Oregon Proposes Investment Model For Student Loans | Hacker News Reader

Oregon Proposes Investment Model For Student Loans

techcrunch.com

46 pointssethbannon48 comments

No reporting on this idea ever discusses what appears to be a fatal flaw in the basic idea: there is still no incentive for universities to lower their costs. They can still charge as much as they want for an english degree and the state pays them for it up front. The public is on the hook for the bill when the english major fails to get a job.

EDIT:

Just wanted to add that this is the sort of brain-dead reporting that allowed the student loan industry to essentially socialize loan losses by not permitting students to default on student loans and by allowing the federal government to guarantee them, subsequently allowing education costs to sky-rocket.

The incentives are actually worse than the student loan model, since the incentives to the student to major in something that makes money are now reduced.

This has a critical flaw: those expecting to work in a high-paying field will self-select more traditional loans, whereas those pursuing a degree with less promising income expectations will disproportionately opt for this type of loan.

If a university (or a state) chooses to force everyone to study under this model, they'll find that students expecting high-paying jobs will go elsewhere, and students expecting low-paying jobs will flock to those schools.

Fundamentally, if I'm planning to study CS for the next four years, it's a good bet that I'll be making more money than someone getting an English degree; and I don't particulalry want to subsidize their education with my future earnings.

There's a close parallel here with John Galt quitting his job in Atlas Shrugged.

How is this any different than simply raising taxes and providing education at minimal cost with no loans?

As always, the US drops the ball again.

Small evolutions are easier than big revolutions.

Evolutions take a long time. Can we as a nation really afford the luxury of waiting?

It's an opt-in tax only on the people that receive the benefits of the program. I actually like that idea; it wouldn't work for everything, but I think it can work for higher education.

So its like health insurance if you don't make it mandatory. Only the people who are going to maximize their utilization of it are going to opt-in.

Hence why it has to be a blanket tax. How many people would opt-in to social security if it wasn't mandatory?

At a 100K salary, over 24 years you would pay 72K. The same cost of 72K as a loan at 6.8% paid over 24 years would amount to $146,229.96 with total interest paid of $74,229.96

That's more interest than the cost of the loan. You would have to average more than 203K a year in salary in order for this to be the wrong choice. The average student isn't going to come close to that. Do you really expect that you'll be making more than an average of 203K over the next 24 years?

At 100k salary why would it take 24 years to pay back a 72k loan?

I used 100K as an example that even at that high of an income $3,000 a year only adds up to 72K. If you make 50K salary for 24 years you're still only paying 36K for your education. The program stats "students would pay 3 percent of their paycheck back for 24 years in order to help fund the program for future students".

With the direction higher education costs are moving, this could be a very inviting choice for those who would pay for college with student loans.

The problem here is that it is obvious there are a lot of students that would not be able to pay current tuition from their earnings. If there were none, current loan system would work perfectly. So there will be subsidizing. It works only if you dont know in which category you will fall - like with insurance. Once you know on which side of the equation you are - you will have definite incentives to either maximize or minimize use of this system, and this will make it unbalanced and unsustainable in the long run, since potential high earners would try to avid it - they have no upside there - and potential free riders would flock to it.

This is the part I am always confused. If we all know graduates getting an engineering degree(CS,EE) make more money than graduates with english/arts degree. We should see an obvious trend students heading to engineering majors. Why still so many students go to english/arts/... major and they know they will make less promising income?

Isn't it obvious that it's because they aren't interested in a career in engineering? For some people having a higher income is not more important than having a career that they enjoy or that inspires them.

Why still so many students go to english/arts/... major and they know they will make less promising income?

Many -- I'd say even most -- students base their careers on something besides projected income. I think this is a very good thing.

Unfortunately they're taking on massive amounts of debt that will make their life more difficult. If they could only receive a loan for a percentage of their projected income then they'd be able to decide if it's worth it. And it would put price pressures on the school.

We should see a obvious trend students heading to engineering majors.

Yes, especially people with childhood dreams of studying history or art will be turned on by the prospect of designing airliners and nuclear reactors.

Same could be said of doing a MBA or medicine compared to STEM. Yet few people on HN made that choice.

Not the same thing. Once you're in a US college, you can pick your major, whether that's English or STEM. But for Medicine or MBA, you need to be admitted to a postgraduate program. I remained a STEM because I didn't have the grades for medicine. Didn't "choose".

that's a good point, shows my European bias. In France at least, entering in medicine or decent engineer career path requires similar level of grades. Entering into a MBA would be similar to get a very good engineer degree (grade-wise, skills being different obviously)

Not even close RE: MBA. There is an insane glut of MBAs because of rational choice to go there where MBAs used to have a ton of opportunity. Then the economy crashed and now STEM fields are being mined for business intelligence / game theorists that can learn rudimentary business practices on the fly (or the company will pay for a night-time MBA).

The majority of people who struggle with getting high paying work after an MBA previously struggled with getting high paying work as a Stem graduate. Something like 40% of MBAs are engineers.

From my limited experience with the matter, it's because 18-year-olds are stupid.

Most of the people most likely to want to opt out are, I imagine, already effectively doing by not going to the Oregon state schools and going to, say, a highly ranked private university. Or they might be getting substantial scholarship assistance as it is (it's unclear to me how this would work under the new system, the article could use more details there).

There are a lot of students out there who don't go into college with the sort of super-high self-confidence that would cause them to turn down a free education because they think they'd be better off with a traditional loan. So the question is: will enough of them make enough money to make it a workable solution? My guess is yes.

> and I don't particulalry want to subsidize their education with my future earnings.

Then do you oppose the idea of public universities generally? Atlas Shrugged is a work of fantasy and light philosophy; I don't think it's relevant to the problem at hand.

I think education should be covered under the social contract ... "we'll give you a good education, you pay your taxes and pay off that huge debt we accumulated".

I'm not sure how we expect these next few generations to pay off their rapidly increasing student loans, deal with the massive debt we are leaving them with AND fund social security/medicad.

So they're not employable enough to cover their loans, but suddenly employable enough to boost tax revenues?

My point is that we can't keep loading them up with debt, both personal and institutional. I'm not sure what your point is.

1. This s not a bad idea. 2. Student loans should have zero interest. 3. Don't take out student loans for any school that is for profit, or advertises on T.V.. 4. Remember student loans are not bankruptable. 5. Your interests will change as you age. 6. If you can swing it, get a bachelor's degree. 7. I despised "networking". I made friends with people I truely liked. Well, I'm paying for it now. I hate to say this, but force youself to be friends with "people of means". I know they have the personalities of drift wood. 8. With the right direction; I feel an ambitious student could lean what they need off the Internet. 9. If you do make a lot of money in your life--Remember what it was like to have nothing. 10. Oh, yea--really think about marriage. I'm not sure it's necessary anymore.

This betrays the true views of government with regards to education. Government's true goal is to add additional taxes on high earners for the rest of their careers to capture the premium they earn due to being the best and brightest. It would seem the goal is to marginalize the value of work. The only thing this is going to accomplish is to remove the incentive to study and move into advanced careers. If Oregon wants to put an additional income tax on college graduates, I suggest they think about what this will do to their graduation numbers. If anything, they should be giving tax breaks to college graduates.

How is this different from indentured servitude? In any way what so ever?

"Free trip to the colonies, in exchange for a chunk of your output for the next 20 years."

For a free trip to the colonies, you paid with all of your output for the next 20 years(or longer) - not just 3%.

fractional servitude is still servitude.

this is exactly what I think. It's bad enough that college loans are non-dischargeable (and therefore probably in violation of the 14th amendment).

Now, the wage garnishment were voluntarily terminatable, that's another story.

Indentured servants weren't allowed to wind up unemployed or to pick a less lucrative career than the person they were indentured to might prefer.

> How is this different from indentured servitude?

If the state raised a 2% income tax on everyone to pay for free college education, instead of a 3% income tax on students getting a free college education, would that also be indentured servitude? Are all taxpayers indentured servants of the state?

You can leave taxes behind by moving / etc. You won't be allowed to leave this behind in any sense.

Well, how is the current system different from indentured servitude? You can't discharge school loans in bankruptcy, so...

One nice thing about this is it would seem to more directly incentivize state universities to provide a curriculum that maximizes student earning potential; I think that's a great thing especially for people who've chosen their fields for reasons other than money. 25 years is a somewhat scary number, but this very exciting.

I propose different model. Either you'll pay for my education to become engineer who'll pimp up your self-driving flying car, or I'll become uneducated mugger who'll beat you up and steal your stuff or I'll become uneducated cop who'll beat you up and shoot your dog for not respecting my authorita.

The thing with investment model is that VCs filter their applicants very carefully before investing. Rejecting many applicants that may seem and indeed later prove very worthy, but are not to the particular VCs liking. With higher ed today, anybody with a technically functioning brain can go into higher ed institution and get a paper saying "degree in whatever" on it. Investment can not work this way - in order to invest, one needs to select and reject. Current policy would aggressively resist the idea of selection - and indeed, how would you select high school students by their future earning potential? Nobody can do that with any degree of accuracy or any appearance of fairness and basic dignity. Without selection, however, the whole model would become uneconomical unless the sums charged are raised significantly. Free is very powerful attractor - so the number of people wanting to use it would explode.

This is a brilliant approach! I'm sure it will look nothing like this by the time it comes for a vote on the house floor. Will probably have an anti-abortion rider and a lifetime payment cap by the time the lobbyists are done with it...

They already voted - "The plan passed unanimously in Oregon's Senate on Monday and in the House the previous week. The state's Higher Education Coordinating Commission will next develop a pilot program and in 2015 lawmakers will decide whether to implement the program."

http://abcnews.go.com/Business/oregon-legislature-approves-t...

Thanks for the update. I'm really glad this passed!

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