Wouldn't a lot of people start demanding "perks" like free cars, food and housing in exchange for lover monetary pay? Wouldn't this possibly undermine the fund as the ones with the higher salaries are in a better position of negotiating these deals?
This is already happening to avoid the income tax.
That's tax fraud. Call the IRS and turn in whoever is doing this; you will get a portion of the misreported funds as a bounty.
It used to be that stuff like company cars didn't count as income. That was back when we had income tax rates of 70% and 90%. It was trivial to avoid those taxes for a dozen reasons, once being that compensation that wasn't cash was not taxed.
Now, any kind of compensation [1] is taxed as income.
[1] except health care, for no good economic reason.
In Aus (and UK, I believe) you can "salary sacrifice" something like a car, phone, or computer. Essentially the employer buys it for you and just deducts payments from your paycheck towards it. It isn't income to you, but there is a fringe benefits tax. Some items, like computers and phones, are exempt from this tax though.
As a result very few have any real perks, except free cell phone. At list it makes it easier to compare job offers :)
Year Pay Tuition Payback
1 $30,000.00 $900.00
2 $30,900.00 $927.00
3 $31,827.00 $954.81
4 $32,781.81 $983.45
5 $33,765.26 $1,012.96
6 $34,778.22 $1,043.35
7 $35,821.57 $1,074.65
8 $36,896.22 $1,106.89
9 $38,003.10 $1,140.09
10 $39,143.20 $1,174.30
11 $40,317.49 $1,209.52
12 $41,527.02 $1,245.81
13 $42,772.83 $1,283.18
14 $44,056.01 $1,321.68
15 $45,377.69 $1,361.33
16 $46,739.02 $1,402.17
17 $48,141.19 $1,444.24
18 $49,585.43 $1,487.56
19 $51,072.99 $1,532.19
20 $52,605.18 $1,578.16
21 $54,183.34 $1,625.50
22 $55,808.84 $1,674.27
23 $57,483.10 $1,724.49
24 $59,207.60 $1,776.23
Total Payback $30,983.82Here's a breakdown at a couple of different interest rates of $1,776 in year 24 in today's dollars using annual compounding (it'd be a bit more lopsided using monthly):
%0 $1,776
%1 $1,398
%2 $1,104
%3 $ 873
%4 $ 692
%5 $ 550
%6 $ 438
(...and Information Systems, which I rolled into System Administration.)
This program will get a lot of stay at home moms out of paying for their psych degrees.
That's not to say that I think this is a good idea, but there's plenty of precedent (including VC) for investments where the median loses but the mean is positive, because the big wins cancel out the losses.
Look at the "Repayment" section. Essentially until you're earning money, you don't need to worry about the loan and it only goes up by the current inflation rate. Good incentive for the government to ensure there are jobs and means people don't just take the first crappy position that is thrown their way when they finish their degree.
Great step americans. Now join us also on health-care ;-).
What about the next tech billionaire. Will he pay USD 30 million for every billion he makes?
Malinvestment starts the same every, single, time. Over extending credit to unworthy investments. Usually this is done through the government because their primary objective is not to make money, but to appease voters. Sometimes this is done by financial institutions that offload the risk to someone else and make their profit on fees, or commissions (but never negative commissions).
Here is why this is a bad idea: There are no price signals to the potential students to help guide them to the correct career choice. In Ontario the things you can get bank loans for are the following: STEM, Medical fields, Economics, Accounting (both of which are kinda STEM-y).
The government interferes here, by paying the first 75% of the cost and by creating loans for the poor and almost middle class, but at the very least a good number of us have to work some amount to pay for degrees that don't pay for themselves.
Another reason it is a bad idea: It means that universities no longer have to compete on price, they compete on marketing.
As an aside: There is this general trend that I've noticed. The baby boomers load up the country or state with debt or equivalent (like defined benefits, or entitlements) but because the state can no longer handle increased debt loads they do not afford the same ponzi scheme to Gen-[x-z]. They load us up with 3% for 24 years on your income on top of the debt that we're going to have to pay for. Also, how the hell does the majority of the western world go into debt during a period where the largest bubble of the population is at their peak earning potential? This is crazy, we couldn't afford largesses then, and we certainly won't be able to when they retire, and we also have to service the debt, and we also have to deal with longer lifespans, and we also have to deal with 3% on our malinvested education subsidies.
What's going to compel this generation to stay saddled with this debt? If we don't vote it (or spending on seniors) out we'll just move out of the country. Have Macbook, will travel.
A great example of this would be teachers, there are limited positions as there are a lot already and new positions do not open up as rapidly as universities can train teachers. A great way to control this and push people in other directions is to simply not fund that degree to the same extend as say various engineering courses.
Don't be afraid of it just because the government is involved. It can, and has worked. There is a lot to gain from having an educated society.
People who graduate from college have a significant wage premium over people who don't. Over the past generation schools have figured out how to grab more and more of that wage premium for themselves, sometimes more than 100% of premium for certain students.
Now we're trying to make it even easier for them to capture exactly how much of that they decide they deserve. And having the IRS enforce it.
It's worth noting if you are not earning over a certain threshold (currently $51,309), you don't have to pay anything. If you want to go travelling, you simply don't pay anything. If you never earn that much (because, say, you work for a non-profit or are a struggling artist), you are never required pay it back.
Also, if you leave Australia, you never have to pay it back.
If you do earn over that threshold, you just pay slightly higher income tax in those years [1]
If you make a voluntary payment of $500 or more, they take your payment plus another 5% off. [2]
I personally have found it to be a phenomenal system, and I've never met anyone in Australia that didn't go to University because they couldn't afford it. (We also get paid a "living wage" to go to University, of around $400 every two weeks, depending on circumstances. [3] )
[1] http://studyassist.gov.au/sites/studyassist/payingbackmyloan...
[2] http://studyassist.gov.au/sites/studyassist/payingbackmyloan...
[3] http://www.humanservices.gov.au/customer/services/centrelink...
I don't think education should cost an arm and a leg but you should have to think about it as your money. Which, IME, a lot of kids going to uni don't under a deferred payment system (a similar thing is currently operating in the UK - though there it's based on repayment of the loan against the ... I believe... consumer prices index.)
Honestly, I almost think that university is a bad idea altogether for many people these days. If a company wants a trained workforce they should be the ones paying. Seems the wrong way around at the moment. The kids have to take on all the financial risk themselves - but at a significant information and power disadvantage.
Admission is based solely on grades, not money. On of the few things we actually got right, imo.
If you want a well rounded general education, you're - by and large - best off providing it for yourself if you don't need someone to stick a rubber stamp on it for you.
Frankly I think this idea is silly. The primary reason that the cost of education is out of control is that so many people are not using their own money to pay for it. In trying to make education affordable to everyone, we've achieved just the opposite. Universities are bloated, top-heavy with highly paid administrators and staff who actually do very little work, and they can afford it because they can just increase tuition by near double-digit percentages every few years and get no market pushback.
But ultimately universities are going to raise tuition as high as they can because they know that students can get loans very, very easily.
Unsure if anyone can define "free" this days. It must be the most misused word in the English language.
The "higher education" system as it exists now is just pure exploitation, and decimating the middle class.
Allow current student loan holders to enter bankruptcy like normal human beings, and have all future financing be a small set cut of future earnings.
Focus much more energy on apprenticing programs like in Germany, where kids actually get real job experience instead of sitting in a classroom with 150 other kids while some 28 year old associate professor walks through a powerpoint presentation.
I mean, the basic problem is that corporate America doesn't really need as much labor input anymore. But we have an entire generation of young Americans who pay more on the "education" loans than their rents. That's a complete injustice.
People with $100,000+ in student loans are the 3%.
This new system will be even worse. We need to address the real problem: the price.
There are also a few more benefits. Technically if you never find a job you will never have to pay for your tuition.
What you end up with is a bankrupt system program in a decade or so.
As govt makes it easier for students to attend school, though guaranteed loans and plans such as these, schools raise their prices to suck up the benefit instead of allowing the benefit to go to the student. Also, some schools lower their qualifications for attending and graduating. They dont care if you're educated because they have a guarenteed payment from you and the govt, regardless of how well they educated you.
With a fix percentage of salary, the school has an interest in getting you educated so you can pay them back with a good high paying job. They can only earn more money if they make you a better educated student.
Today, most of the decisions are made by the students themselves. By definition a student does not know anything about the future of the industry they're entering other than possibly an article they read in a news paper. What you end up getting are disproportionate classes of students in programs. On the surface it sounds great. In America I can go to school for whatever I want. Of course when you graduate there's only demand for 10% of the people in the program, and if you aren't in the top 10% of people in your program IN THE COUNTRY, you're not going to get a job in that industry anyways. Plus you now have a boatload of debt, which you took on for essentially the privilege of knowing how to do work to benefit your future employer.
I think things would be improved with a few small changes. Break up the private and public sectors into specific industry categories. Create non profit organizations to help with predicting future demand, and curriculum, then have colleges bid on fulfilling it. I think it does two things. It allows for consistent standards to evolve (so if for-profit institutions bid, they have to prove they are providing a quality education... today they don't for the most part) second I would assume these organizations would be better at negotiating then individual students would be, which I think would become a big deal as businesses are usually pretty smart at finding ways to pay less taxes... and if they're paying 100% of the bill for education, they're going to look out for bad pricing.
http://www.michigandaily.com/content/michigans-education-tru...
Hasn't anyone else put off starting their own business because even a few hundred dollars a month severely impacted their burn rate? I still owe over $8000 even though I graduated from college in 1999. I could write a check for that today, but there was a period in the early 2000s where I was so destitute that my student loan payment was more than my rent! I would literally be living a different life today if the proposed repayment plan had been mainstream when I graduated. I can't even imagine the ramifications of that, times a million other entrepreneurs. Where has our vision gone?
Of course, it has its flaws, such as repayment being tied to salary rather than income - and how does this work for a married couple from a tax perspective? Expect the percentages to increase and repayment to become increasingly regressive. I doubt it will curb the administrative bloat and sports subsidies and student amenities which have driven costs upward.
But at least it is a start. Schools are our greatest incubators and replicators of beneficial memes.
As long as fixed-rate loans are still available, this smells like a bad deal.
A state government is actually diverse enough in needs to create a full market for these options; it wouldn't have to sell/transfer them on a secondary market to profit.
I don't understand why the college doesn't lend you the money to attend their courses already.