(Part 3) College Costs and Loans: FAQ
In Part 1, I covered the reasons I disfavor cancelling student debt. In Part 2, I covered why we should cover some student loans, how to help future students, and how to fund it.
There are two items in play here: (1) easing the cost of college costs for incoming / existing students; (2) paying down college loans for existing / past college students.
In this last part I cover, in FAQ style, a framework on how this could work.
For Corporations
How does this play into Biden’s current infrastructure proposal?
The current proposal does not address student debt, it covers preschool and free community college. There are likely details to the community college, but it looks to be very open ended (i.e., free without a cap on costs).
If Biden and Congress pass a student loan cancellation, does this Education Allotment go away?
In my thinking, No. Cancelling student debt does not address helping future students with the costs of a college education.
When do all of these taxes stop?
There is no method to the madness on taxes, as far as I can find. Congress wants money … they find an entity to tax. No cohesive plan, just whichever way the winds are blowing.
That showcases that Corporate Income Taxes is roughly 6% of the overall federal tax revenue. Individuals pay 47% of tax revenue in terms of income tax.
When corporations pay more taxes there are risks (e.g., raising prices, slowing hiring, slowing pay raises, moving operations elsewhere). Still, 6% seems low.
Separate from a discussion on Education, there should be a deep dive into: what the budget should be for the federal government, and how do we fund that?
Again, why tax us?
You want a well educated workforce. To add to that, Biden noted in his Infrastructure Speech
Look, we can’t be so busy competing with one another that we forget the competition that we have with the rest of the world to win the 21st century.
He has it wrong. First, there is no winning a century. I am not certain what that even means, or what the criteria is.
What the emphasis should be is: we need a well educated workforce to secure our nation from bad actors. (Such as the Colonial Pipeline hack.)
So, you as a $1B+ company benefit in a disproportionate way from a workforce that is well educated … not just those people you hire, but also who smaller companies and the government hire. The people hired to protect your local utility company, e.g., should be as good or better than the people you hire to protect tour internal systems.
For politicians
Why would I want this?
Because you want a doctor. Because you want your grandchild to have a teacher. Because you want a well-educated workforce to hire at the FBI, CIA, NSA, NASA, et cetera.
Can congress borrow from the fund?
The bill will need to be written to bar this. Politicians have a long history of “borrowing from Peter to pay Paul.” People like to talk in circles about how their behavior is justified, but there is no reason to borrow from this fund.
The reverse, though, is actually needed. It will likely take a decade for this program to be cash flow positive, so in the early days, the Education Allotment will need funding from the government.
Which government agencies would need to be involved?
The three primary ones are: The Social Security Administration and the IRS (for identification of qualified recipients, tax form changes, and more), the Department of Education (for tracking allocations, verifying college accreditation, and more).
For Colleges, Universities, Trade Schools
How do I know if my school is covered?
Accreditation is needed nationally or regionally.
Will funds come directly to the school?
Yes, in some cases. While loans are highlighted often in these pages, there are students who need help while attending school. Payments will be offered directly to a school to cover education costs.
Refunds go back to the Education Allotment for the individual, and not to the individual. For example, the Education Allotment pays directly to a college $500 for books. If the student subsequently drops the class and returns the books, the refund goes to the Education Allotment account for the individual.
There are a lot of logistics on this, certainly.
Which costs are covered?
The IRS has already determined Qualified Education Expenses. Let’s keep with that.
What else should I know?
As part of this, a review of how colleges spend their budgets will be performed. There is no need for a prescriptive approach, but there needs to be transparency on how costs are calculated and where the money goes. There also needs to be guidance communication to potential students the financial impacts (positive and negative) of a college education.
For students
Can I stop my loan payments while waiting for this program?
No, you need to keep paying your loan. This is a first pass at what a proposal that will likely not go anywhere. I am posting it because I believe there is merit for further discussion and review.
What is the benefit per person?
$5000 per eligible person. This will uptick every fives years by $500, and can be revisited based upon available funding.
$5000 won’t cover my education. How do I get more?
The goal here is not to make college free. College is expensive, which you likely know. Making it free to someone means someone else is paying. Even if the “government” is paying, the government is of the people, by the people, for the people, and it is funded by the people.
The good news is that the allotment is transferrable in $1000 increments, but a person can only transfer their allotment after the age of 25.
How does that work?
Let’s say you have $8000 in student loans. You can cover the first $5000 from your allotment. Perhaps you have a relative or a friend who does not have a student loan. They can put $3000 toward your loan, and the other $2000 toward someone else’s loan.
What if the loan is not in even thousand dollar increments?
Loans won’t be so neat and tidy. If your loan is $8200, again, you can cover the first $5000. A relative or friend could then pay $3000 from their allotment, leaving you with $200 of an outstanding loan.
Alternatively, the relative could put $4,000 toward your loan. In this case, the first $3200 would pay the loan, and the $800 balance would go to the College Education Pool (a central pool that will be distributed to other college students / college loan recipients — more further down).
My loan is massive, like, more than $100,000! I don’t think I can find enough people to transfer over their allotments. What can I do?
First, do not give up on family and friends. Yes, they might get asked by multiple people, but not asking will get you zero. But asking might yield results. If a family member or a friend has already committed their allotment to someone else, DO NOT BE MAD, be happy that someone who needed help is getting help.
Second, once you have used your $5000 on yourself, you can put your name into the College Education Pool for further possible allocations.
What is this College Education Pool and how does it work?
The College Education Pool will be funded in a four ways (there is a fifth, but it would take ≈30 years to get there):
a) Unused allotments will go there. For example, your loan is $4100. You specify your entire allotment goes to your loan. The $900 extra would go to the College Education Pool
b) Someone can send their entire allotment there just because they want to
c) Someone can die without using their allotment (this includes minors)
d) Someone can sell (see below) a portion or all of their allotment to the Pool.
Why can’t I have the leftover money from my allotment?
In the above example, you have a $5000 allotment and a $4100 loan. You specify that the entire allotment goes toward your loan. The extra $900 goes to the College Education Pool.
The $900 does not go to you because it is not your money. There are other loan borrowers who can use that toward their loan and toward the the goal of the program.
How does the College Education Pool system work?
From the four methods previously mentioned, the CEP has a pool of money.
Loan borrowers can optionally submit their names for further loan assistance. Then there is a random draw to match available funds to loans. The rules and logistics obviously need to be worked out, but it would not be a weighted system. A weighted pool looks like this example of people with oustanding loan amounts:
Keeping this simple. Tickets are assigned one per $1K of education loan debt, truncated. Meaning, $9,999 is nine tickets, the same as $9,001 is nine tickets.
If there is $50,000 available in the College Education Pool, then there are 50 tickets to be drawn (each ticket is worth $1K).
Person F has one ticket out of the 165 tickets assigned. Their chance of being selected is 1/165 (for the first ticket drawn). Person A has a 30/165 chance of being selected. Pretend that a ticket that Person A is assigned is selected in the first round.
In the second round, Person F has a 1/164 chance of being selected, and Person A has a 29/164 chance. And so forth through 50 rounds.
Since funds would be added to the Pool regularly, the lottery would be scheduled regularly (perhaps quarterly).
Is that ticket system a fair way to pay off loans?
Yes. Any other consideration (e.g., the degree pursued, the ability to pay the loan, the zip code of where the person lives) clouds the fairness. What is fair to you might not be fair to someone else. If there is a more balanced and pragmatic solution, then that should be reviewed too.
What other restrictions or other considerations for the lottery pool?
If your outstanding loan is less than $1K, then it is no longer eligible for the lottery.
(It gets murky when trying to separate late fees, or other charges, so for now, I would keep it simple.)
Who is eligible for the Education Allotment?
This needs to be reviewed further, but the consideration is to be as pragmatically inclusive as possible. The proposal is for people who fall under one of these designations: US citizens, Native Americans, DACA. There are other possible groups, but I believe those three designations covers the vast majority.
I am under 18 and am taking college courses. Am I eligible?
You are eligible to have your allotment paid directly to the college, but not having your allotment pay off any college loans. This includes college loans your parents have on your behalf.
I am an emancipated youth, am I eligible?
Yes, you can use your allotment for your college education, student loans in your name for your education, and you can submit for additional coverage in the College Education Pool.
I have a child who will never attend college due to health or other reasons. Can I use their allotment for another child or perhaps my own student loan?
First, the allotment is not available to your child until they reach 18.
If you have legal power of attorney for someone, you can make the decision on the allotment. It cannot be transferred or sold until they reach the age of 25, though.
What loans / schools are eligible.
All student loans that exist prior to whatever date is settled upon.
All colleges (community, four year, private, public) are eligible as long as they are Nationally or Regionally accredited at the time the loan or school cost was incurred.
This includes vocational and trade schools.
Can I sell my allotment?
After the age of 25 you can sell your allotment (or any remaining portion) to the College Education Pool. The proposed amount is 10% of the value, and it is proposed to be tax free at the federal level.
Can I sell my allotment privately, like to a friend?
You could absolutely sell your allotment to a friend, but it will be specifically called out as illegal. So while you can get 10% from selling to the College Education Pool, perhaps you could get substantially more from a friend.
For example, you have a $5000 allotment. Selling to the College Education Pool would get you $500 tax free.
A friend has $5000 of loan (or some greater amount). They offer you $1000.
That makes total sense for you the seller (more money!).
Though, the penalty for selling in this manner will be 10x of the allotment sold, and the seller is penalized. In the above, you are risking $50,000 in fines for a $500 gain. You should be certain that your “friend” doesn’t turn you in.
This is a collective approach to the problem. Individuals trying to benefit themselves should be punished.
Why do I need to wait until age 25 to sell this to the College Education Pool or to transfer it to someone?
While the allotment becomes available to use at 18, you might not know what your plans are at that time. Perhaps you work, and then decide to return to school. Or you join the military and then later decide to enroll in college.
Age 25 gives you time to make a more informed decision.
Is there a needs test for the allotment?
There is no need test for the allotment.
Really! So a billionaire could use the $5,000 for their education?
Yes.
That hardly seems fair. Could it be made public which billionaire’s used their allotments?
This is not a shame game, and shame on you for suggesting it.
However, there could be an all-or-nothing approach to that. Meaning, all transactions could be made public. Then everyone could equally be shamed or equally thanked.
I disfavor showcasing transactions, though, as people should have some control over their private lives.
People who do not need the allotment for their education should transfer it to someone who needs it, or transfer it to the education pool. Individuals can then decide whether to showcase their decision on social media, or elsewhere.
I would prefer to see people boasting about their giving back their allotments than to setup some needs based criteria that could take years to agree to.
What about the children of the ultra-wealthy?
A child of the ultra-wealthy receives the same allotment when they turn 18. If they choose to go to college, they can choose to use the allotment toward their education.
But should they use the allotment given that their parent(s) can afford to pay for college in full?
Whether they should use the allotment is their decision based upon how they self-justify their decision.
Let’s face it: some of those who can afford college for their children will justify using their education allotment, and equally justify not giving back to society. That behavior can be saddening and maddening, I agree.
Why are you so hesitant about establishing needs-based criteria?
A few reasons.
First, it would take too long to decide what criteria to use while politicians bicker over that. Is it based upon wealth? If so, what level? What point-in-time? How do you evaluate asset worth? Are trusts or charitable foundations part of an individual’s wealth? Is that all trusts (e.g., charitable vs personal), Is it wealth or income? et cetera.
Second, this is meant to be a benefit for everyone and an opportunity for people to step up and help each other.
There are countless ways to look at needs-based criteria. Instead of striving for some level of perfection that everyone will agree to (which they won’t), I propose we go with the attainable. In other words, don’t let perfect get in the way of good.
What else should be considered?
You tell me.
(Jump to Part 0, Summary.)
