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Orange County Voices | COMMENTARY ON EDUCATION

Student Loan Program Is Too Valuable to Nation to Be Slashed : Competitive edge in world markets, return in taxes from well-paid graduates outweigh budget considerations.

February 04, 1996|ROBERT B. McLAREN | Robert B. McLaren is a professor of child development at Cal State Fullerton

It requires only fourth-grade arithmetic to understand why no investment by any agency or private industry can equal the benefits of a government-backed student loan. Not only does the government reap incredible financial rewards, but the nation as a whole is enriched by a greater pool of skilled citizens who pay more taxes. It also gives the country a competitive edge on the world market.

Consider: a college or university graduate earned (in 1993 figures) an average of $2,231 per month; more than twice the income of the average high school graduate ($1,077.) At current tax rates, (about 24% accounting for deductions) even if the student doesn't increase his income over the next 30 years, that student will have paid nearly $100,000 more in taxes than the high school counterpart.

Given that the median student loan is about $10,000, it is clear that the government, in addition to getting its loan money back, receives a tenfold benefit in additional taxes; which amounts to a whopping 1,000% interest on its investment.

But in fact, the lifetime earnings of college and university grads present an even brighter picture, averaging $1.2 million. That figure, taxed at 24%, equals $288,000, which is how much money the government will receive over that student's earning years. Where else can anyone, including the government, realize so huge a percentage on a $10,000 investment?

Failure to provide financial support to our students is a case of penny-wise and pound-foolish. Brenda Michel-Taylor, director for the College Resource Center, who counsels high school students throughout Southern California, points out that 30% of highly qualified students are unable to attend college for purely financial reasons. Further, 70% of college and university dropouts have to leave their educational opportunities behind for lack of funds. This loss to the nation of an educated electorate, to say nothing of technically skilled professionals to help America compete on the world market, is a loss worth billions.

The student loans, says Otto Reyer, director of financial aid at UC Irvine, are of tremendous value to qualified students, but also to the institutions that serve them. Eight thousand students, nearly half of the 17,000 enrolled at UC Irvine, are loan recipients.

Meanwhile, to such private colleges as Pacific Christian and Chapman University, the loan programs are even more crucial. According to Mai Buy, director of financial services at Pacific Christian, lack of government funding such as the state universities receive requires much higher tuition and other fees. "Probably as many as 80% of our students receive loans, either directly from the U.S. Treasury or from programs by which the government backs up loans from banks. But that covers only about 40% of students' costs; parents must supply the balance."

During the 1960s and '70s, we had the Federally Insured Loan program, whereby one could borrow from Bank of America, or other agency, and the government would back it up in case of default. Unfortunately the default rate was considerable. "But not entirely the students' fault," says Reyer. The availability of loan money attracted fly-by-night institutions calling themselves colleges. Having enticed the students, many collected the loan money, gave a worthless, quickie diploma or just went out of business. The students, unable to get jobs on the basis of an uncredited degree, were left stranded with a heavy debt. The program was transformed during the Reagan years, into the Stafford Plan, which continued to back up the lending institution, but also helped put teeth into the agencies' ability to collect.

One problem with the more traditional approach, seeking loans through private agencies, is that it often takes three to four weeks for the student to receive the check. By contrast, says Reyer, "at UCI, we've gone to direct loans from the U.S. Treasury, so if a student comes in with paperwork done, a check will be issued in 48 hours." This is a program President Clinton urges be made available to all students, both for its benefit to the students and the long-range tax benefit to the nation.

So why do politicians in Washington propose slashing student loans? They act as if investing in students is a burden. The fact that our cash-strapped students are falling progressively behind those in most European countries, as well as Japan, in the vital math and technical skills needed to compete in the market, should be incentive enough to provide every possible means for their success.

Furthermore, our students lack needed language skills. In Switzerland, every student speaks at least three languages, while 20% of American high school students are functionally illiterate in their own language. In Germany, the government actually pays students to go to college, knowing it gives them the competitive edge, and the whole nation is strengthened.

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