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Why not student debt?

The Education Solution proposes replacing federally guaranteed student debt, as well as Pell grants and tax benefits for higher education expenses with a stipend of up to $10,000 a year that would be available for tuition and fees to any qualified high school graduate attending a qualified school. Rather than being a loan, the stipend would be repayable only as a tax of 2.5% of a former student’s income, plus 1.5% for an additional ten years after repayment. A qualified school could be a 4-year college, a 2-year college or a trade school. $10,000 is sufficient to pay tuition at most in-state 4-year public colleges.

The principles behind the stipend program are:

  1. All federal support for college students should be repayable to the extent that the student succeeds economically.
  2. An equity partnership between the nation and the former student is fairer to both sides than a debtor-creditor relationship.
  3. No former student’s life should be adversely affected in any significant way by the support the nation gave for schooling.
  4. The government should be at least reimbursed, on average, for amounts it advances to support students’ educations.

The current system offers different types of assistance to students whose families have different levels of income. But Pell grants do not pay enough even for most 4-year in-state public colleges; tax benefits do not help lower-income students very much; tax benefits help high-income students somewhat (but not a great deal); therefore a majority of students from all income levels except the highest end up also taking subsidized loans. Those loans have, historically, had high delinquency rates, which have caused high levels of anxiety as well as ruined credit for a great many Americans who either have tried to get degrees and failed or have earned degrees but have not succeeded economically. That is not fair to the students.

It is not fair to the taxpayer that Pell grants and tax benefits are never repaid, no matter how successful the student becomes economically.

The current system, for these reasons, does not work properly for the taxpayer or for low-income families or middle-income families. And it provides tax benefits to wealthy families that they do not need.

The current system also is so complex that college counselors, who should be spending their time and knowledge helping high school seniors to choose the college that is best for them, end up spending a great deal of their time keeping up with the complexities and helping students and parents negotiate the system. The stipend system would help college counselors to do their jobs more efficiently.

Martin Lowy

February 28, 2015

About the Author

Martin Lowy has published six books and over 200 articles, mostly in fields related to economics, banking and law. The Education Solution is his first book in the education field. He had advice from numerous friends who are educators, but the research and conclusions are his alone.

Born in New York City to parents who were both family doctors, he was educated at Amherst College and Yale Law School. After law school, he spent a year at the London School of Economics working on a book on labor law with a Yale professor. He then spent twenty years practicing law in international law firms, mostly in the corporate field, with an emphasis on financial institution and securities regulation. That was followed by three years as a banker and by seven years as the founder and CEO of a company using new technologies to simulate various sports.

Martin Lowy’s other books include High Rollers: Inside the S&L Debacle, (published in 1991), the Practical Handbook for Bank Directors (published in 1995), Corporate Governance for Public Company Directors (published in 2003), and Debt Spiral: How Credit Failed Capitalism (published in 2009).

He is an independent researcher who calls ‘em like he sees ‘em.
His license plate says “Support Education”.
He lives in Citrus County, Florida, but spent most his life in New York City.
He is married and has two adult children and three grandchildren.
He is a passionate amateur cook and a golfer whose game deteriorates with age
He played intercollegiate tennis and squash.