How to Solve the Student Debt Problem: Grow the Economy Faster!

 

Based on a post I wrote last fall, “Solving the Student Debt Problem,” and a recent Op Ed by the economics journalist, Robert Samuelson, “Good News on the College Debt Front,” here is where I think we are on this serious problem:

  • The unemployment rate is very low for college graduates, about 2.5%. We should strongly encourage post-secondary education for all.
  • Since 1996 outstanding student loans have risen from $200 billion to $1.3 trillion.
  • Counting both community colleges, four year colleges and universities, 56% of college students borrow money to pay for college costs.
  • For undergraduates who attended two and four year colleges, more than half of loans were less than $20,000. Only 10% exceeded $40,000.
  • The highest default rates occur at community colleges (23% in 2012) and at for-profit colleges (18%). Hurt worst are low-income and minority students who never graduated but have unpaid debts.
  • The Federal Reserve Bank of New York has found a close correlation between subsidized loan and Pell Grant limits and the rapid increase of college tuition costs.

It seems clear that the way to address this problem is to focus on where it is worst: for the low-income and minority students who attend community colleges and for-profit colleges.
Capture36In other words:

  • Place a strict lid on the total amount of subsidized loans available for undergraduates, say $25,000 to $30,000 per person.
  • Use the savings achieved in doing this to increase the size of Pell grants for the lowest income students who need help the most.
  • Overall faster economic growth will help college graduates and dropouts alike find better paying jobs and make it easier for them to pay back their college debts.
  • On an individual basis, urge all students, but especially low-income and minority students, to avoid debt as much as possible in the first place!

Conclusion: Careful analysis of the student debt problem shows that there are very useful steps to take which will not cost the federal government more money.

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One Thing Congress and the President Are Doing Right

 

This blog is mostly devoted to a discussion of the big fiscal and economic problems facing our country.  A growing and fiscally prudent economy will do the most good for the greatest number of Americans.  I have also argued that “A Strong Country Requires a Strong Economy” in the sense that our adversaries take us more seriously because we have the world’s dominant economy.
In addition, I strongly believe that U.S. power plays a critical role in maintaining stability around the world.  More bluntly, the world is better off because the good guys are also the strong guys.  It is often said that we can’t police the whole world but whether we want to or not we have this role.
CaptureIn this regard, the Wall Street Journal has just published an informative article, “New Way the U.S. Projects Power around the Globe: Commandos.” The U.S. Special Forces currently has 70,000 people in uniform and an annual budget of $10 billion.  Last year they operated in 81 different countries on six continents.  For example:

  • Navy SEALs and Army Green Berets are stationed in the Baltics, training troops from Lithuania, Estonia and Latvia for the type of proxy warfare Russia is conducting in eastern Ukraine.
  • U.S. forces are helping Filipino forces stymie al Qaeda aligned Abu Sayyaf Group.
  • The U.S. has trained Columbian troops to fight rebels and drug traffickers.
  • A Navy Seal raid killed Osama bin Laden in his Pakistani hideout.
  • U.S. special operators work with Ugandan troops to hunt the leader of the Lord’s Resistance Army.
  • 1,300 troops from 18 western nations are training commandos from 10 African countries to fight extremist organizations such as Islamic Maghreb and Boko Haram.

The world is a messy, chaotic place.  Our own wellbeing depends on maintaining at least a minimal degree of stability.  We have accepted this responsibility and are meeting it head on.  This represents America at its best.