Wednesday, October 11, 2006

Arthur Beroz's Grant Loan Program: A Student's Perspective

By Jonathan Leirer

As a low-income student, I have first hand knowledge of the student loan system in America. After four years of working my way through college, I will leave not only with duel degrees in mathematics and economics but also with roughly $15,000 in student loans. While I am grateful for all the gift aid I have received through grants and scholarships and acknowledge the fact that not everyone receives such generous awards, I will still carry a significant burden of debt. This, coupled with graduate school and the possibility of an even greater debt burden, has provoked, as a result of my own self-interest, a poignant curiosity about possible improvements, revisions and alternatives to our current student loan system; therefore, when the opportunity to examine Arthur Beroz’s “Grantloan” program presented itself, I leapt at the opportunity.

The Grantloan program is really fairly simple. Throughout their college career, students apply for “grantloans” when needed. Then, upon graduating or otherwise exiting college and meeting one of four criteria, the “absolute liability” of the student would be calculated, taking into account the “full and absolute cost of the grantloan” over its lifetime. This is a fixed amount that would be paid off based on a month repayment schedule. These monthly repayment amounts are determined by taking many factors into account, including income and family responsibilities, i.e. spouse, children, etc. The percent of income required for repayment is progressive, thereby alleviating part of the repayment burden for those with low-incomes. Monthly repayment will continue until the “absolute liability” is paid off, until some maximum timeframe has been reached. For a more detailed breakdown and analysis of the Grantloan program, point your browser to

I believe that a movement to the Grantloan system would be a laudatory endeavor. Granted there would be transitional problems and possible unforeseen consequences. However, as a whole I believe the Grantloan system to be preferable to our current loan system. If nothing else it would be preferred for its simplicity. As noted in past blogs, the current loan system is overly complicated and marred by redundancy. According to the recent report from The Secretary of Education's Commission on the Future of Higher Education, “at least 20 separate federal programs providing direct financial aid or tax benefits to individuals pursuing postsecondary education.” Not all of these are loan programs, but many of them are. This patchwork system of financial aid is unnecessarily complex, a problem which could be alleviated with the Grantloan program.

Furthermore, I believe that the Grantloan system would provide a greater incentive, or perhaps lessen the disincentive, for students to enter into programs whose careers have relatively diminished earnings potential. To cite one particular career infamously believed to have low earning potential, we can look at school teachers. While I personally cannot vouch for its legitimacy, it is often suggested that there is a great shortage of either school teachers or of quality school teachers. Yes, a large part of the problem stems from the system of rewards and compensations currently governing teacher salaries, but another part of the problem is the prohibitively burdensome student loan debt many potential teachers acquire while pursuing their education degree. This debt, coupled with low salaries, can make studying to become a teacher more of a sacrifice then an investment. Granted, the Grantloan system is not a panacea, but it would nevertheless help alleviate some of the current deficiencies in the market for school teachers.

This argument is analogous for many other careers as well, many of which can be viewed as beneficial to society; such as the aforementioned school teachers, philosophers, painters or other artists, social workers, etc. These professions do not carry with them enticing monetary compensations, yet many would agree that society as a whole benefits from them. Additionally, as a student with a somewhat romanticized few of the world, I would have liked to have the ability to choose my career based more on my personal interest and less on its earnings potential. Even from an economic stand point, it can be suggested that certain low salaried, “noble” professions might actually have large positive externalities. Therefore, it may be in our own self interest to subsidize the education of these professionals.

With the availability of “grantloans,” I believe we would also see a great increase in low income students obtaining college degrees. While we cannot do much to alleviate the implicit costs of college for low income students, who may find income today to be a much more pressing issue then expected income tomorrow, the Grantloans program will help decrease some of the explicit costs of college. By offering a payment plan that is manageable on almost any income, college becomes a more realistic goal for those economically disadvantaged.

The biggest drawback with the Grantloan plan is that it doesn’t go far enough in helping low income individuals. Gift aid is an important part of maintaining an equality of educational opportunity. However, the Grantloan system takes great measures to ensure that not only the richest of the rich and the poorest of the poor have an opportunity to afford college, but that everyone in between does as well, thereby extending the equality of educational opportunity to every income bracket. I see great value in that. For some, equality of opportunity may not be an important virtue, but I cannot see how anyone, especially anyone who applauds the merits of capitalism, could suggest that rewarding someone based on the achievements of their ancestors is preferable to rewarding someone based on their own achievements. To me, it would be the optimal strategy for a society as a whole to give each individual the opportunity to develop their maximum potential and pursue their comparative advantages, rather than reward the progeny of those successful in the past.

All in all, I would support the Grantloan system for its potential success in advancing, at least in higher education, the opportunities afforded to an individual, regardless of their prior economics situation.


TC said...

Interesting blurb Jonathan. Congratulations on your accomplishments - well done.

Now for a view from another perspective.

“For some, equality of opportunity may not be an important virtue, but I cannot see how anyone, especially anyone who applauds the merits of capitalism, could suggest that rewarding someone based on the achievements of their ancestors is preferable to rewarding someone based on their own achievements.”

Who is being rewarded for the “achievements of their ancestors”? Or are you dancing around saying kids of wealthy families are being given money that, in your opinion, they do not need or deserve?

Well, trying to achieve equality is probably one of the most difficult things to do in a capitalist system. Capitalism is not a system that was designed for the equal distribution of wealth. I think inequality will always be inherent in capitalism.

10.9% of U.S. households report income of $100k to $200k; 3% of U.S. households report income of $200k to $500k; 0.7% of U.S. households report income of $500k or more. (Source: Center on Budget and Policy Priorities.) If my math is correct, only 14.6% of U.S. households report income of $100k or more. (And I do not believe that $100k to $200k households should be considered affluent – and should therefore be thrown out – leaving just 3.7% affluent households.)

But ignore those statistics.

How many students from affluent families are displacing the poor and middle class from entering college? For that matter, how many colleges and universities are displacing the poor and middle class from entrance? I think it would be incumbent upon you to validate the extent and magnitude of what you are claiming is a problem (and I think it is fair for you to do so) before coming to any firm conclusions or developing a premise based on unsubstantiated information.

If equality of opportunity is an important virtue – then why should a student from an affluent family be denied the same opportunities afforded to those who are not from affluent families? Have you ever heard the old cliché, “I can’t help who my parents are”? Well it works both ways. And by definition, equality works both ways – it must.

What I am curious about is “Why would an affluent family want to pursue grants and scholarships?” What is the incentive? If a HS grad, who happens to have wealthy parents, earns a 3.75 to 4.0 GPA, is it wrong for them to be rewarded with an academic scholarship? Don’t schools try to attract smart people?

If I have a ton of money and I want my kids to learn how to earn rather then buy everything for them; am I wrong for telling them that if they want to got to college they need to work and save – and get a student loan if necessary?

And then there is another strategy that an affluent family is most likely to utilize, and that is to pay for their kid’s college education - usually through a 529 because of the tax incentives.

You generally do not make money borrowing money, unless you have a sizeable margin account and are a very smart and lucky short seller. And I THINK you can make money by borrowing money to pay for college, but I'm not sure... I haven't read "Going Broke by Degree". I get a bad rash every time I see it.

This is the “rich versus the poor” debate, which is really “the evil versus the good” debate in a political context. And it has been going on for longer than Vedder is old and will continue. The solution is socialism… right? Well it ain’t gonna happen and I don't think you would support that. It has to run its natural course until there is a train wreck. Market forces have to play out.

If you applaud capitalism, then you have to accept the good with the bad that is inherent in the system or change it – as it appears you are going to try to do, which is right and good and I applaud you.

Big Blue said...

Richard Vedder:

I have never understood the appeal of a goal like "equality." People are inherently different. They have different talents, different interests, different degrees of marginal productivity. This is what makes exchange possible. It's what makes life interesting and complex. Variety is the spice of life. Cindy Crawford makes much more money than I do, but I don't resent it. I don't think everyone in the world ought to be forced to look like Richard Vedder.

This obsession with equality is very destructive for the human race. Mises is correct that free societies need to learn to deal with and even celebrate the existence of enormously wealthy individuals. They are a driving force behind rising wealth of the whole society.

By the way, I could give a two-hour lecture on the fallacies inherent in income-equality statistics. In brief, what is the point of taking a snapshot of a one-year period as opposed to a ten-year period? Some people who win the lottery one year are digging ditches the next year. Some people who are college students go from $3,000 to $100,000 per year.

100Student said...


I recently published an article on the dangers and benefits of student loans and other forms of college financial aid – here is a quote from it, in case you are interested:
Student loans repayment can be a real nightmare without adopting some strategies that would help the new graduates to organize their social and financial life. Here are some strategies they can use to do this:
- An additional part-time job;
- Freelancing is another option (meaning that they can do particular pieces of work for different organisations, without working all the time for a single organisation);
- They should try to keep their living expenses as low as possible (live in a smaller apartment, live with a roommate to share some of the expenses, find an apartment that is closer to the job, to eliminate the extra-expenses for transport etc.);
- To apply for forbearance (this is an immediate solution for hard times when the new graduate is in impossibility to re-pay the amount of money and the need for student loan consolidation becomes apparent; it is a temporary period, when the graduate can postpone or delay his or her re-payments until a later time on a federal or direct loan after the beginning of the re-payment, and when the student doesn’t qualify for deferral). The forbearance must be applied through the lenders of the loans.
- To consolidate the payments.
If you feel this help, please drop by my website for additional information, such as federal student loans information or additional resources on private student loans .