6/3/2013: Like many profs, particularly those with kids, I got through grad school with federally subsidized student loans. Mine had a 1.25% interest rate, so I drew out the repayment as long as possible – 16 years, and paid it off 2 years ago. Those days are gone: rates are scheduled to increase to 6.8%. Obama has a plan to peg the rate to the gov’t cost of funds: T-bills plus 0.93% points.
Default rates are so high this still involves large subsidies. The data is clear that college, particularly 4-year college, pays off in dramatically higher wages and lower unemployment rates – but not if you drop out. We don’t pay much attention to the dropouts – they are gone. But they are going to end up trying to repay the money they borrowed, which went to our salaries, for a very long time.