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Student loans: Michael Lewis exposes some pretty nasty behavior regarding PSLF

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  • #91
    Nothing about what I said is intolerant. I said do what you want to do. Just realize it has consequences.


    • #92

      The great thing about managing finances poorly during residency is that you eliminate the possibility of PSLF…

      Did anyone listen to the most recent (like yesterday or today’s) Freakonomics podcast about student loan debt. It has the president of Purdue University who is trying to stall the rise of tuition. It also talks about some of the potential solutions (a payback of tuition to the university itself as a percentage of salary based on field entered) and some failed solutions (Rhode Island, Australia).
      Click to expand…


      He also has an interesting repayment strategy called an “income share agreement”  or ISA. If I understand it correctly it works like this: People “invest” in students (pay the tuition for a group of students). The students then have an obligation to pay back a percentage of their salary for a certain number of years. For example: Chemical engineer pays X% of their salary for Y years and then they are done. People who invest usually make some money (the average debt is <40k the average salary after graduation is >100k). The program is called “Back a Boiler”. They consider it equity rather than debt. If the student does not do well the investor loses, but if the investor does well they make more. There is also a top cap on how much the person has to pay and that is 2.5x the amount borrowed. They pay an affordable percentage of whatever their income is for a certain number of years and then they are free = done. The repayment period is less than 10 years. I like it!

      He says it is like working your way through college after college. Also, the student has to make certain grades etc. to qualify. I think it is an interesting option. I don’t fully understand it, but the link below has more details and it sounds interesting. Might be an interesting alternative investment! Wish you could pick which students to invest in! I imagine from this discussion, that every person here would love to invest only in liberal arts majors (JK).
      Click to expand…

      The income share agreement is not uniquely his idea.  Lot’s of colleges are starting to offer those.  Even worse than student loans in my opinion. Think about the potential impacts that kind of thing could have on your future earning potential and what you’ll actually end up paying for your education.  The percentage of your income will be fixed regardless of how much you make.  So, what’s the incentive to work hard and get that raise if it will just mean you’re paying more for your college?  Will that inspire young graduates to just take entry level positions for 10+ years in an effort to avoid over paying for their schools?  Imagine how you’d feel if you were stuck with an ISA and decided you wanted to retire early but couldn’t because you still had so many years left to pay.  And you can’t refinance your ISA or pay it off early like you can a student loan to avoid long term interest costs.  It’s like you’re being forced to pay interest on your student loans for the entire term!   It’s a whole new type of forced labor in my opinion.  Bad deal for everyone except the schools.

      Dave Ramsey has already been commenting on these:
      Click to expand…

      How is it worse than the current situation exactly?  Under ISAs the risk burden is shifted to the two entities involved in the transaction – the school, and the student.  The current situation shifts risk completely away from the school (who gets their money up front regardless of quality) and puts it on the student and increasingly the taxpayer.  This is inappropriate on several levels.  At the extreme, if ISAs were universal and complete schools would be forced to keep costs down and compete on quality (= value to students).  You mention a lot of sacrifices that kids might make under an ISA.  What exactly do you think the incentive is under IBRs and our current system?  I don’t know how you can say the current system is better from any objective standard or by the incentives that are created.
      Click to expand…

      I’m not saying the current system is better, I’m saying that I’d rather graduate owing a fixed amount of money, then owing 10 years of servitude.  I can find creative ways to pay off a big school bill in less than 10 years.  But, how would I be able to pay off a 10 year sentence of my time any faster?  On a personal level, I think it’s a worse deal for the student.

      I agree the current system is broken.  Too much debt being given out way too freely.
      Click to expand...

      Fair enough.  A way around this and that would satisfy the incentive alignment towards value as well would be for the schools to issue "loans".  Students would have $X covered by the school over their 4 years with a known payback period and interest rate.  Schools would/should then offer less fru-fru majors with no hopes of paying the money back, or at least differentiate by the interest rate (as Purdue does).  The risk is compartamentalized within the system where it belongs.  Whether an ISA or schools covering the costs in the form of a "loan" I could care less.  Each aligns incentives better than the current system.  Pros and cons to each of those ideas.  Fixed costs if the loan option, but fixed percentage if an ISA.  I'd personally go with the ISA.  An ISA wouldn't lead to bankruptcy - fixed payments might.


      • #93
        An ISA could be structured with a buyout option. If used for undergrad, how is this helpful for a physician’s career? Four years of zero and then a % of 6 years of residency and fellowship pay? Don’t have any idea of the details.


        • #94
          The issue of student loans actually makes me pretty angry, as it has become a scam with so many victims at this point.

          The current student loan situation amounts to nothing more than indentured servitude and government-sponsored and backed profiteering by private entities, seeking protection to capitalize on the collective ignorance and poor decisions of the masses.

          I have a real problem with the government-sponsored part.  Government sponsored loans should be capped based on earning potential of the particular field.  All other education loans should be dischargeable in bankruptcy by law.

          Cost will sort itself out quickly after that.

          And I don’t believe physicians should get much loan forgiveness either.  They can easily pay back large loan balances with their own income and with lifestyle modification, for the most part.


          • #95
            Understanding history, arts, philosophy, world cultures, etc., are all important.  Many mistakes are made because people allow history to repeat itself as they didn't pay attention to the consequences of an action the first (or second, or third) time.  Massive issues occur because people didn't develop the ability to look at problems from someone else's POV.

            20, 30, 40 years ago, you could graduate with a B.A. in xyz and you could qualify for a decent job.  And if you wanted to understand the music of Wagner or do a deep dive in French art history or debate different schools of philosophy, majoring in the liberal arts was arguably the best way to do that.  Now, with so much information everywhere, you can access that information much more easily, for free, assuming you are a self-directed learner.  And whereas once you could pay for that education simply by working over the summer, and then could get a decent job with said B.A., now you go into deep debt if your parents can't afford it, and then can't get a job after graduating without taking on more debt for a graduate degree that may or may not pan out.  And the competition is just going to get worse with so many jobs getting automated, and with advanced degrees becoming so common.  I think getting a pure liberal arts degree is a really hard sell these days, unless you are independently wealthy or have an inside track to a good job no matter what you do and have the money to spend on the degree, or you know you are going to pursue a career field that requires an advanced degree (e.g. medicine) and can take all the prerequisites and get in with the liberal arts major...or you want to be an academic within your field.



            • #96
              I was reading more about ISAs. Many (all?) have a max amount that can be paid. An example i saw was 2x cost. That really seems reasonable to me. You know you will have several good aspects to your ISA:
              1. you pay a fixed % of your wages for a set time period
              2. If you flunk out or drop out or change jobs or are fired you are not on the hook (Not an indentured servant) this is better than a non-bankruptable student loan
              3. your amount (total paid) has a max = 2x cost
              4. you are done in 10 years. (people keep student loans for ages)
              would you really rather borrow at 8%?
              I also think the investor giving the money (taking the risk of loss) should get paid something. they take the risk.


              • #97
                I think the discussion here is interesting. In terms of college education i think:
                1. Tuition is ridiculous
                2. Student loans guaranteed by Fed Gov = terrible
                3. If you are spending a ton on tuition you better have ROI

                For example: NY times has an article about a college and in describing the place this is an exact quote:

                “Students at Evergreen, founded in the progressive fervor of the 1960s, have no majors or grades and study in small groups, taking interdisciplinary classes where a marine biologist, for instance, might team up with a philosophy professor and a music professor.”

                Are my tax dollars really guaranteeing loans for someone to do this? What is this nonsense?

                I don’t really care how people spend their time, but I don’t wish to pay for it.

                Information is becoming more and more ubiquitous. I have audiobooks of college history courses on my phone (i listen during my commute to college courses on all kinds of topics and enjoy learning). The need to pay tens of thousands for this info in 2019? The need for my tax dollars to pay the bill?

                I feel bad for kids who get bad advice and borrow too much money.

                Kids can spend time how ever they wish, but the idea that we (as a nation) should federally guarantee these ventures is ridiculous.


                • #98
                  Your federal loans are also supporting evergreen to have a day where white students are not allowed on campus.


                  • #99
                    It's ironic to me the previous conversations about how liberal arts prevent you from making mistakes of the past, when blatant racism and censorship is now occurring at these institutions throughout the country.


                    • Your federal loans are also supporting evergreen to have a day where white students are not allowed on campus.
                      Click to expand...

                      Yes, but totally aside from the race issue, as this is not my point here.

                      So, um, wait, what? They don't have grades? They don't have majors? A marine biologist might team up with a philosophy and music professor? Wait.....what? Why? Why are these kids not focused on learning something? What does the average kid earn after getting a "degree" from this silly place?

                      I just looked and the current tuition is: $23,887 and the acceptance rate is 97.5% and this is a public school. I could be wrong (often I am missing something) but why are we paying for this? How is this "helping" this kid? Why not send the kid to the library while working part time. They could learn the same (more?) and have zero loans and some cash from working part time. ************************, they might even "learn" how to do something that makes money while working part time.

                      Is the person repairing the HVAC or the plumbing in my house offering our society more utility than the kid paying $23,887 per year for a no major, no grade degree?



                        Is the person repairing the HVAC or the plumbing in my house offering our society more utility than the kid paying $23,887 per year for a no major, no grade degree?
                        Click to expand...



                        • There should be a program to forgive the mortgages on all the doctors living in HCOL areas.
                          Oh and one to forgive my car loan. Then I will get that Tesla for sure.
                          I gotta furnish this big doctor house. I guess we need a program to pay off my credit card debt.
                          Click to expand...

                          Vote for Bernie or Warren, then no worries, you'll get free everything!


                          • This is an interesting rant:


                            I agree.

                            The summary:

                            1. Student loans should Not be federally insured. He discusses how this is a flawed system.

                            2. The two biggest lies we tell you young: 1. Education is always good, at any price. 2. Elite prestigious universities are worth any price.

                            3. The ignorant poor are the ones who screw up the most. We are not "helping" them by encouraging them to borrow large sums of money.