One of the key parts of this is extending it across 24 years. To simplify the math, let's assume a graduate gets a job paying $30,000/yr, and annual payraises of 3%:
This does not factor in interest on the original loan. $1,776 in year 24 is not worth $1,776 today, it's worth considerably less[1].
Here'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):
To do this calculation correctly either the future payments need to be converted into today's dollars or interest on the original loan needs to added to it (i.e. calc in future dollars).
But we want the present value, the value in 2013 dollars. That calculation is much easier, because you can assume inflation = pay raise and it cancels out. PV = $900*24 = 21600.
This is the calculation for someone who got a bad job and never advances at all in 24 years. It might be a good deal for them. On the other hand, they could make that without going to college. Someone successful would make significantly more, and pay significantly more.
This program will get a lot of stay at home moms out of paying for their psych degrees.
Inflation, or cost of living raise imply's that you are simply doing the same entry level job for 24 years and you never ever got a real raise. Never got a single promotion, or moved companies to a better job. And started at a below average wage. Of course this is a good deal for that person.
If you want to be that person, you should totally support this plan or one like it. However, if you'd prefer to be even a little bit successful, this plan doesn't turn out as good. The math works quite differently if you start out at a better wage, as I imagine most people on HN did. It also works differently if you ever get a promotion in 24 years.
It will lose money on the median student but what matters is mean performance (expectancy).
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.
