untapped potential: where the *real* stimulus is

One of the things I’ve learned from over five years of tutoring is that my tutees can teach me as much as I teach them. Through my tutoring experience alone, I learned new methods of approaching old problems, as well as new methods of approaching new problems. Tutoring plays a significant role in my graduate school success since it allows me to exercise what I’ve previously learned. For these reasons, I’m convinced that there’s plenty of untapped potential in the national student body.

If these students harness this potential, I firmly believe that productivity in the professional world will increase, yielding dividends previously unseen. However, despite the constant harping on about students being the future of this country, college students are about to get shafted – again!

A recent article shows that college tuition has risen – again – despite the recession. Worse still, the tuition increases come in spite of budget cuts at universities nationwide. Unfortunately, the insanity doesn’t end there – tuition is increasing faster than inflation, placing a greater burden on students and their families.

Tuition hikes averaged 6.5% for public colleges and 4.4% for private colleges, but in some states, the situation is far more dire. Double-digit tuition increases are on tap in New York, Florida, and California, with the latter considering increases as high as 30% due to the state’s financial crisis.

Simply put: college students can now expect to pay more for less. How much less, you ask?

For starters, budget cuts means fewer intramural programs, slimmer budgets for facilities like cafeterias, and less faculty; the latter is very significant because it affects class availability. With fewer classes available, students may have to spend more time in college due to being “locked out” of a class. More time spent in college means more money spent to get the degree; more money spent usually translates into more debt (unless a student pays out-of-pocket or is wholly covered by grants).

Unfortunately, it gets worse; fewer companies are hiring due to the recession, and prerequisites for many positions (even so-called “desk jobs”) include years of experience and a collegiate degree. With few (non minimum-wage) availabilities, students face an even greater burden – paying off student loan debt without a constant (or decent!) income source.

Speaking of student loan debt, the article states that the median debt incurred by college students upon graduation is $20,000. That’s no small sum; since that’s a median figure, it means 50% of students (myself included) have greater student loan debt.

Considering these and other factors, I wonder what happened to the value of a college education? Has the risk become greater than the reward? What of those without a college education, seeing as they have even fewer opportunities available to them? Moreover, how can this situation be alleviated? I have an idea, though it might sound a bit radical:

Bail out the studentsFORGIVE STUDENT LOAN DEBT.

Sounds crazy, right? Let me explain: within the past year, the U.S. Government, in trying to stave off a full economic crash:

  • Bailed out the banks
  • Bailed out the auto industry
  • Crafted a stimulus package designed to encourage spending by people and local governments alike

Mind you, taxpayer dollars funded the above, so we’re all paying in the end. Also, some of the banks used bailout funds to fund multimillion dollar executive bonuses and lavish vacations; apparently that’s their way of saying “thank you, suckers taxpayers!” *sigh*

Notwithstanding, I believe the government passed these packages because it felt banks and the auto industry are a critical part of the American economy.

Make no mistake – they are.

However, students are no less important – after all, they’re this country’s future, right? Given that, we should invest in them! Student loan debt severely constrains a student’s ability to spend (and therefore, invest) money. Also, given how difficult it is now for many college graduates to find employment, delinquency also comes into play; loan defaults have adverse effects on students (obviously, since it affects their credit) and lenders (since that’s real money they’re not getting back).

In my honest opinion, forgiving student loan debt makes way for real stimulus since students’ spending and investments are no longer constrained. Monies formerly hoarded up for student loan debt would become available for purchases and expenditures that would help stimulate the economy.

To further illustrate this point, I’ll play a little numbers game.

Median student loan debt, according to the article, is $20,000; let’s suppose a student had to pay back a $20,000 loan. Let’s also assume that the loan has an interest rate of 6% compounded monthly and the term is 10 years. Assuming a student makes the minimum payment each month, the amount paid by the student over the 10-year period is:

A = P(1 + i)n
= 20000(1 + 0.06/12)10 x 12
(Monthly compounding requires dividing the rate by 12 and multiplying the number of payment periods by 12.)
= $36,387.93

This is the true total; the expected monthly payment would be $303.24. Now, US Census data shows that, as of this month, there are roughly 14.364 million full-time college students. If student loan debt were forgiven, that $303.24 monthly payment is now cash on hand, and can generate up to…

$303.24 x 14.364 x 106 = $4,355,739,360 in extra spending per month, which leads to:

$4,355,739,360 per month x 12 months per year = $52,268,872,320 per year.

You read that right – over $52 billion per year! Factor in the 10-year pay period, and that’s well over $520 billion in the same period.

(Methinks this is a ballpark estimate of how much a student bailout would cost; it’s still less than the cost of the bank bailout (over $700 billion) and the stimulus package, which had a $787 billion price tag.)

My point is this: if the government can spend trillions of dollars bailing out banks, the auto industry, and trying to foster economic growth, they can invest in the collegiate body. Students today have incredible potential; it’s sad to see it stunted by struggles in college and afterwards. Forgiving student loan debt can lift an enormous burden off the shoulders of students and their families; as I showed, such is potentially cheaper to carry out than all these corporate bailouts.

And it’d probably do a better job of stimulating the economy, too.

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