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> Student loan interest rates, Should they differ based on course of study?
akaCG
post Dec 29 2015, 08:14 PM
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Question for debate:

Should student loan interest rates be based on a student's course of study? Why or why not?


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Gray Seal
post Dec 29 2015, 11:29 PM
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It should be based upon whatever criteria the two parties wish. Loans should be a free transaction and each side can consider whatever factors they wish to consider.
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AuthorMusician
post Dec 31 2015, 07:28 PM
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QUOTE(akaCG @ Dec 29 2015, 04:14 PM) *
Question for debate:

Should student loan interest rates be based on a student's course of study? Why or why not?

No, because a student's course of study gives very little indication of future income. It's only one detail in a huge matrix of details about the student.

While it is true that articles about the best-paying degrees are common, they are mostly just hot air based on stats, which are based on the past. Income depends more on the job markets, which like any other market, are entirely unpredictable. Who would have known oil prices would plunge? How about the demand for electrical engineers outpacing mechanical and vise versa? That, in the late 1980s, C programmers would be in high demand as midrange Unix machines replaced mainframes? Lots of examples of unpredictable things happening in markets. If this stuff were reliably predictable, we'd all be rich. But no, it's a lot closer to gambling.

Ideally, no student loans would be necessary because wages would be high enough to cover the costs of continuing, lifelong learning. Until that happens, the only reasonable way to approach student loan interest rates is to keep them flat, every student paying the same cost for the loans. That's because a student studying emerging markets might make less than one studying philosophy.

The essence of this has to do with determining the ability to pay back the loan. Student loans are unique because this ability cannot be determined at the time of the loan. It all has to do with future events, not current income (if such exists).

Of course other loan interest rate determinations assume that conditions as they are will continue on throughout the loan period -- no layoffs, no shutdowns, no wars, no natural disasters, no crooked CEOs heading to prison and so on. Note that in personal bankruptcy, non-student loans can be forgiven, while student loans hang on forever. The assumption here is that higher ed means higher wages, which is sometimes true. The only way we can know this for certain is after the fact, not before, and it depends a lot on what one does with the higher ed credentials. They don't automatically make things happen most of the time. It takes a lot of effort to find the breaks. If it were an absolute truth, the need for personal bankruptcy would not exist, unless the person made some really bad economic decisions like trusting Madoff and others or overextending credit. Divorce often leads to bankruptcy as well.

So charging more or less interest based on a student's course of study is not very smart. The risks should be spread out to reduce them, like having a diverse investment portfolio. Consider each student as an investment, some looking more risky than others right now, but that current perception can change dramatically, depending on future events and trends. Your pre-meds might end up as bus drivers, and your philosophy majors might end up as highly paid business consultants. Your engineers might find a dried up job market, also driving buses, while your English majors could become computer gurus who can actually write. Two for the price of one!

You just can't know. It's about the future, and I'm not talking hoverboards or flying cars.

This post has been edited by AuthorMusician: Dec 31 2015, 07:41 PM
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Hobbes
post Jan 5 2016, 05:05 AM
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QUOTE(AuthorMusician @ Dec 31 2015, 02:28 PM) *
QUOTE(akaCG @ Dec 29 2015, 04:14 PM) *
Question for debate:

Should student loan interest rates be based on a student's course of study? Why or why not?

No, because a student's course of study gives very little indication of future income. It's only one detail in a huge matrix of details about the student.


Even if it did, how should that affect interest rate? Interest rate is determined by risk...and many of the highest earners are the biggest defaulters on their student loans. They have since changed the laws restricting this, but the point still stands.

Further, would you charge the highest interest rates to those more likely to get the higher paying jobs...or would it be the reverse, due to decreased risk? Very problematic issue.
QUOTE
Ideally, no student loans would be necessary because wages would be high enough to cover the costs of continuing, lifelong learning. Until that happens, the only reasonable way to approach student loan interest rates is to keep them flat, every student paying the same cost for the loans. That's because a student studying emerging markets might make less than one studying philosophy.


Or the reverse...student loans would be free because the government would get that money back in higher taxes from the higher wages the better education allowed.

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AuthorMusician
post Jan 6 2016, 10:34 AM
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QUOTE(Hobbes @ Jan 5 2016, 01:05 AM) *
Or the reverse...student loans would be free because the government would get that money back in higher taxes from the higher wages the better education allowed.

Or in the case of Bill Gates, education wasn't even in the mixture that brought him financial success. Who knows what degree Donald Trump earned, if any? Very few due to higher ed being irrelevant to making tons of cash.

On the other hand, a working class hero, such as myself, got a bump up via higher ed, but not due to the quality of the education. I went to a state university with no rep to speak of, other than having once been a teachers' college, and it all depended upon what I did to make the education worthwhile. I figure my earning potential rose by over 100%, compared to my brothers who went straight into the mines.

So higher ed is, or at least once was, a ticket that could get punched if you had figured out who the ticket punchers were. Today it's more like a high school degree, the undergrad work. Even rock-solid experience isn't carrying the weight it once did, or at least so it seems to me. This is partly due to importing skilled labor rather than using our own, which is a sticky situation. The excuse used is that we citizens are just not able to do the jobs, while I strongly suspect that it has to do with labor costs rather than ability levels.

Today the big question in the younger generations' minds is whether higher ed is at all worth it, and I don't blame them. It's a freaking tragedy, this attitude that high grades from a university with reputation is necessary for success in life. I absolutely hate it. Education has intrinsic value, but it isn't an easy thing to detect or analyze. It's a lot like love. Either there's a spark or there isn't, and nobody can make it happen but the individual.

And then there's the personal investment of self into career directions, also knowing how to find out what careers are moving ahead and which are dying off. This goes into risk-taking and flexibility during times of upheavals, such as when the Rust Belt jobs migrated overseas, while the high-tech industries were growing by the old leaps and bounds thing, except back then it was more like fits and spurts. Nobody knew where tech was heading for long periods of time; nobody could see the smartphone on the horizon (pun, ha ha).

In any case, education should be really cheap compared to buying a car or house. Right now it actually is very inexpensive if a person is motivated and has clear direction, plus the ability to sift through bad info to find the reliable stuff. The trouble looks to be fixation on academic credentials rather than putting theory into practical applications that will make money. What form that takes can be anything, such as building a website that people will want to use for stroking their egos and sharing perhaps too much information with the world.

Meanwhile, how we are financing higher ed that's overpriced is not sustainable. Financial institutions shouldn't be trying to gouge profits out of the system, but that's where the system has taken us. On the positive side, true educators are working hard to lower the costs via MOOC and other approaches. If the system can't be reformed, then the system will fade into oblivion as smarter folks figure out better ways.

Once we, as a species, stop doing that . . . it's the end of the world as we know it. It's back to the trees with a dim idea that essence might actually be more important than existence. Or no clue at all, just another food species in the great web of life. But that won't happen. We are too far gone, thankfully, to go back.

We made sand think and the reusable rocket. We have generated electricity directly from sunlight. We have cooked our food without fire and brought hunks of the sun to Earth. We're just about to replace lithium with sodium chloride for storing our electricity, which will be good news for fake hoverboard manufacturers and EV enthusiasts alike, not to mention the impact this will have on our electrical grids. What will we dream of tomorrow and bring into reality? Or rather, what will the younger generations do with so much available knowledge and their own energy, their own thirst, their own sensibility? Whatever that turns out to be, I bet it'll be remarkable.
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