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Stop Student Loan Sharking, Make College Free

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For a fleeting moment I thought Congress was going to do something really wise: Get out of the student loan-sharking business. Recall that only a few days ago, the House and the Senate were going to fast-track the student loan reform bill by attaching it to the health care package. It was supposed to be a sure thing. What was I smoking?

Our current student loan system could have been invented by Tony Soprano. We taxpayers guarantee the loans and the government does most of the underwriting, rate setting and paperwork. Then private banks step in, impose their extra charges on needy students, and walk off with all the profits. Not only do the feds donate tax dollars to these banks (what else is new?), but the banks bribe college officials to send students their way. Bada Bing!

If the bill passed, eliminating Tony as middleman, the government could have saved from $37 to $87 billion dollars over the next decade for use in supporting more Pell grants for low-income students.

To be sure, Republicans, en masse, are opposed to eliminating the no-account middlemen because that would amount to a socialistic takeover of free-enterprise. But, they also are joined a group of Democrats including Senators Thomas R. Carper of Delaware, Blanche Lincoln of Arkansas, Ben Nelson of Nebraska, Bill Nelson of Florida, Mark Warner of Virginia and Jim Webb of Virginia. The banks in question just happen to be employers in their states and campaign contributors as well. (See New York Times)

[UPDATE: The reform bill was attached to the House health care reform reconciliation bill and will be taken up in the Senate on March 22. Because it helps the entire package get a better deficit reduction score from the CBO, it now stands a good chance of becoming law.]

{Update March 26, 2010. It passed. Amazing!]

Unfortunately we're having the wrong debate here. The important question isn't who should be saddling students with enormous debt -- the government or private banks. It's why anyone should be saddling them with enormous debt. As of 2008, 62 percent of all students at public 4-year colleges and universities took out loans. By graduation they owed a median of $17,700. (See CollegeBoard.com).

Allow me to offer this radical concept: They should graduate with no debt. Going to a public college or university ought to be free.

It used to be that way, at least for vets. The Servicemen's Readjustment Act of 1944 (GI Bill of Rights) sent 7 million Americans to school for free after WWII. In 1988, a Congressional committee determined that for every dollar invested in that program, $6.90 was returned to the US economy. No reason we couldn't repeat that performance today. Why isn't universal free higher education on the political agenda? Here are some of the reasons:

1. Students won't value what they don't pay for.
Can't you just see it? We let students in for free and they trash the place. If we're not careful, we'll get the '60s all over again. But of course, this argument doesn't apply to students from wealthy families who don't have to pay a dime for college or run up any loans at all. Why the double standard?

More importantly, education is a necessity, not a privilege for the few. Our society always has recognized the need for free public education. As early as the 1600s, the New England colonies provided it. By the 20th century K-12 free public education became the norm. Nobody argued that only those who could pay for it should be allowed to go to high school. Times have changed a bit: Today people need a college degree or advanced vocational training if they're going to do well in the world.

2. The GIs earned it. Why should everyone get it for free?
The original Servicemen's Readjustment Act of 1944 was actually opposed by Franklin Roosevelt. Why? Because he believed that everyone in the country had been part of the war effort--factory workers and farm hands were as important as front-line soldiers. So why reward just the vets with a free college education? But Roosevelt soon realized we had to send the 7 million vets to college for free, or else unemployment might soar after demobilization. No one wanted a replay of the Great Depression.

And we don't want this Great Recession to continue either.. Right now more than 29 million of us are without work or forced into part-time jobs. We need more than 100,000 jobs every month just to keep up with population growth. Free higher education would surely take the pressure off--and it would have that extra bonus of actually educating people and enriching their lives. Unemployed workers of all ages would go back to school if tuition were free.

3. We can't afford it.
Wrong. What we can't afford is what we're doing now: loading up students with debt and slamming the academy's door in people's faces. We need as many people as possible to get a college and advanced vocational education. It's the key to prosperity and a better quality of life. The smarter we are at work, the better the life that we can create for ourselves and our kids. How are people going to tackle global warming, the health care crisis, and all our other challenges without an education?

Also, we need to get a whole lot smarter about economics and governance. Our current economic mess shows just how dumb we are when it comes to protecting people's livelihoods. Millions lost their jobs because we were too damn stupid to stop Wall Street's gambling spree. Worse still, most of the economics profression justified it asit was happening. We've got to figure out how to keep our free-enterprise economy from turning into a billionaire bailout society, which is where we're heading. And our political system needs a little work too. For instance, how about educating some people to come in and fix the U.S. Senate, one of the most dysfunctional institutions ever? (While we're at it, the Texas curriculum board could use a little help too.)

4. There's really no public support for free higher education.
Are we sure? Few have tried to move the issue on a national level.

But if we asked parents and kids, we'd find out that free higher education is a no-brainer. It would be a good idea even if the federal government had to go deeper into debt to finance it. We've pumped more than $8 trillion into Wall Street with our loans, asset guarantees and liquidity programs. God knows how much we squander each year on military boondoggles. Yet, it might cost from $50 billion to $100 billion a year--a relative pittance--to cover all public higher education tuitions. And it would be a huge investment in a brighter future.

But the fact is, we don't have to run up a tab to get free higher education.

Imagine turning a fee on Wall Street gambling into a "college education for free" card for every American. A small financial transaction tax on bankers' speculative deals could fund free higher education in perpetuity. To jump start the program, we could put a windfall profits tax on the $150 billion in bonuses Wall Street executives are now collecting, thanks to our bailout. (Or, if we had the nerve, we could place a 10 percent income tax surcharge on those earning more than $3 million a year.)

The GI Bill's free tuition program was a key factor in building our post-WWII prosperity. If we want our nation to grow smarter and stronger again, we need universal free higher education right now.

Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It Chelsea Green Publishing, June 2009.