is overall a gain because most people do pay their student loans. The stories we hear are outliers. The majority of student borrowing is in the $20k-40k range, a few just above that. They borrow, they pay. It’s not fun, but people do pay.
I don’t know why the government doesn’t cap the loans, doesn’t restrict them to public schools or at least non-profits. Either the for profits have a strong lobby or the Dept of Education sees a need for the for-profits to be part of the student loan program.
Private banks pretty much pulled out of the student loan business a few years ago and Discover and Sallie Mae basically had the market, but Wells Fargo is more involved and a few others are doing more advertising and want a bigger share. SoFi is a new bank, and it likes to do refi especially of professional student loans.
do you have some evidence that more “poor kids with potential will be able to attend college” (than attend now) under your proposal?
While the idea of only using at publics has some merit, the fact is that some privates meet full need while most publics do not. For “poor kids with potential”, attending a top 20 college could be cheaper than the instate public…
That is an extremely poor example, and I would hope that you know it. FICA is mandatory for everyone, with only a few exceptions. For example, international students on a CPT program, but their withholding just goes to zero.
Only a handful of employees might have education loans. As a small business person, who manages payroll, I can assure you that wage garnishments/attachments are a LOT of extra work. And as a small business person, we really don’t want to hire extra staff to track that federal paperwork. OTOH, if the feds gave us a piece of the $ action to help offset the costs…
Alternatively, employers could setup a direct deposit of payments – a flat amount, not % of some complicated calculation which changes every year – and send that to a federal bank account. It would save the former student a stamp.
Yet, as an employer, I would be extremely concerned about hiring someone that needs to use direct deposit since they cannot remember to mail in – or use online banking - to pay their bills.
Finland would not exist if not for the US defense umbrella. It is easy to spend on social services when a country spends about 1% of GDP on defense. In reality, Finland should be spending much closer to Israel’s rate, given the potential enemy next door.
@Purpletitian, Are you suggesting that someone pay 10% of their income for 30 years even if the loan is paid off in 10 years? if so, it could be a costly loan.
The problem with interest free loans is that everyone would take them even if they didn’t need the money. I have taken car loans when I didn’t have too because I could earn more in bank interest than the loan cost. The same could apply to interest free student loans.
No, the income based may pay it off sooner than that (you can play with the calculators.) Depends on the income. And there are already kids trying to game loans. We need to make sure there is ROI on the debt, in terms of kids actually graduating with valid prospects.
^^just dumping more paperwork on small business. The business owner will have no idea (nor should she) on what the balance of the employee’s loan is, so under Titan’s proposal, the business owner will have to continue to deduct the payments until told not to by the Feds. Of course, that assumes that the Feds are quick – hahahahaha.
Until notification, that employee will continue to see the payroll deduction even after the loan is paid off. Once notified by the Feds, the money will have to be reversed by the Business Owner, even tho those funds had already been sent to DC.
@noname87 When interest rates spiked in the late 70s and early 80s my roommate took out a student loan (anybody could) and put the money in a money-market account earning 18 to 21 percent interest. He’s a bank president now.
This is way off topic, but I couldn’t let this statement go unanswered. The size and composition of Finland’s military is limited by treaty on terms imposed on it by the victorious Allied powers in WWII. Not that most Finns want it any other way. As a small country bordering a giant, Finland doesn’t want to do anything that could be perceived by Russia as a security threat, thus antagonizing the sleeping bear. Finland does maintain a defense force but its posture and military doctrines are entirely defensive, aimed at repelling foreign invasions whether from the East or the West by using vast land areas to delay and wear down military invaders. This is essentially the strategy Finland used successfully from 1939 through 1944 to defeat the invading Soviet Red Army, which attempted to conquer and subjugate Finland. Finland was finally forced to surrender and made territorial concessions to the Soviets, but the ultimate Soviet objective of taking over the country failed, as Finland successfully defended its sovereignty.
Your depiction of Finland as a client state of the U.S. that doesn’t pull its weight militarily is just wildly off-base as a historical matter. Finland was neutral during the Cold War, its sole objectives being to stay out of any conflict between the Superpowers and to maintain its own sovereignty, independence, and territorial integrity, which in principle were as much threatened by the West as by the Soviet Union, with each side wanting to draw Finland into its orbit given its strategic position just a few miles from Russia’s second largest city and in a position to disrupt vital navigational lanes in the Gulf of Finland.
Why does everyone seem so opposed to public funding of higher education?? It would create a much better system for this country. It doesn’t have to be totally free but the governments can certainly contribute a lot more to the higher education system
http://talk.collegeconfidential.com/financial-aid-scholarships/1903191-the-latest-free-college-tuition-proposal-p1.html There are no simple answers. The money has to come from somewhere. The kids have to actually benefit.
Your opinion about Finland differs from contemporary published analysis, such as this one: http://www.osw.waw.pl/en/publikacje/osw-commentary/2016-04-01/pro-american-non-alignment-sweden-and-finland-develop-closer
Anyway, the key point applies to other countries as well. Many countries that provide generous social services free-ride upon the US for defense. Germany and Italy are other examples, both spending about 1.2% of GDP on defense, even though NATO calls for 2% of GDP.
Not sure that I have ever read such opposition on cc, as long as …
Now there is plenty of opposition to “totally free.” (Which when one thinks about it critically, “totally free” college will benefit the upper class, including the one much maligned percenters, much more than the poor. But then idealogues don’t think critically, by definition.)
The question of course, is where one draws the line particularly for sleep-away colleges. Is $30k/yr reasonable to charge or too high for attending a sleep-away state flagship. $25k? $20k?
There already is significant public funding of higher education. Nonprofit status and tax free endowments cost the taxpayers billions.
Instead of the faceless taxpayers, perhaps we should survey today’s millenials and high school seniors and ask them if they would like to pay for their own college and the college educations of all of their classmates? Or ask them if today’s financing system is harsh and antiquated, since it is designed for them? (And no, poorly designed, user-unfriendly websites don’t count as antiquated in this discussion.)
In essence, they will be the future ‘taxpayers’ as us boomers will drain the till dry. In other words, they will be the ones footing the bill, so let’s ask 'em if they’d mind paying.