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1/08/2017 9:12 am  #1


To Boost the Economy, Help Students First

The Opinion Pages

To Boost the Economy, Help Students First

Sheila C. Bair

Donald J. Trump has made bold and provocative campaign promises on taxes, trade, immigration and infrastructure. These pledges are all in service of bolstering our economic future. While we hope these initiatives will help our economic prospects, there is one important measure missing from the debate. And it could have an even more immediate and direct impact on economic growth: student debt relief.

Student debt now stands at $1.3 trillion. More than half of student borrowers are unable to repay their loans according to the original terms. In a well-intended but poorly executed effort to make college broadly accessible, the government has lent freely to students, with little attention to whether they can repay those loans. The result is millions of young people with debt they cannot afford.

As a college president, I frequently hear from students who are anxious about their ability to repay their loans once they graduate. Many let student debt guide their career choices.

The Department of Education has tried to provide relief through a complex web of alternative repayment plans, including those based on a borrower’s income. However, these plans are limited to certain borrowers and involve a confusing array of options and bureaucratic “recertification” requirements, which cause a large portion of young people to lose eligibility each year. Student borrowers’ balances can actually get larger as they try to pay off their obligations.

But even while some borrowers’ loan balances grow under these plans, others are forgiven. The Government Accountability Office has estimated that the government stands to forgive $108 billion. Ironically, the benefits of these programs disproportionately fall on graduate and professional degree holders with high loan balances — and greater earnings capacity. Low-income students with smaller balances, who make up a majority of troubled student borrowers, receive far less benefit.

Mr. Trump should scrap debt financing of higher education and make the transition to true income share arrangements. Borrowers would fulfill their obligations to taxpayers by paying a fixed percentage of their income over an extended period of years. Think of this change as a shift in the government’s role from creditor to equity investor. When you lend to a business, it is obligated to pay you back with interest, but with a stock investment, your returns derive from the success of the company.

Similarly, with a student loan, there is a fixed obligation to repay the loan amount with interest, but with income share, there is only a contractual obligation for the student to return to taxpayers a certain percentage of his or her future income. Higher earners will pay back more than lower earners (up to a limit), though all will have an affordable payment and all will have protection against life events — a health crisis, caring for an elderly parent — that reduce their income.

Replacing the current, unwieldy programs with a single repayment plan based on income would provide immediate relief for millions of young people while guaranteeing a steady source of revenue to taxpayer coffers, particularly if payments were built into the tax withholding system. It would also provide economic stimulus, as lower payments on student debt would translate into higher consumer spending.

We saw during the housing crisis how unaffordable mortgage payments weighed on our economy by reducing the amount of disposable income available to people for spending. Excessive student debt is putting the same kind of drag on our prosperity. A growing body of research has concluded that as young people cope with high monthly student debt payments, they forgo things like buying a car or a house. Many live paycheck to paycheck. Escalating defaults among student borrowers impair their credit scores, making it even more difficult to borrow for large purchases.

An additional measure to ease the student debt load would be tax law changes to require colleges to spend at least 5 percent of their endowments, as is required of other nonprofits. That’s what we do at Washington College. The law should also require that schools use a certain amount of this endowment spending for scholarships.

We bemoan consolidation and “bigness” among banks and corporate America, yet the same thing has been happening in higher education, where 1 percent of four-year institutions hold more than half of all endowment wealth.

These two initiatives would be well received by young people, who in past elections have shown little affinity for the Republican presidential candidate. This most recent election was no exception, with Mr. Trump receiving 37 percent of the vote from people aged 18 to 29, compared with 55 percent for Hillary Clinton. Mr. Trump also had low support among voters with college degrees, whom Mrs. Clinton won by a nine-point margin, 52 percent to 43 percent. By moving quickly and decisively on the student debt crisis, Mr. Trump could promote his pro-economic growth agenda, while enhancing his standing among young people and voters with college degrees. Student debt relief is smart economics and smart politics for the new administration.

Sheila C. Bair is the president of Washington College. She served as chairwoman of the Federal Deposit Insurance Corporation from 2006 to 2011.

http://www.nytimes.com/2016/12/21/opinion/to-boost-the-economy-help-students-first.html?rref=collection%2Fsectioncollection%2Feducation&action=click&contentCollection=education&region=rank&module=package&version=highlights&contentPlacement=7&pgtype=sectionfront

Last edited by Goose (1/08/2017 9:13 am)


We live in a time in which decent and otherwise sensible people are surrendering too easily to the hectoring of morons or extremists. 
 

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