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Entries tagged "student loans"

Limit Graduates' Debt, Not Their Options

June 13, 2013 ·

Student Loan DebtIf lawmakers can’t come up with a solution, interest rates on federal student loans are set to double from 3.4 percent to 6.8 percent starting July 1. When I graduate from college in December, I will join the 37 million Americans with student loan debt.

For me, college has always been synonymous with financial stress. I have spent the last three years on financial aid, scrambling to finish all of my credits in order to graduate early and save on a semester of tuition at my university. If the interest rate on my Stafford loan doubles, I will have to continue to put my dream of law school on hold. The fear of sealing myself into a tomb of debt will prevent me from seizing opportunities at the time in my life when I am supposed to be taking risks.

The number of students and the price of college continue to rise every year. It shouldn’t come as a surprise that not only are more people taking out student loans, but they are also taking out more money. The average student loan balance increased by 49% between 2005 and 2012 and more than half of borrowers took out over $10,000 in loans. Total student loan debt is increasing at a rate of about $2,853.88 per second and it is approaching 1.1 trillion dollars. In the last ten years, this number has nearly quadrupled and has already surpassed credit card and auto loan debt.

Of particular concern is the effect on women. According to the American Association of University Women (AAUW)’s study “Graduating to a Pay Gap,”  20 percent of women-compared with 15 percent of men- pay more than 15 percent of their take-home salaries to pay off educational debt. This is directly related to the fact that women earn only 82 cents to every dollar that a man earns.

The plan proposed by Sen. Elizabeth Warren (D-MA), "The Bank on Students Loan Fairness Act," would allow students to borrow money at the same rate that banks borrow: 0.75 percent. House Republicans passed “The Smarter Solutions for Students Act,” which would increase the rate to an even higher percent than if nothing is done before July 1 based on market rates and fluctuations. In President Obama’s plan, called “Pay as You Earn,” loans would also vary depending on the economy, though it would also allow low-income borrowers to cap their monthly loan payments to 10 percent of their income. Among others offering solutions are Senators Jack Reed (D-RI) ,Tom Harkin (D-IA), and Harry Reid (D-NV) , Sen. Kirsten Gillibrand (D-NY), and Rep. Joe Courtney (D-CT).

There are lots of ideas but one thing is clear- inaction is not an option. Doubling interest rates on student loans is not an option. Currently, 35 percent of people under 30 and 32 percent of those between the ages of 30 and 49 are near default on their student loans, numbers that will only continue to grow unless something is done. Recent graduates and current students like me have worked hard enough to hear messages of support and encouragement from our lawmakers—not that we are being forgotten about and taken advantage of. When I walk across the stage and receive my diploma this December, I want to feel that the sky’s the limit as it relates to my opportunities, not my debt.

Alina Butareva is an intern at the Institute for Policy Studies and a rising senior at Tufts University.

Do We Need 'Student Loans' for Billionaires?

October 18, 2011 ·

Polly Toynbee, a commentator for Britain’s Guardian newspaper, plays a role quite similar to Paul Krugman, the Nobel Prize-winning economist who doubles as a New York Times columnist. Both regularly advance well-reasoned — and even inspirational — attacks on the concentration of income and wealth that have left the United States and the UK the world’s two most unequal developed nations.

Both also rate as eminently pragmatic. They champion the politically possible. But we live today in tumultuous times, and that may be why Toynbee last week found herself celebrating a proposal for taxing the rich that rather boldly stretches most anybody’s sense of political practicality.

Guardian columnist Polly Toynbee visits last year's occupation of University College London. Photo by ucloccupation.Why not levy, Toynbee asked, a one-time 20 percent tax on the total wealth of Britain’s richest tenth, a tax “graduated” to ensure that the richest 1 percent pay at a higher rate than households at the bottom of this top 10 percent?

This one-time “windfall taking” tax, Toynbee suggested, could help “save services, save jobs, expunge the national debt, kick-start growth, and set the economy on the road to recovery.”

“The worst ever crisis,” she added, “needs better solutions than any currently on offer for the grim decade ahead.”

The United States, of course, faces that same grim decade. And that makes Toynbee's proposal a matter of more than idle interest. Could a one-time 20 percent levy on the wealth of the rich really make an appreciable difference?

The source of Polly Toynbee’s wealth tax proposal, Glasgow University’s Greg Philo, certainly thinks so. Philo first laid out the proposal last year and even had a national poll commissioned to gauge public reaction. That survey found 74 percent of the UK population approving.

Britain’s richest 10 percent currently hold £4 trillion — about $6.3 trillion — of the UK’s £9 trillion in personal wealth. A 20 percent tax on that £4 trillion would raise £800 billion, enough, says Philo, to “pay off the national debt” and “avoid the need for deep and harmful cuts” in public services.

Philo’s plan anticipates one major objection. Few affluent households have 20 percent of their wealth in readily available cash. They have much of their wealth in property of various sorts that would have to be sold, perhaps at a great loss if all the wealthy had to sell at once.

Not a problem. The wealth tax, under Philo's plan, would not have to be paid all at once. But if a wealthy household wanted to delay payment, that household would have to pay interest on its outstanding wealth tax liability.

“It would be akin,” says Philo, “to a student loan for the rich.”

A 20 percent tax on the wealth of Britain’s richest 10 percent, points out the Guardian’s Polly Toynbee, would essentially “push back downwards the money hoovered upwards in the last decade.”

The billions “hoovered upwards,” Glasgow University’s Philo adds, have largely “been directed into inflated property values.” A wealth tax could recirculate this “dead money” into government expenditures that could stimulate growth.

A one-time 20 percent wealth tax, Philo sums up, “offers a real alternative” that would “move debt off the government's books, using money that is largely trapped in the housing market, from people who will not miss it.”

Could such a wealth tax have a similar impact on the United States? The U.S. numbers — on wealth distribution — make that question a natural. Our richest actually hold a far greater wealth share than Britain’s.

In the UK, the top 10 percent hold 44 percent of their nation’s personal wealth. In the United States, notes an analysis from the Economic Policy Institute released earlier this year, just the top 5 percent held 63.5 percent of the nation’s wealth in 2009. The top 1 percent alone held 35.6 percent.

As of April 2011, NYU economist Nouriel Roubini and two colleagues reported last week, total U.S. household net worth amounted to $56.8 trillion. If we assume that the distribution of U.S. wealth has not changed since 2009, our latest year with distributional figures available, then the top 10 percent today hold 75.1 percent of the nation’s current wealth, or $42.7 trillion.

A 20 percent tax on this wealth would raise over $8.5 trillion, a sum that equals about 85 percent of America's publicly held national debt.

And America’s richest 1 percent? How would they be faring if they had to pay a one-time 20 percent wealth levy? Their average remaining net worth would actually be higher, after adjusting for inflation, than the net worth of America’s richest 1 percent in 1983. Indeed, the top 1 percenters could pay a 25 percent wealth tax and still hold more wealth than their 1983 total.

Our next decade need not be grim. Our next decade does need to be more equal.

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