Monday, August 20, 2012

Access to Education, A Debate Worth Having Part I

Why Free in 8 Works: 

A few weeks ago, the two leading Liberal leadership candidates released their plans for helping middle-class families afford post-secondary education. Both deal with an issue that has been neglected by a Conservative government that didn't even mention PSE in the budget, and that is to the credit of our party.

The two plans reveal stark differences in how the candidates see the challenge, though. And while some have bemoaned the fact that a serious debate has broken out, it is exactly the sort of debate Liberals need to have. After all, once chosen, a leader has vast power to determine party policy and dissuade public dissension. Now is exactly the time to know what values and beliefs leaders will bring to the job.

Free in 8: An idea for today's economy:

Mike Murphy has proposed a policy called "Free In Eight".  It is a pretty straightforward plan, combining the power of caps on debt loads with the strength of a repayment plan tied to income. Murphy establishes a set limit on how much debt a graduate can rack up ($24,000 for a 4 year degree), so that those with the greatest need will get bursaries to keep their debt down. He proposes that government then set an 8 year guarantee in place, establishing that a graduate will be free of debt in no more than 8 years, paying 10% of their income at most for student loans.

Murphy's plan is certainly one that is generally favored by liberal politicians. President Barack Obama is supporting such a model on the federal level in the U.S., citing the drag that the trillion dollars in student debt has become on the U.S. economy.  In Ontario, Liberal Premier Dalton McGuinty has made an income sensitive repayment plan and limits on total debt and repayment time one of his signature achievements.  And in British Columbia, Liberal Premier Christy Clark has also announced that government will be taking over interest and principalrepayments for students with high debts and low incomes.
"This is all great but Free in 8 Creates a disincentive to pay." Only it doesn't.
These programs all have similar methods of targeting assistance to those families with high debt and low incomes. An applicant must apply for repayment help using their tax returns and government will make the minimum payment needed to keep the student on track to get out of debt by the end. One reason governments are increasingly adopting the plan is because it is quite immune from abuse -- it ties assistance to the filing of an income tax return, and even at a maximum level of subsidy (about $3,000 per year) there would be no incentive for a graduate to avoid career experience and advancement just to get the subsidy. (And, frankly, Liberals have never been a party to oppose good social programs out of the fear a small minority will abuse them. That's more of a Rob Ford and Mike Harris thing).

The clever part of Murphy's proposal is that he also proposes to finally get tough with lenders to reduce the ridiculous premium they add to interest rates for student borrowers, which will greatly reduce government costs, and he has set his repayment plan numbers at a place where an average graduate's salary will require only a small but vital amount of help in the early years. Yet while ensuring the debt limits are guaranteed for all graduates requires a relatively modest amount of money (just under $3 million per year), he gets a lot of good out of a smart investment.

If you're still not convinced, here's three more points:

1.    Murphy's Free In 8 plan improves access.   

Post-secondary education remains a good investment. The average graduate, even one with a general bachelor's degree, is earning nearly $15,000 per year more than a non-graduate ten years out. The fact that it is generally a good investment doesn't mean there is no risk in taking on debt. And that risk is disproportionately scary to families with lower incomes -- study after study has confirmed that a $30,000 debt load is scarier to young people from lower-income backgrounds, and so a guarantee that if you make the smart choice we will help you will reassure many first-generation students to take a chance on university or college.

2.    Murphy's Free In 8 plan recognizes where the economy is going. 

Two out of every three new jobs requires post-secondary education, and graduates are twice as likely as non-graduates to stay employed throughout their careers. And if more job-creating employers need graduates, they won't set up shop in provinces with low graduation rates. In other words, the new graduate in my household won't find work in New Brunswick unless we raise our graduation rates. A debt guarantee is a targeted way to do just that.

3. Murphy's Free In 8 plan grows New Brunswick's economy. 

Put simply, having middle class families spending money in heir communities creates jobs. That's partly why Nobel-winning economists like Stiglitz and Krugman see income inequality as an economy killer -- if too much money is concentrated in the hands of those who can't possibly spend it all, the economic cycle dries up.  Having our new graduates delaying purchasing homes and starting families so they can send most of their money to Toronto banks to be invested in overseas hedge funds isn't creating jobs.  Reducing debt for new families frees up their dollars at exactly the income point where they are most likely to spend the savings with New Brunswick businesses and jump start the economy that's stalled under Alward.

So, I like Murphy's plan because, like most liberal governments, I find it's an affordable way to increase confidence of deserving students, stimulate our economy and keep young families here.

This is why Free in 8 works. Come back Wednesday for the second installment of this three part essay: Defending Free in 8 from Friendly (Right Wing) Fire.