
Instead of Student Loans, Investing in Student Futures - robg
http://opinionator.blogs.nytimes.com/2011/05/30/instead-of-student-loans-investing-in-futures/#
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Goladus
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...](http://www.bankrate.com/calculators/mortgages/loan-
calculator.aspx)

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Kaedon
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.

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Goladus
> 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.

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mvalle
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.

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jsmcgd
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.

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lars512
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.

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anonymoushn
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.

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billswift
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.

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lukev
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.

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

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

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DuckPaddle
Sounds like sharecropping

