Instead of Student Loans, Investing in Student Futures | Hacker News Reader

Instead of Student Loans, Investing in Student Futures

opinionator.blogs.nytimes.com

22 pointsrobg12 comments

That makes some sense, although I would be really interested to see their numbers. A 14% for 10 years deal would have been horrible for me. I'd have wound up paying back well over 3 times the amount I originally borrowed, and I was paid very poorly for several years after graduation.

In the US the average debt per borrower was $22,700 in 2008 [1]. That works out to about $255/month for 118 months, for a total of $30090 [2].

That means you have to make less than $214,928 in the 118 months after graduation, which is about $21k per year.

It's basically only a good deal if you have no other option or if you're not going to be able to beat $21k per year for 10 years.

[1] http://www.asa.org/policy/resources/stats/default.aspx

[2] http://www.bankrate.com/calculators/mortgages/loan-calculato...

I think the difference here is that Sneider is in Colombia, where the article states that the average annual salary is only $8500. It does not mention what the expected salary for a nurse would be, so it is not clear how good or bad of a deal he is getting. Either way, if he graduates, he will be in much better shape still than if he were not able to go at all, which seems to be the alternative in this case.

As the article mentions, this kind of aid is aimed towards people who have no other options, particularly in countries such as Colombia where federal aid and grants are more scarce.

> As the article mentions, this kind of aid is aimed towards people who have no other options.

Right, and that's what makes me uneasy.

A student needs to make about 7x the amount of the loan (plus overhead) within the 118 months for the lender to break even. That means borrowers will have to make, on average, about 73% of their original loan amount per year. If average salaries are about the same as the average loan size, it seems like it should be profitable. If average salaries grow and inflate substantially, it will be massively profitable.

The UK has a similar system. You borrow money to pay for the tuition and living costs. The repayment is then, like in the article, a fraction on the post-graduation salary.

The difference is that it is not time base. You have to pay it all back with interest. Also, both the lender and the university are public.

The funny thing is that until quite recently in the UK - and I'm sure other countries - this was pretty much how paying university tuition fees worked. Except that you might end up paying up to 40% of your earning. Sound bad? Well it got worse, you now have to pay for the privilege to enter the scheme.

So what is this scheme exactly? It's called Society Reaps the Benefit from Taxing Students Who Can Make a Greater Economic Contribution Because of Their Education. Or more succinctly Higher Education and Income Tax.

I'm sure the countries mentioned have income tax too, without the safety nets and social stability benefits you're paying for as a high-income member of society. But that's an entirely different discussion.

In Australia, our student loans sound similar to the article's. You take out a loan, which you're forced to pay back in future at some small percentage of your income, but only once your income is greater than some minimum threshold. It's indexed for inflation, but is not otherwise interest-bearing. If you move overseas, or just never earn enough, you won't have to pay it back.

What's interesting in the article is the time-limited nature of the loans. I think if you're doing this on the open market, having a cut-off date would give you more confidence in borrowing against your future income.

There are two components to this. On one hand, there's cost-shifting so that students who would otherwise default (and be chased by the government for the money) aren't as screwed. On the other hand, this arrangement has students paying much more money for the same thing in the average case.

Not the same thing, but I remember an article, I think it was in Whole Earth Review in the early 1980s, about a man who financed his college education by selling bonds on himself or on his future income (I don't remember exactly how they put it, but that was pretty close) with a maturity far enough in the future that he could graduate and earn the money to pay them off. As a precaution the contract allowed him to return the money he had already collected without penalty if he wasn't able to get enough to get through college. I never saw anything about whether or how well it worked out.

Something like this would be more interesting if it only kicked in above a certain salary, say, 80k here in the US. Then it would actually be more like an investment, with actual potential losses to the investor, in turn for less financial burden on graduates in their early years.

Otherwise, it's not effectively any different than a standard student loan, at least for students.

Ouch, 14% for 10 years? Not for me but I could see it being a good strategy for majors with low starting salaries.

In other places and times, with other counterparties, it would be called income tax, sharecropping, serfdom, or indentured servitude. Funny how labels work.

Sounds like sharecropping

Reply on news.ycombinator.com