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Eliot Spitzer: The way Americans pay for college is a mess. Here's how to fix it. [View All]

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marmar Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Mar-05-09 07:41 PM
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Eliot Spitzer: The way Americans pay for college is a mess. Here's how to fix it.
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from Slate:




Loan Ranger
The way Americans pay for college is a mess. Here's how to fix it.

By Eliot Spitzer

Posted Wednesday, March 4, 2009, at 6:57 AM ET


The long-term economic strength of the United States depends on our ability to compete in the world of intellectual capital. Indeed, that is perhaps the last remaining arena where we can hope to win, since we ceded pure wage competition long ago, capital is now as mobile as an e-mail, and scale, which we once had, is no longer our friend. The Chinese middle class already numbers in the hundreds of millions, and last month, more cars were sold in China than in the United States, the first time that has ever happened.

If we are going to improve American intellectual capital, we need to fix how Americans pay for higher education. For too long we have asked students entering college and graduate school to choose one of two unappetizing options: pay astronomical tuition bills upfront or amass enormous debt that demands fixed, sky-high monthly payments the moment they graduate and enter the work force. These options serve as barriers to educational opportunity, since many cannot afford upfront tuition payments or qualify for the needed loans. That also distorts career choices, since for most the obligation to repay loans immediately has reduced the ability to choose socially desirable jobs such as teaching, forcing the pursuit of the highest-paying job regardless of personal or social utility.

Yet there may be a "third way" that eliminates the educational financing problem. Milton Friedman first proposed the following idea, and James Tobin then refined and tried to effectuate it. If two Nobel laureates of decidedly differing worldviews agree, it must be worth at least a quick look. It is, moreover, successful and commonplace in Europe and Australia.

Marketed under the decidedly unappealing name of "income-contingent loans"how about we call them "smart loans" instead?the concept is simple: Instead of paying upfront or taking loans with repayment schedules unrelated to income, students would accept an obligation to pay a fixed percentage of their income for a specified period of time, regardless of the income level achieved. Suppose a university charged $40,000 a year in annual tuition. A standard 20-year loan in the amount of $160,000 (40,000 times four) would produce an immediate postgraduate debt obligation of $1,228.50 per month, or $14,742 per year, not sustainable at a salary of $25,000 or anything close to it. Under a smart loan program, the student could pay about 11 percent of his income, with an initial payback of $243 per month, or $2,916 per year, which is feasible at a job paying $25,000. If, after five years, the student's salary jumped to $100,000, payments would jump accordingly and move up over time as income increases. After 20 years, assuming ordinary income increase, the loan would be paid off. .........(more)

The complete piece is at: http://www.slate.com/id/2212534 /




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