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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

Revised 2-22-15
The Education Solution advocates
  1. An education program for low-income children from birth to Kindergarten, and
  2. A better way for the federal government to support college students.
Early Education Program

The early education program is comprehensive. It includes parental education, health care, and nutritional assistance and advice. It is a locally-based, nationally funded program. Each local program requires a partnership between a charitable foundation or similar organization, a local educational entity, and an academic institution that has the capacity to perform an oversight and reporting function.

College Finance

The college student support program would institute a $10,000 annual stipend per student, repayable out of 2.5% of income until repaid, plus 1.5% of income for an additional ten years that would be offered to all qualified post-secondary school students. The stipend program would substitute for federally subsidized student loans, Pell grants and tax breaks for parents of students, all of which would be repealed. Thus

  • federal support for students would be repayable,
  • the stipend would be available to all students attending qualified colleges, and
  • the repayment burden always would not exceed 2.5% of a former student’s income.
The former student could not default except by failing to pay income tax.
The Goal

The goal of the programs is to significantly increase the effectiveness of education for less affluent children. That requires that a high percentage of high school graduates be college-ready, regardless of whether they choose to go to college, and that funding should not stand in the way of any student attending and succeeding at post-secondary education.

Projected Financial Benefits to Government

The combination of the two programs, while expensive to begin with, is projected to yield a $7 trillion benefit to government after 30 years. The benefit comes from repayment of student stipends, lower criminal justice and safety net costs, and tax receipts on the higher incomes of college graduates. The detailed projections and underlying assumptions are available for anyone to evaluate. See Appendix D that is linked at the left. Comments on the projections are welcomed.

Purposes of this Website

This website supplements the book. At the left you will find links to the book’s table of contents, appendixes, bibliography, and footnotes. In the band at the top of this page, you will find links to more detail on the programs and to research published or read after publication of the book.

There are hyperlinks to all online sources. Please go to join-the-conversation.org to give us feedback on the book’s proposals, ideas or research. The Education Solution is part of a movement toward national dialogue on how to restore prosperity to a majority of Americans and reduce inequality.

List price for the book is $25 for print; $8.99 for eBook formats, including Kindle and iBooks.