Getting InPaying for College: 5% of Salary for 20 years

[rchiu]

Bah, another idiotic idea, must be from some liberal art graduate.

Like people here mentioned already, 1) this is unenforceable, and 2) will create a huge cash flow problem, because the University have to pay expenses now and wait for 20 years to recover, and 3) create huge unpredictability on cash flow, university has fixed expense now and who knows how much graduates will make, how the economy will be in next 20 years.

Not to mention this is another communist ideology pushing those work harder, more capable to shoulder more. People with same education and those work hard, attend career fair, network and get summer internship get their great job but have to pay more cause their lazy schoolmates can't find a good paying job and cannot pay enough back to the school.

 

[mchammer187]

a bunch of journalism and English majors made this up. the school would go bankrupt!

i am not for this. i am certain that i would pay much more this way.

i would have paid them about 20,000 in my first 3 years working.

interesting proposal, but i think it would have to have a cap 75k or so for a 4 year with housing. This is redistribution of college costs to the high paying fields.

it would give the school great incentive to actually teach people useful skills and keep a good reputation to increase their students salaries though.

20K in 3 years is still not even 1 years tuition if you are out of state. Anyway no one would be forcing it upon you it would just be that another option to pay.

It would be a crapstorm for a myriad of other reasons though as previously mentioned

 

[WhipperSnapper]

Not to mention this is another communist ideology pushing those work harder, more capable to shoulder more. People with same education and those work hard, attend career fair, network and get summer internship get their great job but have to pay more cause their lazy schoolmates can't find a good paying job and cannot pay enough back to the school.

The entire point is that if the education has economic value, the graduate shouldn't have to work that hard to find a job and to attain career success. If a graduate has to struggle to find work in his field, then perhaps the colleges are being irresponsible by training more graduates in that field than the nation's economy needs.

It's not communism. This arrangement is essentially a contingency agreement. It's similar to paying the college a commission on your future earnings. It's a pay-for-performance type of arrangement. (If the college does the job of providing valuable and career-building education and job placement well the college gets paid.) Graduates still have an incentive to work and earn money as anyone else does. However, colleges would have an incentive to only admit promising applicants and to only admit as many applicants as who can find worthwhile employment.

In contrast, the system we have right now--guaranteed funding of higher education regardless of it's real world value--is completely devoid of market forces and is essentially insane. Colleges don't need to worry whether their graduates can find jobs or whether they are producing a good product.

 

[WhipperSnapper]

I can see this leading to administrations capping the number of liberal arts students and expanding science/engineering/medical programs to try and pump out more high income graduates.

It might encourage them to increase the number of medical schools. We already have oversupplies of college graduates in non-medical STEM fields. Also, if the number of students in STEM fields increases, the percentage of unemployed and underemployed-involuntarily-out-of-field STEM graduates will only increase. The number of jobs in those fields won't magically increase just because the supply of potential workers increases.

 

[WhipperSnapper]

Risk is one thing but this idea almost guarantee's they lose money. If this were implemented, you can expect to see a lot less programs/degrees, schools, and graduates. That in turn drives up the cost of higher education because it would be harder and harder to get in and stay in. How is that going to help anything?

This sounds like nothing more than institutions betting on their graduates.

...Similar to how lenders in almost all non-education areas bet on their debtors.

The practical real-world result of implementing this sort of policy would be to dramatically reduce the number of excess and unneeded colleges and universities and to make the production of college graduates more closely match the real-world need for such graduates.

Right now higher education is almost completely divorced from free-market forces. The nation's lender (the federal government) doesn't question whether or not a student is a good investment and debtors cannot discharge their loans in bankruptcy.

There aren't any market forces to communicate to the colleges that they need to dramatically reduce production. There isn't any negative feedback. Instead, colleges and universities profit by producing more graduates than the nation's economy needs. The situation is very much akin to the housing bubble in various ways. See:

Higher Education's Bubble is About to Burst

It's a story of an industry that may sound familiar.

The buyers think what they're buying will appreciate in value, making them rich in the future. The product grows more and more elaborate, and more and more expensive, but the expense is offset by cheap credit provided by sellers eager to encourage buyers to buy.

Buyers see that everyone else is taking on mounds of debt, and so are more comfortable when they do so themselves; besides, for a generation, the value of what they're buying has gone up steadily. What could go wrong?

 

[Eos]

My son is also attending Brigham Young University and is employed full-time while going to school. Even with help most students and family have a hard time paying the bills. There are so many other costs that need to be paid for like transportation, Insurance, Room and Board, Medical, etc.

"Thais can't be true. When I got my civil engineering degree, all I did was work summers down at my dad's hardware store and every dime of tuition, books, fees, room, and board was covered by those wages."

- somebody stuck in another century

 

[Doppel]

I wonder if it would be enough. I have a co-worker who is sending a child to college soon and expressed regret at saving up money for so many years, with a substantial savings account and what not, the end result being they have "so much" money that they don't qualify for discounts or assistance, but they are by no means rich, so will still have to pay hand over fist for their kid. If they had no savings or relative wealth they'd end up with far more assistance. Something also they had to provide during the application process was equity in their home. That is supremely fvcked up that it's just a given that parents are going to mortgage their house to help send kids to school. This silly bubble can't burst soon enough.

I still have yet to understand where the the hell the money actually goes. If you've got tuition for a student at $40k/year just for tuition, seriously where is this money going? College professors make a lot but not that crazy much and they have multiple students.

 

[DrPizza]

I wonder if it would be enough. I have a co-worker who is sending a child to college soon and expressed regret at saving up money for so many years, with a substantial savings account and what not, the end result being they have "so much" money that they don't qualify for discounts or assistance, but they are by no means rich, so will still have to pay hand over fist for their kid. If they had no savings or relative wealth they'd end up with far more assistance. Something also they had to provide during the application process was equity in their home. That is supremely fvcked up that it's just a given that parents are going to mortgage their house to help send kids to school. This silly bubble can't burst soon enough.

I still have yet to understand where the the hell the money actually goes. If you've got tuition for a student at $40k/year just for tuition, seriously where is this money going? College professors make a lot but not that crazy much and they have multiple students.

Actually, college professors don't often make that much money.

 

[Farang]

No way would I sign up for this

 

[CycloWizard]

I wonder if it would be enough. I have a co-worker who is sending a child to college soon and expressed regret at saving up money for so many years, with a substantial savings account and what not, the end result being they have "so much" money that they don't qualify for discounts or assistance, but they are by no means rich, so will still have to pay hand over fist for their kid. If they had no savings or relative wealth they'd end up with far more assistance. Something also they had to provide during the application process was equity in their home. That is supremely fvcked up that it's just a given that parents are going to mortgage their house to help send kids to school. This silly bubble can't burst soon enough.

I still have yet to understand where the the hell the money actually goes. If you've got tuition for a student at $40k/year just for tuition, seriously where is this money going? College professors make a lot but not that crazy much and they have multiple students.

College finances are extremely complicated. A new engineering building will cost around $100-500 million, depending on size and purpose. Most faculty at non-medical schools earn between $50-100k/year, with engineering being somewhat higher (not great for a PhD-required engineering position, I can assure you). Administrators earn far more than faculty - probably about 5x the faculty average salary, but there are relatively few of them. There are tons of staff to maintain the buildings, grounds, janitors, secretaries, and so on. If a school has a 20:1 student:faculty ratio and it has 30,000 students, then it has to have 1500 faculty and probably 2-3 times that many staff members. In the end, it turns out that a student's tuition and fees don't even cover his expenses at a private school and that overhead skimmed from research grants subsidizes a good portion of the true cost.

I am a college professor, but I'm also still paying off my student loans. From my perspective, the biggest problem is as follows. The federal government subsidizes students who they deem to be sufficiently needy. These awards are usually for whatever the cost of tuition happens to be. Thus, colleges accept more and more kids based on need (there are no more merit-based scholarships at most schools) to get their hands on federal money. Since the government will give them whatever they charge, they jack up tuition, build fancy dorms with fireplaces in every room (Ball State University is doing this as we speak, and others have already done so), build fancy rec centers with water attractions and such. They do this to attract students that are good and/or needy so they can keep the flow of federal money coming. If a university achieves a certain level of enrollment for needy/minority students, then they gain access to a treasure trove of exclusive programs and their faculty gain access to grants which are only offered to such institutions. It's a gold rush that has hugely inflated the price of college and people like me whose parents saved some nominal amount to try to help them through college got nothing except huge student loan debt. Those whose parents saved nothing got a free ride. As usual, it was the people in the middle who got thrown under the bus.

 

[Vic Vega]

5% for twenty years??

Bwahahahahhhahhhaaaaa.

Thanks for the laugh.

 

[kranky]

Interesting idea. Yeah, lots of logistical issues would have to be worked out. But conceptually, for the schools offering such a program, they would be very motivated to turn out grads capable of making good incomes. People who don't like that arrangement could attend a school where you pay as you go, and graduate with no strings attached.

CycloWizard points out an often-ignored issue - colleges are unnecessarily expensive. When your customers are handed whatever they need to buy your product, you aren't going to care about keeping costs down. Guaranteed loans drive up costs, and the unwary students are left holding the debt. Students lust to attend expensive schools. There is a university in PA that found their low tuition was a turn-off to applicants. They raised tuition 18%. Got 200 more applicants the next year, and in 4 years had a 35% larger freshman class.

I would guess this program would not be available to foreign students, since recouping the cost afterwards would be a real challenge.

But this program is an answer to the wrong problem. Solutions that do not involve reducing the cost of college are just a bandage on a ever-growing wound.

 

[CycloWizard]

The other question that people need to decide is whether college is worth it to them. Obviously, there are still millions for whom it seems like a good idea. For me, I will make more this year than I paid for all four years of undergraduate education at a private university, so it was obviously a pretty decent investment for me. I would have preferred to pay less for this investment, but I still would have been willing to pay more (assuming CitiBank would lend me more, of course). I paid for an education in chemical engineering what many others paid for a degree in fields that pay much less. It seems to me that I made a better investment than they did, but it also seems that people are willing to make worse investments to offset the hard work required to get a degree like mine. There are tradeoffs that each person must weigh. However, now that so many people are not paying for their own education, they don't have to weigh anything. This leads to junk degrees in large quantities.

I brought this up because of an article that landed in my e-mail this morning:
Chinese applications to US schools skyrocket. They obviously think it's a good investment to spend $15-40k to hire someone just to give them a chance to attend a US university, even when they know they will have to pay full out-of-state tuition wherever they end up going. That said, I doubt many of them will be getting degrees in art history.

I currently work at a state university where 70+% of the students receive federal financial aid. Every one of these students has an iPhone, iPod, and a laptop. Of those three things, I have a laptop, but it's not as nice as the ones students are using. The lesson they learn from FAFSA is that spending money on crap will enable them to keep getting tax dollars simply because they have no reported assets. This is a lesson my parents might have learned when they were told to spend 96% of their pre-tax income to pay for their kids to go to school before we could get any money from the government. They had the audacity to save something for us and pay their mortgage while others were rewarded for doing the opposite. For myself, I will make sure to spend all of my money on hookers and blow before filing FAFSA because money I save will count double against my kids.

 

[the DRIZZLE]

I still have yet to understand where the the hell the money actually goes. If you've got tuition for a student at $40k/year just for tuition, seriously where is this money going? College professors make a lot but not that crazy much and they have multiple students.

Colleges (even private ones) are as run as inefficiently as the worst government agency. You would be amazed at the number of non teaching employees at a typical college. Students aren't nearly as price sensitive as they should be because of the government run loan system, lack of adequate information about their expected future salaries, and generally immaturity and inability to evaluate college as an investment.

 

[CycloWizard]

Colleges (even private ones) are as run as inefficiently as the worst government agency. You would be amazed at the number of non teaching employees at a typical college. Students aren't nearly as price sensitive as they should be because of the government run loan system, lack of adequate information about their expected future salaries, and generally immaturity and inability to evaluate college as an investment.

They run as efficiently as they are allowed to run. They have to spend all of the money they take in within a certain time period to remain "non-profit" in a legal sense. So, they are incentivized to dump all of their income into projects (e.g. luxurious dorms) totally unrelated to education because they cannot guarantee long-term income at the same level which would be required to support additional faculty. The caveat to this is a university endowment which is a stand-alone foundation which is independent of the university for legal reasons. Because the endowments are independent, universities cannot simply dump their surpluses into the endowment for a rainy day, so they spend it. Now, there is a basic level of luxury that students demand on a university campus that is ridiculous to me and everyone else that started undergrad education even 10 years ago. It's a hot mess necessitated by federal accounting rules and stipulations that any university must follow if it wants its students to be eligible for financial aid.

 

[halik]

Why not take the obvious route and make loans dischargeable under bankruptcy and allow the interest rates and maximum amounts to reflect expected default rates?

My Masters's in Applied Economics/Finance at 6.8% is subsidizing 20 kids with gender studies majors.

 

[LurkerPrime]

Why not take the obvious route and make loans dischargeable under bankruptcy and allow the interest rates and maximum amounts to reflect expected default rates?

My Masters's in Applied Economics/Finance at 6.8% is subsidizing 20 kids with gender studies majors.

The obvious route would be for the .gov to stop subsidizing student loans. I also think student should have to acknowledge and possibly pass a test on (to make sure they truly understand) the average pay, unemployment and future job prospects of thier chosen field. That along with the amount of that pay that will be eaten up by student loan payments.

ALOT of students are completely oblivious to how much different profession get paid. My wife was a 10th science teacher and all her student thought she was "ballin" with all the money she was making with a "real" job. That was until she broke down how much she made and associated real world expenses. Talk about a reality check for those students, they all thought once you got a college degree making 100K a year was easy.

Personally I agree with student loans not being able to be discharged through bankruptcy, unless of course it nullifies your degree (however retarded that would be). You failed to pay for your education so I dont see why you should still get to use its benifits. You make dumb choices in your life, I think you should have to live with them, although in this day in and age of no personal responsibility, this view probably isn't very popular.

 

[Eos]

You make dumb choices in your life, I think you should have to live with them, although in this day in and age of no personal responsibility, this view probably isn't very popular.

Weird. I see this view all over the place, and often with a little (or a lot) of vitriol tossed into the mix for good measure.

 

[the DRIZZLE]

The obvious route would be for the .gov to stop subsidizing student loans. I also think student should have to acknowledge and possibly pass a test on (to make sure they truly understand) the average pay, unemployment and future job prospects of thier chosen field. That along with the amount of that pay that will be eaten up by student loan payments.

ALOT of students are completely oblivious to how much different profession get paid. My wife was a 10th science teacher and all her student thought she was "ballin" with all the money she was making with a "real" job. That was until she broke down how much she made and associated real world expenses. Talk about a reality check for those students, they all thought once you got a college degree making 100K a year was easy.

Personally I agree with student loans not being able to be discharged through bankruptcy, unless of course it nullifies your degree (however retarded that would be). You failed to pay for your education so I dont see why you should still get to use its benifits. You make dumb choices in your life, I think you should have to live with them, although in this day in and age of no personal responsibility, this view probably isn't very popular.

Here's an idea. The schools or the government should collect data for different fields and be forced to produce some standard disclosure document with expected future earnings for that major in that school.

 

[halik]

Here's an idea. The schools or the government should collect data for different fields and be forced to produce some standard disclosure document with expected future earnings for that major in that school.

I don't think it's a huge secret that some/bullshit degrees make no money. The problem is if I want to get a social work degree at NYU, anyone will give me $250K worth of loans, knowing that I have to pay them back even on my $35k/yr salary.

 

[the DRIZZLE]

I don't think it's a huge secret that some/bullshit degrees make no money. The problem is if I want to get a social work degree at NYU, anyone will give me $250K worth of loans, knowing that I have to pay them back even on my $35k/yr salary.

I agree 100% that reforming the student loan process is one of the best solutions. But you would be surprised at how financially naive some people are, especially at the undergraduate level. I know quite a few people who are very financially responsible in the their 20's but claim they didn't understand what they were getting into when they took out student loans. Personally, I was always very conscious of college costs but apparently others aren't.

 

[Doppel]

For myself, I will make sure to spend all of my money on hookers and blow before filing FAFSA because money I save will count double against my kids.

Cyclowizard, thanks for your insight as a prof. My coworker I mentioned earlier said, not entirely in jest, that they should have spent this money on a sports car over the years and eaten out more instead of trying to save for college so feverishly, since they just drag up those who didn't. Short of keeping a "college fund" in a mattress and/or pulling money out of savings years earlier, what else can be done? Hopefully 401ks are not considered an asset, but what other ways can one have their assets in an area they need not declare?

I know quite a few people who are very financially responsible in the their 20's but claim they didn't understand what they were getting into when they took out student loans.

This shouldn't surprise us. How many 60 year olds who just had a heart attack honestly, truly wish they could go back and tell their 30 year old self to change his ways now? Similarly, an 18 year old who's primary things on their mind are drinking and screwing have only a very vague sense of what they'll be doing in four years and they know they'll be making more money than they do now, so they can deal with whatever loan issues later. They often laugh about it or shrug their shoulders.

They also have every ambition from themselves and others to go to college so they are stuck with whatever bill they are given. There are cheaper schools obviously, though. I've now spoken in the last year to two coworkers talking about a school that, for four years, will run $200k. These are not rich people. I assume they are talking about worse case, however, and I know the average college student comes out only $24k or so in debt.

 

[LurkerPrime]

I don't think it's a huge secret that some/bullshit degrees make no money. The problem is if I want to get a social work degree at NYU, anyone will give me $250K worth of loans, knowing that I have to pay them back even on my $35k/yr salary.

Thats because the .gov guarentees the loans and they can't be relinquished in bankruptcy. Totally scews the market, and it lets schools get away with charging that much for a totally worthless education. If the schools only got a % of your earned income after you graduated, they would be alot less inclined to even offer bullshit degrees like social work, english, teaching, history, etc... That or they would reform those degrees to maybe 1-3 years instead of the 4-5 they are now. Colleges would have a much greater incentive to get you out into the work place as soon as possible (but still trained enough to land a good job) instead of letting you linger for an extra year or 2.

 

[xBiffx]

Thats because the .gov guarentees the loans and they can't be relinquished in bankruptcy. Totally scews the market, and it lets schools get away with charging that much for a totally worthless education. If the schools only got a % of your earned income after you graduated, they would be alot less inclined to even offer bullshit degrees like social work, english, teaching, history, etc... That or they would reform those degrees to maybe 1-3 years instead of the 4-5 they are now. Colleges would have a much greater incentive to get you out into the work place as soon as possible (but still trained enough to land a good job) instead of letting you linger for an extra year or 2.

On one hand you think government involvement is screwing things up, which I agree with. But then in the very next sentence(s) you are pretty much asking for government to step in and change the system. You can't have it both ways. Just keep the government out of the education system altogether and I guarantee you that some of these problems solve themselves. Pretty much, if government touches it, it will be broken.

 

[LurkerPrime]

On one hand you think government involvement is screwing things up, which I agree with. But then in the very next sentence(s) you are pretty much asking for government to step in and change the system. You can't have it both ways. Just keep the government out of the education system altogether and I guarantee you that some of these problems solve themselves. Pretty much, if government touches it, it will be broken.

Not really asking for the government to step in. I was more keeping on topic. The schools themselves could set up the 5% payment system without government involvement.