I read a commentary today in USA Today by Jesse Jackson. Not only was it reasonable, I can’t think of any downside, maybe you can.
Essentially he says the government should give out student loans and charge 1% interest rate. Thanks to the stimulus package we’re already loaning GM tons of money at 0% interest, the Federal Reserve is currently loaning cash to banks at less than 1%, yet government subsidized student loans from banks charge 5%, private loans are double that even. Students, our future competitive advantage, are essentially subsidizing irresponsible banks.
Jackson goes on to point out that this would appeal to even Republicans as the savings goes directly to the taxpayer and isn’t filtered through an increasingly nationalized banking system.
Not really, but I haven’t thought through all of the implications of that asshole’s proposal.
But the cynic in me thinks that with almost interest-free government loans available to prospective students, institutions of higher education will only jack up their tuition by an equal amount.
This way they get your money (either yours or some secondary lending institution’s), and your money again from the government.
I’d need more information to really understand the details and ramifications, but my first concern would be that it creates too much incentive for everyone to borrow for college, even those family who can comfortably afford to pay their tuition up front. Anything the drives our economy into even more debt (even if said debt is to the government) and more borrowing has to be a bad thing. Also, it could create a large, perpetual burden on the already strained tax revenues.
I’m willing to listen to ideas of why the above might not be bad, or how the bad effects might be balanced or outweighed by the social, economic and competitive benefit to the nation but I’m sure it’s not as simple as just doing it.
I’m almost completely certain that it’s justification and relative merits have nothing to do with the loans being issued to the auto and banking industries however.
The government shouldn’t be loaning our money to GM. We’re never going to get it back.
I don’t have a huge problem with the 1% discount rate…what I have a problem with is the Fed buying non-traditional assets such as commercial paper and mortgages. We are going to lose a boatload on those.
Student loan default rates have always been way more than 1%. So if past history is any guide to the future, you are essentially guaranteeing we would lose more money by loaning it to students at 1%.
What ‘savings’ is Jackson talking about? The man is an idiot. About on par with Nancy Pelosi on the financial intelligence scale. And that aint saying much.
Oh, and I agree with the poster that subsidized cheap money will have unintended consequences, such as driving up demand (and therefore) tuition. In fact, that is sort of happening already.
Interest be damned, an educated citizenry is the best investment any democracy can make. If our nation ever did anything as smart as the GI Bill, I’ve yet to hear of it.
The externality effect of primary and secondary education is pretty demonstrable. Higher education, less so. There are many studies which show how the benefits of higher education accrue to the student (e.g. borrow money to go to college, make more money later on) so there is less of a reason for the public to subsidize it. That’s not the same thing as offering student loans at a market rate.
For men and women who risk their lives defending our freedom and get paid squat to do so, I’d personally be willing to discuss a slightly different set of rules.
Employment prospects be buggered. Its always best to have the rulers of a nation be as smart and well-educated as possible. Since in a democracy that’s us, well…there you have it.
In general, it’s hard to argue with that. But how does the market work here, and provide signals to the buyer, seller and payor? In a loan default situation, the latter is you and me.
For example, if State U charges $70,000 per year for a degree in Russo-Ecuadorean Rhetoric and Middle Age Joint History (with a minor in defunct Tasmanian dialects) and the student can’t get a job with those skills to pay back the loan, how is that signal given to the market? Or do we have to be content with the notion that our tax-subsidized 70 grand just happened to be the right price, and was put to ‘good use’ because now we have a supposedly educated person as a citizen?
There has to be some mechanism that provides a healthy tension between buyer, seller and prices. Otherwise there is no mechanism to check-and-correct the products that are sold and the prices charged for them.
In a free market, students need to think long and hard about taking out loan and whether or not their job skills will generate enough income to pay it back. Colleges need to think long and hard about whether it’s worthwhile to invest in new degree programs and charge money for them if there is a chance no one will bite. Or perhaps, if lower cost alternatives (such as online schools or other skills-training programs) might compete with them.
Just giving money away to students for general purposes runs the risk of accomplishing nothing of value.
I understand that there’s booming reasearch being conducted into the effects of $200,000+/year salaries paid to tenured college professors and administrators…
I doubt many households in America can “comfortably” pay for their children’s tuition. Given that many other countries, Westernized and Third-World, offer its citizens a free college education, the least we can do is reduce the amount of interest on these loans.
Jackson’s idea is good because the federal government is the only entity with the enough solvency and patience to lend money to its citizens with a return.
Why don’t we let the try and let the market work a little here? Instead of immediately throwing more money at something because it sounds like it might be a good idea to do so.
What do you think might happen if all of sudden colleges discover their prospective students don’t have any money to pay for tuition? What might happen next?
I’d rather see a law forcing some of these schools to annually spend a portion of their endowments to provide their neediest students with financial aid instead of hoarding it.
It would be much better if he had a plan to lower the cost of college tuition, not find novel ways to extend ourselves into further debt. Haven’t we learned anything by this recent economic experience?
Artificially lowering mortgage rates and throwing money at potential homeowners will not change the fact that housing was grossly overpriced.
Artificially lowering SL interest rates and throwing money at potential students will not change the fact that higher education is grossly overpriced.
I also think some of you may have a warped sense of what a “college” is and have it confused with community college. When we talk about colleges, it’s not just a place of education, it is at the heart of research in the U.S. The cool part of about going to Public Schools like Penn State or University of Michigan is that students are being taught by individuals who are at the forefront of their fields.