This post continues our recent focus on millennials and student debt. Unsigned posts represent the official position of Fix the Jobs. In addition to unsigned pieces, we will also have signed pieces that relate the positions of various members of Fix the Jobs, but are not the official position of Fix the Jobs. Below, Andrew Escobedo, co-founder of Fix the Jobs, takes on the need for additional higher education funding to help lower the debt burden on the students and boost the economy.
The burden of obtaining a college education has shifted more to the student as tuition costs and attendant debt have steadily increased. This is slowing the current economic recovery and if left unaddressed it will hurt the economic future of the country. According to analysis by the policy and communications consulting firm Hamilton Place Strategies, student debt will eclipse median income by college graduates by 2023.
Current graduates, weighed down by debt, are taking a longer time to start a family, buy a house, and make other major purchases. The slow recovery has made this worse through a soft job market that causes more debtors to fall behind on payments. This hurts their credit score making it even more difficult to make large purchases and find better employment—as certain employers investigate the credit score of potential hires.
In addition to the current effects on debtors, the increase in debt burden will cause more people to forgo the continuation of their education which could put the United States at a competitive disadvantage. A review done by Ronald Sturm, a scholar at RAND, states, “education and its effects on labor quality are generally found to be among the most important contributors to economic growth. For example, data show that countries with comparable levels of education are converging among themselves, but they do not close the gap with higher educational levels.”
Though reform to higher education is needed to help control the ballooning costs of educational institutions, the federal government and state governments can and should help reduce the burden of higher education on students as soon as possible.
Since 2008, forty-seven states have decreased spending per student, averaging 23% less spending. By increasing state higher education funding—coupled with restriction on tuition increases—states can help lower the debt burden for future college students. Most recently Colorado has lead the way in passing a $100 million funding increase and lowering the maximum annual tuition hike from 9% to 6%.
The federal government can help with lowering tuition by reversing some of the cuts in research grants. These grants allow universities to research new technology that can then be turned into income for the university, which will help lower tuition burdens. These new technologies also create jobs and help grow the economy. Without some government assistance some of these innovations will not happen in the United States—hurting our competitive advantage in technological advances. One example of lost business is the Mayo Clinic, which recently came to an agreement with the Irish government to send their discoveries over to Ireland to be developed into marketable products, in part, because of decreased amount of NIH grants for research institutions.
Also the federal government can help lower the debt burden of college students by offering lower fixed interest loans. In 2013 the US government made $41.3 billion in profit from student loans. This gives the government room to lower the costs incurred by borrowers. John T. Harvey, an economist at Texas Christian University, wrote about the winners and losers of the growth of student loan debt and has made a strong argument against the government profiting off of the debt:
“Shockingly, it appears that one of the winners is the US federal government. Numerous recent articles have bemoaned the fact that they are set to earn a profit from student loans not only this year, but potentially into 2024. Furthermore, the interest rates are likely to climb. This is insane. Not only can a sovereign nation issuing its own currency can never go bankrupt, but one of the most useful things the pattern of government spending and taxation can do is to encourage particular activities. If we’d like people to give money to charity, we can offer a tax break for donations; if we want people to own homes, we can let them write off mortgage interest; if we want them to raise a family, we can give deductions for children, etc. We can make socially costly behaviors more expensive (smoking and drinking, for example) and socially useful ones cheaper (installing solar panels or buying a fuel-efficient car).
Surely college educations fall into the latter category. They aren’t video game systems. If everyone who would like to own an XBox or who would be a particularly good HALO 3 player can’t afford one, it’s a shame but it’s not a national problem. It makes perfect sense for an unregulated market system to determine who does (and does not) get to have one. On the other hand, we are all hurt if an individual who would make a great teacher, engineer, or accountant is prevented from developing those skills. We are hurt, too, if the cost of their education is such that those who do take the chance find themselves weighed down by debt for years to come. This is all the more ridiculous when the primary funding agency does not need the revenue.”
Even if the government needs the revenue it seems that the additional $41.3 billion in profit could be made up through higher economic activity of a less debt burdened populous.