Friday, July 12, 2013

Editorial: Lighten College Costs

Federal student loan interest rates doubled on July 1 because Republicans would not agree to a proposal by Democratic Senate leaders to keep the loan rates at 3.4%. The House, along partisan lines in May, voted to switch the rates on Stafford loans to a market-based system, with the rates recalculated every year, at 2.5 percentage points above the 10-year Treasury bill rate (which closed at 2.58% on July 10). The loan rate would be capped at 8.5%. The White House said that would create uncertainty for families and put them at risk of paying more when market rates go up. President Obama proposes to base student loans on market rates, but would fix the rate for the life of the loan.

Republicans on July 10 filibustered the Senate proposal that would have returned the rate to 3.4%. So the student loan rates will stay at 6.8% for the foreseeable future.

Sen. Elizabeth Warren (D-Mass.) has a much better idea: the government should lend money to university students at the same rate that the Federal Reserve offers the nation’s banks — 0.75%. The federal government should not be making a profit off our college students — as it does under the current rates. The Treasury will make $51 billion in profits off student loans this year, Sen. Warren noted.

More than 38 million Americans are saddled with student loan debt adding up to nearly a trillion dollars. The class of 2013 graduated with an average debt of $35,200 (up from $26,000 in 2012). That accumulation of debt is the result of more than 30 years of Republican efforts to cut the “free ride” for college students.

The federal government took a leading role in developing higher education opportunities when Abraham Lincoln signed the Morrill Act of 1862, which granted federally controlled land to the states for development of “land-grand colleges.” Dwight Eisenhower signed the National Defense Education Act in 1958, which provided funding for education to keep American students ahead of their Soviet rivals, particularly in math and science, during the Cold War. It also provided financial assistance for millions of students attending college through the National Defense Student Loan program. In 1965, the Higher Education Act under Lyndon Johnson expanded National Defense loans (later renamed Perkins loans) and introduced Stafford loans, which were guaranteed and subsidized by the government.

Republican leadership ended in 1981, when President Reagan, who had railed against college students whom he felt had it too easy when he was governor of California, signed the Omnibus Budget Reconciliation Act, which cut funding for Pell Grants and excluded middle-class students from the program, limiting the grants to lower-income families. He also cut direct student loans and restricted eligibility for them. He also phased out Social Security survivors’ education benefits, which provided one-fifth of student aid in 1981.

As governor of California from 1967 to 1975, Reagan ended free tuition at state colleges and universities, arguing that if students had to pay for their education, they’d value it too much to skip classes for protest events. He also annually demanded across-the-board cuts in higher education funding, slashed construction funds for state campuses and declared that the state “should not subsidize intellectual curiosity.”

Texas was proud of higher education opportunities it offered for students of modest means through the 1970s. When Rick Perry attended Texas A&M in 1970, the state paid 85% of the cost of higher education and a student could get a bachelor’s degree with little or no debt. Tuition and fees for the regular workload of 15 hours was $104 per semester for Texas residents. (That was the equivalent of 65 hours working at the minimum wage of $1.60.) Tuition and fees rose to $2,357 a semester (or 458 hours at the $5.15 minimum wage) by 2002. But a student could still pay tuition and fees by working 20 hours a week, not counting room and board.

After Republicans gained control of the Texas Legislature in 2003, with Perry as governor, the Legislature “deregulated” tuition. Since then the Legislature has cut appropriations for the state’s universities to less than 20% of the cost of higher education. In 2012, the average cost for a semester for a state resident was $7,533, an increase of 55% since deregulation, the Dallas Morning News reported. (That’s the equivalent of 1,039 hours at the minimum wage of $7.25.) The estimated cost of undergraduate education at the University of Texas in 2013, including campus housing, is at least $25,704. (The estimated cost for California residents to attend the University of California, including housing, is $31,700.)

States are spending $2,353 less per student on higher education nationwide in the 2013 fiscal year than they did in 2008, amounting to a 28% cut since the recession hit, the Center on Budget and Policy Priorities reported in March. Eleven states have cut funding more than one-third per student, while two states — Arizona and New Hampshire — have cut their higher education spending per student in half. Texas, despite its relatively healthy economy, cut 22.7%.

Public colleges and universities across the country have increased tuition by an average of $1,850, or 27%, since the 2007-08 school year, after adjusting for inflation, to compensate for declining state funding. In two states — Arizona and California — tuition at four-year schools is up more than 70% in that time.

As costs have shifted from the states to students, sharp increases in tuition have accelerated longer-term trends of reducing college affordability. At the same time, many state universities and community colleges have been forced to cut faculty and staff positions, reduce course offerings and reduce support services.

President Obama and the Democratic Congress in 2009 and 2010 expanded funding for Pell Grants and cut fees the government has been paying to private lenders that issue government-backed loans, but after Republicans took control of the House, Budget Chairman Paul Ryan (R-Wis.) proposed further cuts to the Pell Grant program, claiming it costs too much and is “unsustainable.” In 2011, he told a student, “Look, I worked three jobs to pay off my student loans after college. I didn’t get grants, I got loans, and we need to have a system of viable student loans to be able to do this.”

In fact, after the death of his father when he was 16, the skinflint collected Social Security survivors’ benefits, which he put away for college, until age 18. He also worked side jobs in college and during his early years as a Capitol Hill staffer.

In 1950, 5% of American adults had bachelor’s degrees. Today, 31% do and as manufacturing jobs are exported overseas a university education will be increasingly necessary to get into the middle class and stay there. But more than 40% of college freshmen won’t graduate, and high costs are a leading reason.

Most European nations, as well as China, who lagged behind the United States for years in the number of adults with college degrees, recognize the value of higher education and offer free post-secondary education. The College Board in 2010 warned that the growing gap between the US and other countries threaten to undermine economic competitiveness, as the US ranked 12th among 36 developed nations.

State legislatures should step up to restore their share of the cost of higher education and make it affordable to students working no more than 20 hours a week. At the current minimum wage of $7.25 an hour, that means tuition should be no more than $3,625 a semester (or $7,250 a year).

Congress should adopt Sen. Warren’s proposal to offer student loans at cost. It also should restore Pell Grants for middle-class families and/or increase the minimum wage so that students can attend these high-priced state schools with a part-time job.

After World War II a college degree was attainable for Americans who could make the grade; those graduates helped the postwar economy boom and American productivity was the envy of the rest of the world. Since the Reagan era the pursuit of a college degree has become a struggle for low- and middle-income families. It’s time once again to invest in the future. — JMC

From The Progressive Populist, August 1, 2013
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Selections from the August 1, 2013 issue

Thursday, July 11, 2013

Oregon plan to base tuition on future income could end banks’ college loan gravy train

By Marc Jampole

The Oregon state legislature has passed a bill asking a state commission to consider an innovative plan to charge bachelor degree recipients from state schools no tuition or fees, but instead make them pay 3% of their salary for 24 years after finishing school.  It’s called “Pay It Forward,” based on the turn-of-the-century melodrama of that name in which people pay back good deeds done for them by doing good deeds for others. With the current conception of the plan, students would pay .75% of future earnings for each year of college they complete, so that someone receiving an associate degree at a community college would be responsible for 1.5% of future earnings for 24 years.

Someone did the math: the average recipient of a bachelor of arts from an Oregon state university would pay about $39,653 over a lifetime, about $7,000 more than the actual cost of tuition and fees. That’s not bad—my math concludes that it’s a break-even for a student considering a 10-year loan of $32,500 at 4%, the interest on which is the same $7,000.

Of course, that’s average, which is what I love about the proposal. People who don’t make as much money will pay less and those who make a lot of money will pay more. Paying more when you do better makes perfect sense to me—no attorney can be successful without a degree, because no one will use a lawyer who didn’t go to law school. Just as no one will hire a marketing assistant without a degree. Currently, both the marketing assistant and the attorney pay the same to go to a state school. Under the Pay It Forward proposal, the successful corporate attorney will likely pay more than the average, while the successful marketing assistant who never gets promoted will pay less than average.

The Pay It Forward plan thus automatically creates financial aid for students who can’t afford to go to college, and it seems to do it more efficiently and fairly than the current system. Universities could also continue giving academic scholarships to the very most outstanding students—the scholarships could involve not requiring payback of future earnings or payback at a lower rate.

The conceptual drawback to the plan under discussion in Oregon is that it would only cover tuition. Some students would still have to take out loans to cover living expenses. It seems to me that since colleges operate dorms, there is no reason why all college costs can’t be wrapped into Pay It Forward.

Some are already calling the proposal unfair to the very successful person—say the engineer or medical doctor—who is going to pay vastly more money for college than he or she would under the current system. But the current system isn’t working for most people, because most people have to borrow money to go to college. I see nothing wrong with continuing a full tuition system alongside the Pay It Forward. If a wealthy physician wants to send his brilliant girl to the state law school and pay full rate, no muss no fuss—more power to both of them. But the Pay It Forward system involves a social contract between the college and the individual—the school has no idea how financially successful the individual will be in the future. The school is therefore taking both current risk and part of the future risk. In return, it should expect the individual to take a portion of the future risk, especially since that future risk will always be commensurate with the individual’s reward, since the future payment will be based on salary. 

In a way, Pay It Forward concept is a mirror image of the highly successful Social Security program. What will happen under Pay It Forward is that those who went to college will pay for those who are going to college. With Social Security, those who will retire someday pay for those who are currently retired. 

All of this talk of Pay It Forward is pie-in-the-sky, though. Does anyone think that the bank lobby would allow such a plan to pass and be implemented?

The student loan is the ideal investment for a bank, since it is the only type of loan that does not get wiped away in a bankruptcy! Roughly two-thirds of all students need to borrow money to go to college and college debt now averages almost $27,000 per borrower. That’s trillions of dollars in outstanding loans, and growing!

Banks will never go for a plan in which states finance college education and take away such a lucrative source of income.  And if the history of the government bailout of our economy post 2008 is any indicator, the big banks always get what they want.

Monday, July 8, 2013

Insurance companies may become quiet heroes in fight for gun control

By Marc Jampole
Frequent readers know that one of my favorite hobby horses is to defend government solutions to social problems against the absurd claims that the free market will solve all problems better than the government.

Most of the facts are in my favor: our wars have become disasters since we started to depend on mercenaries and privately run prisons are a shameful shambles.  Social Security faces a manageable short-term financing problem because the ratio of workers to retirees will fall for a few decades; all that’s required is a quick fix or two. Compare the minor Social Security financing challenge to all the private pension plans that have gone belly up over the past 10 years or to the collective 401K plans of the American public. The public Social Security is on much firmer ground than private retirement solutions, which study after study concludes are severely underfunded.

Having now given one more screed in favor of government solutions, I must admit that the private sector may succeed where government has failed in one instance: in fighting the absurd idea that the way to make our streets safer is for more people to carry guns.

Since the Newtown massacre, the National Rifle Association (NRA) has been campaigning to bring firearms into school. As usual, politicians of both parties have lined up to give the NRA what it wants: As the New York Times reported, seven states have recently enacted laws permitting teachers and administrators to carry guns in schools.

But it’s doubtful that any teachers are going to be carrying guns to class in any of the seven states.  The insurance companies won’t let them. For example, the Times reports that the insurance company that covers 90% of all the school districts in Kansas has told its agent to decline coverage to any school district that permits employees to carry concealed handguns. In Oregon, the association that manages liability insurance for virtually all the school districts will charge an extra $2,500 premium per year for every staff member carrying a weapon on the job.

The Times article does mention school districts that permit teachers to carry and have been able to get insurance, but for some odd reason the writer is not able to name any of the insurance companies providing the coverage to these gun-toting districts.

Insurance companies are often at the forefront of increasing safety, because improved safety leads to a decline in accidents, which in turn leads to fewer claims, which then leads to some combination of lower premiums. I have seen a number of businesses of all sizes improve safety protocols and policies at the insistence of the insurance company. When insurance companies walk away from business, it can affect the economy of a region, for example, in a flood zone. And despite the bad rap they get, health insurers have been at the forefront of preventive medicine, because it leads to healthier patients, which again, lowers claims.

The problem that our elected officials have is that they want to believe that wishing makes it so.  Many legislators and their financial backers wish that we could prove a divine hand created us or that global warming is not taking place or that lowering taxes on the wealthy creates jobs. All nonsense! In the same way, these benighted and corrupt legislators join the NRA in wishing that arming America to the teeth will make us a safer land. Lots of studies suggest otherwise.  In fact, most studies demonstrate that the more guns in a population, the more people will be injured or killed by guns.

Insurance companies do a good job of reducing all risk to money, including the risk of death and injury. When the insurance companies raise rates on school districts that permit gun-toting teachers, it’s because they know that they will have to pay out more claims because of death and injury.  They’ve run all the numbers and they know that more guns in a workplace will cost them money. Somebody is going to have to pay—some with higher premiums, some with their lives.