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Comment by stephen_g | Hacker News Reader

Stories like this make me very glad of the system we have in Australia. You can choose to have your Univertity fees just automatically paid by an interest free loan from the government (it's like a five minute online form to sign up for), and then you just pay back 4% of the loan on each tax return if your salary is over $51,000 (you can choose to make voluntary payments over the compulsory rate, or if you make less than $51,000 - you even get a 5% bonus if you pay over $500 - for example, make a $1000 voluntary contribution and they take off a bonus $50 off the loan).

Pretty good scheme to allow people to be educated (which is generally a net win for the economy) without being shackled by ever-growing debt from the start of their working life.

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There's a plan here in Oregon to try and work up a viable system to do this. The idea is called "Pay it Forward" and you would essentially pay a 3% tax for 20 years after you graduate. I'm not entirely sure it will ever come to pass, but it's not a terrible idea IMO. It may not save money, but it does mean you get an automatic income based repayment plan, you can never be in default and you get an automatic deferral when unemployed.

That said, it doesn't really do anything to fix the problem of skyrocketing education costs which is less than idea...

I don't see how this can make financial sense. 3% for 20 years totals 60% of one year's salary (or the average salary over your first 20 years in career). Average salary is $48k, so that's paying back $29k.

... however it's actually even worse than this meager sum:

- Salary increases over your lifetime, and the highest earning decades are 40s and 50s, so I the average salary over the first two decades is probably lower than $48k. Maybe this is mitigated by restricting to only people who at least attempt college?

- Oregon has a slightly lower-than-average income.

- People are more likely to sign up for this program the less they think they'll earn.

- Once someone has graduated, they are not incentivized quite as strongly to pursue high salary positions.

- Some loss due to deaths, defaults, emigration, black market off-the-books income, etc.

- Depending on how it's set up, this may cut into the tax revenue to the state.

- It doesn't take into account inflation or the time value of money.

I understand the point of the program is a social benefit to the state, but I think it's useful to examine the reasonableness of the proposition in a market context. If someone offered you a bond to take the other side of this deal, how much would you pay for 3% of the first 2 decades of income of a hypothetical freshman entering college this year? What about a 1/1000 share of a portfolio of a thousand freshman?

Average student debt load for college graduates with a BA/BS is approximately $25,000, so the math works out perfectly.

Debt load isn't the same as the cost of school.

No, but it's the same as the cost to the student, which is the point of reforming the student loan system.

No it's not, because you're not counting familial help or jobs on the side or savings. Also, you didn't address any of my other points. This program sounds great because they're actually charging less. They'll need to increase the terms of repayment by at least 50%.

Or the system we have in Mexico: You can choose between several very good public University (costing around $200 USD per year) or some really expensive $8,000 per semester.

Both of them will teach you exactly the same, but enrolling in the expensive ones will give you "social status".

Compared to US sure. Compared to some countries that pay you to go to secondary school not so much.

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