The debate on how we get out of this mess has begun in earnest. The $825 billion plan introduced in the House is a good beginning. It makes a down payment on investments vital to our future–in new energy, health care efficiency, and education. It provides assistance for those hit the hardest by the crisis. It provides a tax break for the vast majority of Americans.
Most Republican leaders have reacted as partisans rather than patriots. Their objections are simply wrong-headed. House minority leader John Boehner says the plan is too large, spends too much, and has too few tax breaks for business. In fact the reverse is true. If anything, given the accelerating downturn, the plan is too small, and contains too many business tax breaks that are notoriously ineffective at producing jobs.
To help get the economy moving, Congress would be well advised to pass–either as part of the recovery plan or separately–a bold initiative to help make college and advanced training affordable. I'd suggest a simple proposition. Let's make college loans available to students on the same terms that the banks receive.
Banks are now able to borrow money at about 1 percent, even as the Treasury and Federal Reserve pour in literally trillions in equity, loan guarantees, credit swaps and the like to keep them from going belly up. Over the last decades, students have gone from paying for college with 2/3 grants and 1/3 loans to the reverse, with most racking up literally tens of thousands of loans to stay in school. They are forced to borrow–even on the subsidized loans–at rates of 4 percent to 6 percent. When those limited funds are exhausted, they are forced into a private market where interest rates are even higher, and sometimes end relying on credit card debt where usurious interest rates are over 20 percent.
With the recession spreading, students are struggling to cobble together the funds to stay in school. Parent contributions get slashed when one loses a job. Grant aid doesn't make up the difference. The Economic Recovery Plan would increase the maximum Pell grant by $500 but that doesn't make a dent.
There is real perversity here. General Motors is offering car loans at 0 percent while students seeking to get an education must pay 5-6 percent. Students are essentially subsidizing the banks that drove us into this ditch, even as they continue to dole out multi-million dollar bonuses to the very leaders that are responsible. And if students miss payments, their credit scores sink and they are forced to pay higher interest rates across the board.
Thus far, the Federal Reserve and the Treasury keep spraying the leaves, and ignoring the roots. They keep bailing out the captain's quarters, while ignoring the hole at the bottom of the boat.
We should go another way. Michele Obama has noted the harsh burdens that students are faced with. "Salaries don't keep up with the cost of paying off the debt, so you're in your 40s, still paying off your debt at a time when you have to save for your kids." She and Barack were still paying off their loans in their forties, until his best selling books got them out of the hole. And they were successful graduates of Harvard Law School
Now the situation is much worse. Talented students are forced to drop out. Schools without large endowments are making draconian cuts and raising tuitions. We should move to 1 percent loans to students, and increase the grace period after graduation before they need to start repaying the loans.
Lowering interest rates on loans will directly stimulate the economy. More students would stay in school, and not add to unemployment. Students would spend the money on tuition; schools wouldn't be forced to lay off teachers and support staff. And an extended grace period would enable students to locate a job, set up an apartment, secure transportation–all of which would help stimulate the real economy.
Young people are the nation's most valuable asset; their education is essential to our future. Their potential should not be snuffed out, their dreams shattered because of an economic crisis that they did not cause and cannot avoid. We should not ask them to subsidize the very banks that caused the mess. It is simply perverse that we are pumping trillions into banks who still refuse to make affordable loans to the real economy, while enabling them to profit from high interest rates to students. Let's invest in our future: it is time for a 1 percent student loan program.