Wednesday, September 14, 2011
A Student Loan Stimulus?
It’s a nifty idea, even though it’s politically DOA. Divided among 1100 community colleges, it works out to between four and five million each. That’s certainly helpful -- no argument there -- but it’s not enough to add much capacity. Even a smallish, not terribly cutting edge classroom building will run at least ten million. It would help tremendously with certain kinds of deferred maintenance, but that tends to be too inconspicuous to hold much political appeal. And the stimulus would take an awfully long time to work through the system. “Shovel-ready” is a myth; we don’t get to shovel-readiness unless and until we’re serious, at which point the decision has already been made. First there’s the environmental impact, the ADA compliance issues, the retrofitting, the bid process, yadda yadda yadda. In other words, it’s a helpful long-term idea, but the short term payoff isn’t there politically or economically.
The helpful folks on Twitter pointed out a much better idea: use the money to forgive interest on student loans. (And I say this as someone whose loans are paid off.)
The student loan stimulus would do a world of good for people in their twenties and thirties, who are struggling badly as a group at exactly the times when the economy is counting on them to start both careers and families. Reducing their monthly (and total) loan payments would give them more spending money immediately. And unlike a one-shot tax refund, the reduction in loan payments would be permanent, so the money would be more likely to go into increasing aggregate demand. (One-shot windfalls are likelier to be saved.) Without demand, hiring just isn’t gonna happen.
Although we usually hear about mortgage debt -- understandably -- student loan debt is uniquely insidious. Unlike most consumer debt, it cannot be discharged in bankruptcy. Unlike mortgage debt, there’s really no collateral to sell if needed. (You can’t really sell your degree and get your money back.) If you dropped out of college before finishing, you have the worst of both worlds: loan payments and not even a degree to show for them. Forgiving the interest would be an act of mercy for the folks in this category, and there’s no shortage of them.
One could object that the bulk of the benefit from this program would accrue to Gens X and Y, but since their tuitions were dramatically higher than their predecessors’, even after inflation, this really just levels the field a bit. And given the reality of who takes out loans, it’s not immediately obvious that this would be regressive. If anything, the folks it would be likeliest to help would be the strivers who are working their way up. (The wealthy didn’t take out student loans.)
President Obama has mentioned wanting to increase the percentage of Americans with post-secondary education. If the interest forgiveness were projected forward as well as backward, that would make post-secondary education a lot more accessible even in the face of state cuts. And if the loans could be used for vocational training programs as well as traditional degrees, the payoff over time could be really dramatic.
Or we could throw a few billion more at banks and wars. That always works.
No. Back to basics. Demand creates jobs. A one-off bonus for someone already wealthy will just be added to the pile. A sustained hundred dollar a month improvement for someone making thirty thousand a year will get spent, probably quickly. This is a remarkably easy way to get money circulating quickly, and to give some struggling people some much-needed breathing room. Even better, it would encourage more people to get post-secondary education, leading to a higher productivity payoff over time.
President Obama, given the choice, I’ll forsake the construction money in favor of forgiving student loan interest, and I don’t even have any loans myself anymore. It’s the right thing to do. Waddaya say?