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

Paying for College

The U.S. government subsidizes college students in three basic ways: (1) through Pell grants that are available to low-income students, (2) through subsidized federal student loans, and (3) through tax deductions or credits for parents. The student loans are to be paid back to the government. The Pell grants and tax benefits are not. Student loan repayments impose pressures on graduates and non-graduates alike. The student loan default rate is expected to be about 18%. The pressures that puts on former students are, in a great many, probably millions, of cases bad for their career paths and their families.

The Education Solution proposes to replace these programs with a stipend of up to $10,000 per year for students that elect to accept it. The stipend would replace federal student loans, Pell grants and tax benefits. It would be repayable by the student, but only as a percentage of income—an additional income tax of 2.5% of income for participating students/former students beginning six years after college enrollment. No interest would be payable, but 1.5% of income would be paid for ten years after the stipend had been repaid. The risk of a student not succeeding thus would be spread over society as a whole. But a student’s success would benefit everyone.

The stipend program is a partnership between the student and her government.

For more information about the stipend program and why it is needed, please click on the link and buy the book.

To share your thoughts on the stipend program, please go to join-the-conversation.org, where we would like to hear from you.