Recently, billionaire investor Mark Cuban declared that fixing the student debt crisis is the most important thing our government can do to restore the national economy. His idea: cap federal student loans at $10,000 per student, per year. Few would argue that student loan debt isn’t a problem of epic proportions, but Cuban’s explanation of the crisis and his solution resulted in mixed reactions.
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Cuban shared his thoughts at Inc’s GrowCo conference where he stated that the national economy is in trouble because so many graduates aren’t able to spend money after college due to their student loans. He believes that students are taking out more and more in student loans to cover the increasing cost of tuition and schools keep increasing the tuition knowing students will cover it with loans.
“That’s the same money that, when you graduated, you used to move out of the house or you went out and spent money that improved the economy and helped companies grow.” Cuban says. “It created more revenue and spending power. Instead, it’s going to build a better fitness center at your school.”
Capping student loans at $10,000 is what Cuban believes is the answer to fixing the student loan problem which he considers to be “the real bubble” in our economy. He says that otherwise America doesn’t stand a chance because “all this other stuff is shuffling deck chairs on the Titanic.”
Education contributor to Forbes, James Marshall supports Mark Cuban’s proposal. Marshall believes, like Cuban, that capping student loans will free graduates to spend money after college thus growing the economy. Marshall also believes Cuban’s plan would “weed out” controversial for-profit colleges since nearly one quarter of federal student aid goes to students enrolled in those schools.
Other points Marshall touches on in support of Cuban’s loan cap are that it would “force more students into this country’s excellent community college system” and that it would also force nonprofit colleges and universities to “invest in education again.” Rather than spending tuition money on stadiums and higher administrative salaries, Marshall call for schools to invest in better professors, smaller class sizes, and lower tuition.
However, not everyone shares Marshall’s zeal for Mark Cuban’s tuition cap proposal. Writing for The Huffington Post, John A. Tures, a political science professor at LaGrange College responds to Cuban’s dire view of the effect student loans are having on the economy. Tures points to research gathered by Liz Weston, a Reuters News columnist who writes that there’s no evidence to show that the student debt crisis is what’s holding the economy back.
Tures also states that students being unable to spend money after graduation isn’t necessarily a problem because he says they aren’t graduating with that level of debt. Tures cites data from the Federal Reserve Bank of New York Consumer Credit Panel and Equifax that shows only about 3 percent of borrowers have loans above $100,000 and other data that shows most of the high-end loan recipients are graduate students.
Rather than focusing on how much student loans are, Tures suggests focusing on where student loan defaults are occurring. He points to the high default rates at private for-profit colleges which receive $378 million in federal student loans.
“Clearly the student loan issue is important, but it’s hardly the economy killer that headlines have made it out to be,” says Tures. “As for the solution, we might be better served by distinguishing good loans from bad ones, rather than arbitrarily capping loans.”
In spite of his overall support for Mark Cuban’s student loan cap proposal, even James Marshall concludes his thoughts with a challenging caveat.
“Indeed it could be argued that if the federal backstop ended, colleges would rely even more on families with the ability to pay.” Marshall says. “This would further deepen the ethnic and class divide at top schools, and force academically qualified, but poor, applicants into schools for which they are vastly overqualified.”
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