[sonofone]

Who here feel the government should issue 0% interest loans to students? Obama has said he would give four thousand a year to students for college. Wouldn't it make more sense to give everyone 0% interest loans for education and use the four thousand per student per year to absorb any unpaid loans?

[Lights]

It's not like students would be getting it for free. They have to do some community service, demonstrate need, etc. Of course, chances are that we won't ever hear about it again after he is elected.

[sonofone]

	Originally Posted by Lights To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.
	It's not like students would be getting it for free. They have to do some community service, demonstrate need, etc. Of course, chances are that we won't ever hear about it again after he is elected.

Thats not my point, and student could do community service to avoid the interest. But I feel like 0% interest loans would benefit students more then four thousand dollars. My idea really has nothing to do with Obama's idea, I just mentioned his plan as a comparison to my idea.

[Lights]

	Originally Posted by sonofone To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.
	Thats not my point, and student could do community service to avoid the interest. But I feel like 0% interest loans would benefit students more then four thousand dollars. My idea really has nothing to do with Obama's idea, I just mentioned his plan as a comparison to my idea.

My apologies. I see nothing wrong with your proposal aside from repayment. It's hard enough for the government to collect on student loans with interest, I can't imagine how much luck they will have with ones that don't have interest.

[coffeeloverfreak]

Lower interest rates usually result in higher debt loads. Look at what happened with the 0% mortgage idea and how that led to the housing crisis. People should think twice about acquiring mountains of debt, even for something valuable like education, since it can really backfire.

That said, I think that there ought to be better solutions for students in financial need. More flexible repayment terms, a grace period after graduation before payments and/or interest kick in, an opportunity to get out from under the burden of mountains of student debt so you don't start your life in poverty. Maybe some sort of optional national service program?

The point is, you have to avoid allowing people to just incur more and more and more debt and never complete a degree or do anything with it. Perpetual students are real problems here in Quebec, where tuition is super-cheap and you can loaf for years.

[thod]

0% interest loans would be abused. I would borrow a billion dollars if I never had to pay any interest. Its called a gift, I could put it into a high interest account and pocket the difference. You would get people signing up to all sorts of wacko courses. They get given the cash and use it as their down payment on a house never intending to study.

[sonofone]

Originally Posted by coffeeloverfreak To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.

Lower interest rates usually result in higher debt loads. Look at what happened with the 0% mortgage idea and how that led to the housing crisis. People should think twice about acquiring mountains of debt, even for something valuable like education, since it can really backfire. That said, I think that there ought to be better solutions for students in financial need. More flexible repayment terms, a grace period after graduation before payments and/or interest kick in, an opportunity to get out from under the burden of mountains of student debt so you don't start your life in poverty. Maybe some sort of optional national service program? The point is, you have to avoid allowing people to just incur more and more and more debt and never complete a degree or do anything with it. Perpetual students are real problems here in Quebec, where tuition is super-cheap and you can loaf for years.

Coffee, yet again, lets stick to the subject I'm talking about. I'm not talking about home loans, am I? 0% interest doesn't mean people wouldn't have to pay back the loan. I don't quite understand how 0% interest translates to free money. It's not. It's borrowed money, which needs to be paid back... just like a loan with interest. You're right, people should think twice before taking on mountains of debt, but that has nothing to do with what I'm talking about. If I take out a loan for college with or without interest I'm still taking on debt but if I don't have to pay the interest I'm not taking on as much.

Your second paragraph describes how most student loans exist today. Because the loan system exists as you suggest it should be (i.e. that loan providers should give a grace period during and for a short time after a student completes school) students are becoming perpetual students. So, in short, everything you said had nothing to do with my post.





sonofone added to this post, 4 minutes and 42 seconds later...

	Originally Posted by thod To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.
	0% interest loans would be abused. I would borrow a billion dollars if I never had to pay any interest. Its called a gift, I could put it into a high interest account and pocket the difference. You would get people signing up to all sorts of wacko courses. They get given the cash and use it as their down payment on a house never intending to study.

Why does 0% interest translate to billions of free money? Why wouldn't you have to pay the money back, and why wouldn't your payments have a minimum based on the amount you took out? It's not called a gift. Why couldn't the government make consequences (including interest) for not paying it back?


It's amazing, people are so conditioned to reject things that are it their best interest. Get it, interest?

[coffeeloverfreak]

Sonofone, I think you misunderstood thod's point, and I know you misunderstood mine.

This is basic financial management 101. If you can borrow money at a lower interest rate than the interest you would make from investing it, then it would be at your advantage to do this always. This is just basic present value/future value economics.

Say you borrow $100 today. In 1 year at 0% interest you'd have to pay back $100. But in 1 year of investment, say you earn 5% interest on that money. At the end of the year you'd have $105. You pay back the $100 and you pocket the $5. Free money.

Now, say you do the same thing, only instead of borrowing $100, you borrow a billion dollars. Assuming the same 0% borrowing cost and 5% investment gain, in 1 year, you could earn $50 million in "free money" in this example.

That's why borrowing costs typically exceed investment rates of return. You can get higher returns on riskier investments, but you're taking a risk. If you believe you'll outperform your borrowing cost, you should take the chance and borrow to invest (buy on margin). If you win, great. If you lose, you could lose your shirt.

But in a 0% interest loan situation, you're eliminating the risk factor, because there are plenty of guaranteed investments out there that will pay more than 0% return (i.e. all of them).

So you'd have plenty of students who could afford college taking out the 0% loan and either parking the money in an investment, or using it to pay off other, more expensive debt. Either way, you have a recipe for financial disaster, especially if these loans are offered federally and not by private instutitions.

As for the repayment grace period causing perpetual student-dom, I'd argue it's just the opposite. Loads of students put off graduating because they knwo that, once they do, they'll have to face up to their mountains of debt before even having a chance to job-hunt properly or establish themselves. If you make the transition from student life into real life that much easier, you encourage it more.

[HackerX]

Perhaps it would work as a variation of what we have here in Australia:

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Currently our "loans" have an interest rate of roughly CPI (wouldn't mind 0% though!)

What happens is, universities provide the government with the details of courses studied by students (who are allocated to HECS or HELP or whatever the fuck it's called these days). So you can't just go "I need $x amount to study". As you complete subjects your debt goes up.

e.g.
Semester 1 - 4 subjects (university limits the number of subjects allowed), ~$660 each x 4 = $2640 a semester of HECS debt

No interest occurs until after you complete your course (or you start earning enough money to exceed the threshold below).

Repayments are made automatically as part of your tax, as a percentage extra over a threshold. (read the wiki entry for a good explaination). What this means is you don't pay anything until you're earning enough money to be over the threshold.

The cool part is it basically happens automatically for me. I just tick the box when I fill in my tax declaration with my employer and they automatically take out the extra money along with the rest of the income tax.

Variation would simply be that the loan doesn't have the CPI interest rate.

I don't know how compatible that is with the American tax system, but it seems to work over here.

[sonofone]

I would like to start off by saying, "THANK YOU HACKERX!" This was the direction I hoped the conversation would go, and I'm glad that you were able to get past step one in your thought process.

Coffee, I started this discuss to get a conversation going on an idea I feel could work and benefit American students. I didn't intend for it to be a weak discussion in which I feel like I'm talking to a wall.

I'm not sure why you chose to make the leap and decide this would be a financial free-for-all. I never said you could borrow a billion dollars, and the fact that you directly jumped to that (well thod did but you seem to be restating that point in your most recent post), instead of thinking, "oh, maybe the 'government' would have some contact with the educational institution and have limits on borrowing based on the educational institutions filing the students incurred cost to that institution based on that semester." To me, this seems to make more sense then, "oh, this guy is suggesting that the government hand him a million dollars in cash on blind faith." In what world would the government loan a billion, or million, or thousands of unnecessary dollars to one student? What world is this? and so help me god if you bring up government spending involving defense contractors as an example of poor money management by the government. There is nothing wrong with looking for problems with an idea, but you also should look for solutions to those problems before criticizing it. And that's using your brain (prerequisite).

Now, I'll give you one problem with my idea (although, I'm sure there could be away around this)... inflation. If the money is wroth less tomorrow... well, that could cause a loss for the government. But let's get simple; maybe we could look at the loss as an investment in our future. hahah. But in reality, I'm sure this problem could be conquered, but I'm not going to do it at 4:00 AM... so until later.

P.S. As for the repayment grace period. My point was THERE ALREADY IS ONE! but thank you for reinforcing my point about students putting off graduating. Yet, amazingly, they're still putting it off with A GRACE PERIOD.

[HackerX]

Originally Posted by sonofone To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.

Now, I'll give you one problem with my idea (although, I'm sure there could be away around this)... inflation. If the money is wroth less tomorrow... well, that could cause a loss for the government. But let's get simple; maybe we could look at the loss as an investment in our future. hahah. But in reality, I'm sure this problem could be conquered, but I'm not going to do it at 4:00 AM... so until later.

See my point about the interest rate being matched to the CPI (consumer price index) (i.e. inflation).

I don't know how well the australian way would match up. Australian students living arangements are different. I think you guys pay for dorm rental and other living costs as part of your fees? This could be regulated by the university just like subject fees though.

Over here, australian students put off paying the loan by:
a) Not working, therefore not earning enough to hit the threshold
b) Moving overseas. If you're not taxed, you can't pay it

Still doesn't include things like textbooks etc, but over here anything used for study is generally 100% tax deductable

[Lights]

This idea is starting to sound like subsidized
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, which anyone who demonstrates financial need, and who fills out a FAFSA, is entitled to receive.

[sonofone]

HackerX, I know you mentioned the CPI, and my last post was a response to my frustration with Coffee for trying to argue a non-issue. I was merely highlight a much more legitimate flaw (which you already gave some input on) so the conversation could go in a constructive direction. P.s. It sounds like the Australians system is more focused on rewarding students, which is nice... for you. What do Australians pay (on average) in taxes?

[HackerX]

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Probably explains it better than I know