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Student Loans

Travis says: Two of the great American myths are that everyone should own a home and that everyone should go to college. Home ownership anchors communities and encourages saving, but at what cost? Tax exemptions, sprawl, and sub-prime banking crises, for starters. Likewise, higher education offers many benefits, but the one-size-fits-all bachelor’s degree is an expensive anachronism. There are many students who would be better served by technical training and many more who would benefit from working before or between periods of post-secondary education (my own lack of professional experience is something I regret).

Nonetheless, the mortgage interest deduction will not come off the books anytime soon, and demand for higher education remains high. Change needs to start somewhere, how about the student loan system? Legislation has passed the U.S. House of Representatives and is now before the Senate to get rid of subsidies that encourage private lenders to originate student loans.

Here is Gail Collins’s tongue-in-cheek description of the current system and potential change: (http://www.nytimes.com/2009/09/17/opinion/17collins.html). “Let us … recall how the current loan system works: 1) Federal government provides private banks with capital. 2) Federal government pays private banks a subsidy to lend that capital to students. 3) Federal government guarantees said loans so the banks don’t have any risk. And now, the proposed reform: 1) The federal government makes the loans.”

The Congressional Budget Office, which still seems to have a decent reputation among both sides of the aisle, estimates that the reform will save USD 40-80 billion over 10 years, depending on how you do the math. Democrats, who support reform, want to spend the savings on expanding the Pell grant program, improving community college infrastructure, and other education-related projects.

If a conservative wanted to make the case that we should end all subsidies for student loans (and for public colleges and universities for that matter) or that we should invest savings in debt-reduction rather than education programs, I would disagree, but I would understand the logic. However, Republican lawmakers are actually advocating that we maintain the current system. Lamar Alexander, a former U.S. Education Secretary and current Republican Senator, supports the private subsidies and dismisses the proposed change as just another “Washington takeover.”

Student loans are problematic. If government gets out of the business completely, many students that have the brains but not the cash will be left behind. You can make the case that they should pull themselves up by their bootstraps and work their way through school. If co-op programs, where students alternate semesters of classes with semesters of meaningful and relevant work, were more widely available, this might be feasible. But good co-op jobs can be hard to find, and a student that has to make his or her way through school waiting tables will find it difficult to make up for the lost time and diverted attention that trust-fund kids don’t have to deal with. On the other hand, government (or subsidized) loans might encourage disinterested students to “try” college, saddling them with debt and wasting their energies. On balance, I support the Democrat’s plan for reform over the status quo, but the whole system needs rethinking.

Jim says: Travis, you will find this shocking, but I am four-square behind total federal government control of student loans, but with some catches.

When Laura’s youngest graduates from college, my entire immediate next-generation family will have benefited from the Hope Scholarship Program here in Georgia, funded by the most regressive tax of all—lotteries. Additionally, your wife benefited greatly from a quasi-private high school experience at the North Carolina School of Science and Math, fully state funded.

I would be an absolute hypocrite to endorse anything other than government-funded higher education. However, I would like to see some new constraints put on government funding, some that will seem absolutely socialistic in nature—again, I am sure, a shock. For instance, through actuarial planning, it would be easy to predict how many doctors, lawyers, and so forth we need in the future. Limit federal funding to those numbers (by federal funding throughout this response I mean both loans and grants). Use SAT or ACT or some other standardized test to determine who gets the funding, but limit it to only the numbers needed.

Now, a very important point—I did not say absolutely limit the number of students in each of these professions, only their federal funding. If they don’t make the grade, so to speak, to qualify for federal funding and they can still get into such a program, fine—let them and their families find a way to fund it—just don’t hang the costs on the federal government.

On the other side of the coin, I would suggest the federal government only fund those students who have applied for and attend colleges whose total all-in costs for education rise at or below the Consumer Price Index. Everyone making a case for health-care reform argues the costs are too high, a condition higher education is guilty of as well. Don’t reward schools that cannot manage their budgets.
 
In fact, all of my ideas above are taken from the left’s playbook for health care. Essentially what is good for patients and providers in health care should strike the left as equally applicable to students and education providers, too, if the efficiency argument of health care is truly the goal of all government distributions.

I have spent a couple of decades now working with pulp and paper schools and being privy to their scholarship funding decisions. These are difficult issues. Not surprisingly, I have been one who wants the students to refund their scholarship funding if they don’t enter our industry (cooler heads have wisely prevailed in all cases). Yet, it is a dilemma for society as a whole to fulfill its need for qualified professionals in specific fields while allowing young people freedom of choice.

For instance, Supreme Court Associate Justice Antonin Scalia recently lamented the current overabundance of lawyers, remarking that why didn’t these bright people become research scientists (loosely quoted). With my suggestions we could steer government funding in a certain direction while leaving the truly determined the right to set their own course.

You mention the trades, and I also agree with you: this is a big problem. Working with one's hands (other than as a National Endowment for the Arts-funded propagandist, oops, I mean “artiste”) has become a source of shame in the United States in particular. Yet, often the trades jobs are the ones immune to cheap imports. Take truck drivers, for instance. Here in Georgia, I-16 is wall-to-wall trucks hauling imported goods from the Port of Savannah to the insatiable appetites of Atlanta and points north. Fixing my defunct air conditioner on a hot southern summer day can not be exported. There are many jobs like this, well paying jobs, that as a society we seem to degrade.
 
Saving USD 40-80 billion over 10 years, as you cited above, is mere chump change these days. However, I think with some other reforms as I have suggested, we could really influence our most important investment in a positive way: the education of the next generation. I am willing to give the federal government a chance to prove its competence with this one. Yes, Travis, you and I may have to say we stand united on this one.


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