Wednesday, September 14, 2011


A Student Loan Stimulus?

President Obama has proposed spending five billion dollars on building renovation at community colleges across America.

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?

Amen. Let's encourage people to invest in themselves through education. Let's reward those who do so, just a little bit (or anyway, give them a break for a change). And it wouldn't help just those in their 20s & 30s. Increasing numbers of our undergrads are going on to get a Master's in something, and they're funding that through student loans. Most recent PhD's I know are graduating with a load of debt too and are on the 30-year payment plan. That puts them in repayment well into their 50s and 60s. Scary.

But, it won't happen. Tea partiers and their current Republican dupes are much too hostile to education.
As someone who has responsibly paid down his student loans, this strikes me as unfair-- just like forgiving the mortgages of people who bought big homes while I stayed in a place I could afford. Let's subsidize tuition, let's build new buildings, let's have mass transit-- but let's not subsidize irresponsibility.
Before I read the comments I was going to say "Nice idea, so I'm sure someone will be against it." Now I'll add that the idea would probably be misrepresented when it gets attacked, as if it forgave the principal rather than just the compounded usurious interest.

Furthermore, I would not limit that idea just to CCs. Although I'll take your word that your CC's alumni have 5 million in accumulated interest, sorting that out from post-transfer loans would be a nightmare. Treat that as separate from the construction idea.

I don't buy your assertion that no one has any idea how to build an ADA compliant classroom or renovate an existing one without 5 years of public hearings. This isn't a highway going through your neighborhood. The utterly incompetent states (mine, R government) that are just now starting to spend stimulus money should not keep funds away from states or localities that know what they are doing. We have a strategic plan just waiting to go to an architect and engineer and out to bid in less than a year.
I do have concerns with student loan debt. I would like to see programs that would forgive a portion of student loan debt for each year that a person works for an economically depressed area.
@anonymous - all government expenditure is unfair. I don't own a home, so I think the mortgage deduction is unfair. I don't have kids so I think the EITC is unfair. I don't own a bank so I think TARP was unfair. This isn't your weekly allowance from your parents, this is monetary policy design and the objective should always be for the good of the economy as a whole, not some provincial view of "fairness."
I don't know. $5 billion sounds like a lot of money, but it's less than 1% of the $830 billion in student loan debt. I mean, I'd like $80 off my student loans as much as the next person, but really?

Why not just make it a targeted program? Why not target allied health fields (among the few actually growing in this economy) and bolster loan repayment programs for nurses and expand them to others?
The fact that the workers you'd be putting money in the pockets of are disproportionately female may also add to the productive returns you get, unless we think that kind of thing only applies to third world countries and microfinance.
I've got an even easier idea. Allow individuals to repay student loans tax-free.

Students from wealthy families are able to attend college tax-free, as college savings are not taxed. Students who take out loans have to pay taxes on the money used to repay those loans. The end result is a regressive tax forced on individuals based on their parents' actions.
The point of the stimulus is not to give educated people a break. The point of the stimulus is to help construction employ more people. It is nominally directed at CCs but that's part of a larger scheme to do public works projects in general.

This reflects the DOL and federal government’s focus on helping workers that "need it most" which in the past has been the poor, the illiterate, those who have low paying jobs and want to move into higher paying ones in the same field (incumbent workers). The feds and DOL don’t know what to do with the well educated unemployed because until recently, it wasn’t that much of a problem. The DOL in particular struggles with programs in colleges because they take so long - DOL likes programs that are finished in 6 months or less (and they have a point – my former Uni required more than 50 semester units of gen ed – a year and a half of toss away classes taught by poorly compensated adjuncts so that the university could make a buck).

At the end of the day, the assumption is that college educated people don't need more help and at a certain level, that's true. While living with your parents in your early 20's might not be every person's dream, it's a hell of a lot better than living on the street – and for those that worked in construction at the turn of this century, things now are very stark.

As with many of the suggestions out their to "fix" the economy this falls in line with the idea that there's a whole group of poor people out there wanting to work but who can't because construction is in a rut. The noble poor who deserve our help! It ignores the basic structural problems inherent in wealth concentration and low taxation and the corrupting influence of infinite contributory capacity to political campaigns on the part of corporations. It also ignores the reality that the middle class is not only in trouble but shrinking by the day. 15% of Americans now live in poverty. 22% of kids are growing up poor. The rich who argue to preserve their tax breaks while our safety net programs are shredded and our cops get laid off should be ashamed of themselves.
there not their (sigh)
DD, you have very insightfully identified the reason we can't get the macro economy up off of the floor:

"First there’s the environmental impact, the ADA compliance issues, the retrofitting, the bid process, yadda yadda yadda."

But for the bureaucratic nonsense, we could build that building in half the time at a third of the cost. Instead, we've made it completely unaffordable, so we'll just do without. And without the jobs.

I generally agree with your point about forgiving student loan interest, but am unclear on why you think that would not be "throwing a few more billion at the banks," an option you seem to otherwise oppose. The banks, after all, will receive the money from the government to take the students off the hook, will they not?

Also, Cody Custis makes a very sound point that very few people appreciate. Why isn't all college tuition tax deductible, I wonder? Education is so important to our society that we have completely exempted from income taxes billions upon billions of dollars in the Harvard and Yale endowments. How about a real education tax break for the rest of us (not all the piddling credits and crap that's in the tax code now)?
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Dean Dad, While I agree that forgiveness of student loan interest going backward may be an appealing solution, the result of eliminating student loan interest going forward would significantly reduce the amount of new loans that the federal government would be willing to grant to college students. The option of last resort for people who cannot afford college would essentially be eliminated.
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