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Free Tuition is the way to go: Pass A Students Emergency Loans Refinancing Act Already.

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Message Seymour Patterson

A public good is one people can consume jointly. One in which my consumption does not prevent you from consuming it at the same time. One to which the exclusionary principle does not apply. A private good is fundamentally different: it requires you to pay to consume and this gives you the right to exclude others from consuming it. Most goods fall in this category and include such things as cars, computers, coffee, cell phones, ice cream, hotel rooms, etc. Public goods include notoriously defense, as well as public parks like Central Park in Manhattan and Kensington Park in London--you don't have to pay to go in. The issue of payment creates problems of its own like how to provide enough of the public good and then how to prevent the free-rider problem. I would argue education is a public good and in the mid 19th Century, the Morrill Act (The Land Grant College Act) signed by President Lincoln in 1862 ". . . called for teaching agriculture and mechanical arts - today's engineering - as well as military science and offering a "classical" and "liberal" education to the "industrial classes. (See: Bozeman Daily Chronicle) Until recently, these were public (state) schools and some were free and others required students to pay a modest tuition. For example, prior to the 1980s, (See Clabaugh: The Educational Legacy of Ronald Reagan) California had free tuition for higher education students. However, that started to change when the governor of California decided to stop funding public universities, thereby shifting the burden on individuals to pay (bear the personal cost) for something (education, a public good) that benefits all of society.

The Senate dropped the ball on a bill to give students relief on their loans obligations by allowing them to refinance their loans at a lower rate and to pay no more a fixed upper limit as percentage of the incomes. However, the Bank on Students Emergency Loan Refinancing Act failed on the Senate floor to get 60 votes. Passage of the Act would bring relief to students who are saddled with burdensome student loans. In particular, according to The Washington Post, "The bill would have let people with federal and private loans issued prior to 2010 refinance at 3.86 percent--the interest rate that Congress set for federal student loans a year ago." Student loan debt stands at $2.1 trillion today and the following quote helps to shed some light on why this is so. "But today, in yet another polarized, financially unstable time, state appropriations per student to public universities have fallen by almost 25 percent in the last 10 years. That has sent tuition up an average of nearly 6 percent per year above the rate of inflation during that time. Where states covered two-thirds of the cost of education at public universities just 20 years ago, they now pay only one-third, and students and their families are having to pick up the difference." (See: Washington Post 2012)

There is a Randian tilt here directed at ending government support for education, driven by ideology rather than by utilitarian results. The GI Bill by almost any measure has been a resounding education success. Nevertheless, apart from that the government has a role in making public goods available to everyone. It is hard to see how the private sector whose goal is to maximize profits can educate all of us--rich and poor alike, but especially the poor for the rich can take care of themselves.

Moreover, there is another aspect of student loans that put the federal government in a place that makes it behave much like a business. The federal government that should pay for public goods with tax revenues has decided to make a profit from these loans. It is hard to understand why this is happening. How do you justify this behavior? This maybe a piece of broader attempt to cripple or downsize government based on disdain for it based on ideology. However, it is inescapable that the government is not a business and education--like defense--is not a private good to be sold for profit by government. The government is not a profit-seeking business; it is a welfare pursuing entity for we the people, according to the Constitution. Yet, Slate notes: "Congressional Budget Office projected that the federal government would earn roughly $127 billion from student lending during the next 10 years." The earnings will revert to the Department of Education at the expense of students. One could argue against this government profit seek behavior by reemphasizing the public good nature of education and acknowledging that the return to educated labor adds to the government coffers through tax revenues.

Profiting from student loans has dubious merits and it might be a good idea to return to the spirit of the Land Grant College Act--government support for higher education by assuming the larger share of the cost: three-fourth of tuition outlays at the very least. Preferably, forgiving the $1.2 trillion student loan debt would be good not only for students but also for the larger economy. This action would be a giant step forward for the economy in terms of spending. After leaving school and landing a job, the debt repayment requirement on student loans kicks in, taking funds away from the purchase of cars, homes, apartments, entertainment, marriage, and children of their own. These loans have to be repaid--making scheduled payments on student loans from which the government makes a profit--rather that used to buy consumer goods. Just imagine the boost in spending from a debt holiday or forgiveness--the nominal amount of the American Recovery and Reinvestment Act of 2009 stimulus spending that prevented the US economy from careening over the economic cliff was $787 billion. Thus, forgiving students $1.2 trillion of the debt could be expected to give the economy a huge stimulus for the economy giving GDP big lift.

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Seymour Patterson received a Ph.D. in economics from the University of Oklahoma in 1980. He has taught courses and done research in international economics and economic development. He has been the recipient of two Fulbright awards--the first in (more...)
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