Comment by shoo | Hacker News Reader

Comment by shoo | Hacker News Reader

In Australia, one can obtain government funding to pay for higher education -- this is a heavily regulated system of government loans.

For example, suppose after your studies you have accumulated a "debt" of AUD $X. There are a few options available:

1) you can leave Australia and never pay it back

2) if your annual taxable income remains in a very low bracket (< AUD$54k / year), you never have to pay it back

3) if your annual taxable income sits in a higher bracket, the tax department takes a chunk of your income in addition to the usual income tax. This scales from 4% of your taxable income through to 8% if you are earning > AUD$100k / year.

The debt itself is tied to the consumer price index and has no further interest applied.

I do not have much knowledge of the grim details of this system, or alternatives, but from my perspective it seems pretty reasonable. Student debt can be okay, if it is appropriately regulated.

More information here: https://en.wikipedia.org/wiki/Tertiary_education_fees_in_Aus...

That is pretty much it. I would guess that most people pay back their debt in the end, so it is not entirely equity-like, it is more like a mix of debt and equity (the interest rate is below market, so lower income people end up paying back less in net-present-value).

I guess this is the economically efficient solution. The main problem is that it needs to be administered by the government, for practical reasons as well as adverse selection. In Australia it also happens that the top 5 universities are of roughly equal quality, and the next 5 are not far below, so that a one-size-fits-all approach makes sense (there are no good private universities in Australia). I don't see how this system could work in the US where there is such a wide range of qualities in universities.

A key feature that seems to be missing is that the people making the decision about what course to take and even what students to send to university are still the students themselves who are notoriously bad at deciding that. With a proper equity system, the decisions would be influenced by people who are actually trying to be most efficient.

Both equity and debt have an element of moral hazard, and both provide some incentives to make the efficient choice about whether to get an education. A student taking on a loan for education (Australian style or otherwise) might make themselves worse off if their future income change from education is sufficiently low.

In my opinion, returns to college education are so high that the focus should be on having as many people go as possible, not on selection the efficient subset.

>the focus should be on having as many people go as possible.

There is only so much college to go around, and it makes sense to try to use the limited amount of college in an efficient way.

Do you think more colleges should be built?

yes I think more colleges should be built, or existing colleges should expand.

On the other hand, when you say "most efficient", I'll ask naively -- "most efficient at doing what, exactly?".

If the answer is "generating profit within the current economy" then that clearly isn't always a positive thing. In many cases there are some very negative effects.

I think there is arguably more value in having an additional well-educated poorly-paid person reflecting upon society and suggesting alternative objectives (provided that this can eventually be translated into public debate) - who perhaps never earns very much, and never pays off their student loans - than an additional highly profitable person who is (at best) making us all incrementally more efficient at doing whatever it is precisely that we're already doing (and at worst just reallocating wealth to themselves).

Generally "efficient" means maximizing social utility, which in practice for economists means GDP [0].

I agree that there are benefits to an educated population (in spite of disagreeing with the progressive bias in university education). But you are wrong that "efficiency" is meaningless or means "making us all incrementally more efficient at doing whatever it is precisely that we're already doing". Efficiency means increasing the size of the "pie" so that however we choose to divide it up, there is more pie to go around. We could divide the GDP from the year 1800 as evenly as we liked and not reach the standard of living of 2015.

[0] and no, the broken windows fallacy does not apply here, no one is trying to literally maximize GDP, but GDP represents the kind of thing that economists care about.

Reply on news.ycombinator.com