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

Why Get a College Degree?

A college degree is worthwhile for social and cultural reasons as well economic ones. But even focusing on the economic ones alone, the question is easy to answer. A person with a college degree is highly likely to earn more than a person without one. In fact, the education premium has been increasing, not decreasing, even though the biggest reason is that people without college degrees earn even less than they used to.

Here is a graph from a 2014 report by Pew Research, a non-partisan think tank, that found that the earnings premium for having a college degree was at a record high.

Here is a graph from MIT economics Professor David Autor (published in Science Magazine in May 2014) that clinches the deal:

Yes, some percentage of young people will go to college, earn a degree, then for any of numerous reasons, may not earn enough to pay for what they spent and borrowed. But that does not mean that those young people should not have gone to college. Ex ante, as economists say, that is before the students went to college, they could not have known which of them would succeed economically and which would not.

The Education Solution has a more extended discussion of this issue, as well as discussions of many similar issues that bear on how to make public policy in the education arena.