As a personal interest, I am looking at the "demands list" that OWS has. It is hard to localize a single list. There are some posted on various sites and reported on various news sites that have some extreme elements (abolish private land ownership, etc). One demand that has floated around street interviews with protesters is the abolition of Student Loan Debt. That is what I want to talk about.
In a Wall Street Journal report, Student loan debt now outpaces Credit card Debt. The news story cites Federal Reserve data from June 2010 that pegs Credit Card debt at 826.5 Billion dollars and Student Loan Debt at 829.785 Billion Dollars. I see Student Loan debt as one of the next financial bubbles on the horizon.
Student Loan debt was easier to swallow when the economy was booming. Students expected to find work after graduation and would use their greater earning power to pay off the outstanding debt. Student Loan debt was seen as an investment in one's future.
Unfortunately, the job picture is bleak today. With unemployment hovering in the 9% (U6 is much higher), college graduates are finding it harder and harder to gain employment that allows them to pay off their debts.
There are two issues to look at here. Current debt and future debt forecasts. We need to deal with these separately. Lets first begin with current debt.
Current indebted students and graduates need a way to pay off their debts. Here is what I think would work:
1. Military Service - Graduates who choose to join the military could put their education to work for the military while having their loans forgiven via existing programs.
2. Public Service- Those who do not choose a military option can opt to work in public service. Whether it is city workers, counselors, home building for the poor or any list of public sector jobs, they can serve for a number of years that would provide the graduate with valuable work experience while reducing or eliminating their student loan debt.
3. Sponsored Internship - The government could sponsor paid internships for graduates with large companies that would provide the graduate with valuable private sector work experience. The internship exposes the graduate to opportunities in their fields and may lead to permanent positions and the conclusion of their internship. Funding would be shared by the company and government alike.
The above mentioned ideas would help solve the debt bubble of outstanding student loans. The other half of the equation is the new loans. Why do students take out loans? Because college is so darn expensive. College tuition rates have far exceeded the rate of inflation. In a 2008 CNN Money article, the Consumer Price Index (CPI) was compared to college tuition. From 1982 to 2005, the CPI rose 105%. College tuition has gone up 439%. (http://money.cnn.com/2008/08/20/pf/college/college_price.moneymag/)
What is so special about college that the costs have exploded? Some of it may be attributed to demand. Many employers require a 4 year degree in order to be considered for most professional level positions. One's resume is rejected before a human even sees your application if you do not possess the degree.
Lets also look at the money. Harvard University reported that it's endowment grew
$4.4 Billion to a total of $32 billion. The same report cites that the endowment has generated an average return of 12.9% per year over the last 20 years. The endowment pays for 1/3 of Harvard's operating budget. How much did Harvard pay in taxes on its endowment? $0.
http://www.goerie.com/apps/pbcs.dll/article?AID=/20110922/APN/1109221057
The Harvard Cost calculator estimates the cost to attend Harvard is $56,000 / year. I assume this also includes living expenses and such (Books, etc..). Further research showed that the tuition rate in 2009-2010 was $33,696. Safe to assume the 56K figure includes other non tuition expenses.
Runaway tuition costs are not being kept in check by the laws of supply and demand because an artificial demand is being generated by companies requiring degrees and the student loan program offering loans to anyone who has a pulse. Look at what happened to the housing market when loans were freely available; the price of homes skyrocketed.
Here are my proposals for solving the educational costs situation:
1. High Schools in conjunction with local community colleges enable requirements that HS graduates possess the coursework knowledge equivalent to the first 2 years of college. This includes all of the general and humanity courses that provide a rounded education. The costs of local community colleges are far more reasonable than private universities.
2. Undergraduate programs at universities only concentrate on the core classes for the degree sought. The program is only 2 years in length (The first 2 years are already complete upon HS graduation). Tuition is brought into line with actual expenses.
3. College endowments are taxed at the same capital gains rates as other taxpayers pay. Currently it is 15%. Taxing Harvard's $4.4b endowment increase this year would have resulted in $6.6 million dollars in tax revenue.
4. Employers REQUIRING a degree for a specific position has to provide tax free money to aid the employee in paying off his/her student loan debt. It can be structured to work over a set number of years with an employment commitment contract. Those who do not incur student loan debt can receive the funds tax free.
This is merely a framework of ideas. The Student Loan bubble must be deflated before it bursts. Just some thought about how to do it.
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