A White Paper Proposing

A White Paper Proposing

The Roomberg Taxpayer Scholarship© (RTS©)

A revenue neutral solution

for the one hundred percent financing

of the college education

for all citizens.

by Leon Jay Roomberg, M.S.

Developed under the auspices of the Roomberg Institute, a project of the American Association of Accredited Degreed Counselors, Incorporated (AAADC), a not-for-profit, non-political, 503c organization, incorporated in the state of New Jersey, and serving the community since 1996. (www.RoombergInstitute.org)

Contents

Cover ............................................................................................................................... 1

Fact Sheet ......................................................................................................................... 3-4

Supporting Details.............................................................................................................. 5

Public Education................................................................................................................. 12

Endorsement Instructions.................................................................................................... 13

Suggestions and Feedback ................................................................................................. 14

Sources.............................................................................................................................. 15

Roomberg Taxpayer Scholarships©. FACT SHEET

1. It is a complete college funding solution. The RTS© is a loan alternative, where the taxpayer can borrow all or any portion of their college education and then repay that education with 10% of their annual income, until the debt and related interest and fees are repaid.

2. It requires no new government taxes or increased government borrowing. By redirecting the 65 billion dollars in existing federal tuition programs, the impact of the RTS© will be to provide universal and complete financing of college educations without increasing the federal government’s deficit.

3. Repayments are limited to 10% of the borrowers income. The RTS© payments are made by increasing the taxpayer’s base tax rate by 10 percentage points, and then increasing the related withholding and end-of-year tax payments to the IRS. By limiting payments to 10% of an individual’s income, repayment of college loans are possible for almost all citizens.

4. Securitized loans will provide investors with a secure investment that may be as or more reliable than mortgage-backed securities. Interest rates on the RTS© will be fixed for the loan duration and set by private investors who can purchase the RTS© Bonds from the US Treasury. (Actually bundles of 100 or 1,000 loans that can then be broken up and resold in a manner similar to mortgage backed securities.)

5. Immunity from most bankruptcies results in low interest rates and low default rates. As the knowledge asset created by the education is thought to be immune to dissipation from financial mistakes, bankruptcy will not effect repayment obligations toward the RTS©. As the loans are immune from bankruptcy, the RTS© interest rates should be among the lowest available.

6. Administrative costs should also be very low. As the RTS© loan payment collection is part and parcel of the existing federal tax collection mechanisms, the administrative costs incurred by the government in collecting loan payments should be a fraction of a percent.

7. The Roomberg Taxpayer Scholarship©:

o funds up to $2,000 per course, adjusted for inflation. For most colleges, this will cover tuition, meals, board, books, and fees.

o funds up to $20,000 per year, $80,000 through bachelor’s, $120,000 through master’s and $160,000 through doctoral degrees.

8. RTS© will adapt to the changing economy. RTS© maximum loan amounts will be automatically adjusted for inflation annually

9. RTS© provides limited help to part-time students. RTS© loans to part-time students are only for tuition, books, lab fees, and registration fees.

10. RTS© is focused on career preparation. It is available only for accredited academic courses at accredited colleges and universities

The Roomberg Taxpayer Scholarship©. Details

RTS© Details:

1. Restrictions on trade and non-academic schools. As the market for many skills taught by trade schools fluctuates, RTS© loans will be available for federally recognized trade school institutions only to the extent that debt repayment will be limited to eight years, and further limited to professions where the department of labor certifies the likely demand and likely income for the skill or trade in question.

2. Universal availability. RTS© loans will be made available to all citizens not currently in default to any government agency debt.

3. RTS© loans requires student commitment. In any semester that a student’s average falls below “C,” the student’s ability to borrow further funds will be suspended. Until that student then completes an entire semester of at least five academic courses with at least a “B” average, no further funds will be made available to that student.

4. RTS© loans are an obligation that must be satisfied. RTS© loans must still be paid even if the graduated student then works overseas or renounces US citizenship or files for bankruptcy.

5. Payments for Married Joint Filers. If a student marries, files taxes jointly, and their spouse also has outstanding RTS© loans, then 10% of gross household income will be split between the two debts.

6. Payments for Married Individual Filers. If a student marries, files taxes separately, and their spouse also has outstanding RTS© loans, then 10% of each filer’s income will be applied to their individual debt.

7. Payment The RTS© loans will come with a built-in life and disability insurance premium paying off the balance of debt if the student dies or becomes 100% disabled.

Possible Variations:

8. Limited parental contributions. In years where the income of the student is less than $20,000, parents of the student may be liable for a portion of the interest on an RTS© by a child up to a maximum of two percent of the parent’s adjusted gross income for a period of no more than twenty years, and also terminating upon complete loan payoff or death of the parents.

9. Parental contributions for multiple children. Parents of non-emancipated children may be liable for a portion of the interest on a The Roomberg Taxpayer Scholarship by multiple children, up to a maximum of five percent of the parent’s adjusted gross income for a period of no more than fifteen years, and also terminating upon complete loan payoff or death of the parents. The parental payments will be split evenly between the obligations of all of their children with RTS© loans. There are no limits as to the number of children in a family who receive such loans.

The Roomberg Taxpayer Scholarship©. Details - continued

10. Restricted to citizens. RTS© loans are available only to citizens of the country issuing the loans.

11. Restricted to domestic institutions. RTS© loans are for attendance in educational institutions located in the United States, its possessions, and military bases. For schools whose study includes an overseas exchange program, RTS loans can be used for up to one year starting after the completion of one year within the United States.

12. Loan restrictions. The RTS© available loan amounts may be limited based on two variables.

First, the relationship of the projected income of course-of-study to the projected ability to repay the loan within 25 years. For example, if the demand and projected typical compensation for archeologists is so small that repayment of loans is not likely, then the student may be required to adopt a “double major” (secondary school teaching, for example), in order to assure the investors of repayment.

Second, the relationship of the length of career available to repay loans to the likelihood of loan repayment. Assuming a “standard” retirement age of 65 (the government may choose to change this number), a person who is 45 years old at graduation would be assumed to only have 20 years of debt repayment available.

13. Further loan restrictions on incarcerated individuals. As the maximum RTS© loans include room and board, RTS© loans made to incarcerated individuals may only cover tuition, books, lab fees and school registration fees. RTS loans available to incarcerated individuals will be reduced to account for actual projected income and work years once released from incarceration. These restrictions will effectively restrict RTS© loans to those incarcerated individuals most likely to be productively returned to society.

14. RTS© loan source, guaranty, and subsidies. As of 2003, the federal government annually spent 65 billion in direct financial aid to students. (*3) The government may reallocate these funds to make minimum payments on behalf of students whose annual income falls below a certain level, or who are faced with medical or other hardships, or to provide incentives for particular jobs such as inner city teachers and rural doctors, or to provide loan guarantees to RTS© bond holders.

15. RTS© promotion. Every elementary and secondary school in the country will be able to continually send home communications that every student who performs up to academic standards is eligible.

The Roomberg Taxpayer Scholarship©. Discussion

Universality:

This white paper provides the rationale, operational approach, and funding sources for the adoption of Universal Tuition Financing for all college students. While the approach was developed based on experiences and research in the United States, its application may apply to other developed and developing countries as well.

The justification for a college education.

While there are many purposes for obtaining a college education, this paper focuses only on the economic relationship of the benefits of college education in relation to financing the costs and to expanding the percentage of those high school students who pursue a college education.

One of the many purposes of a college education is to train individuals to develop their skills so that they have the ability and opportunity to adapt to the changing demands of the job market. Only a generation ago, it was not unusual for an individual to choose their trade or profession in early adulthood, and then work at that trade or profession in the employ of one or a few employers over the span of a forty to fifty year career. Today, it is not unusual for whole categories of employment to be eliminated due to changes in technology, market demands, and international shifts in the deployment of resources. As a result, it is no longer unusual for an individual to have two to four completely different trades or professions and work at a dozen or more employers over the course of adulthood.

A college education can be of benefit even in trades that ostensibly do not require one. For example, depending on the state, the training and licensing of plumbers may require exams, technical school and/or apprenticeship, but never college. However, with the appropriate courses, the college educated plumber may be better equipped to operate one’s own business and create jobs for others, than a person without a college education.

Individual & Society Economics

A college education is important to both individuals and society for many economic reasons. Consider the following table:

Educational	Average	Years	Career	Average Tax	Lifetime
Experience	*Wage (1)**	Employed	Earnings	*Percentage (2)**	Taxes

High School Diploma	$ 26,667	45	$1,200,000	37%	$444,000
Trade School (or 2 year Junior College)	$ 40,000	43	$1,720,000	37%	$636,400
Bachelor's Degree (4 year)	$ 51,220	41	$2,100,000	37%	$777,000
Master's Degree (Bachelor plus 2 years)	$ 64,103	39	$2,500,000	37%	$925,000
Terminal Degree (Doctorate, Ph.D., etc.)	$ 91,892	37	$3,400,000	37%	$1,258,000

Annual tuition:	$ 20,000

While there is a great variety in the compensation of individuals in specific degree programs (as someone with a doctorate in medicine typically earns more than an individual with a doctorate in the fine arts), the numbers hold for the general working population.

From the perspective of the typical high school graduate, a bachelor’s degree can add more than $900,000 to their expected lifetime earnings while a doctorate can add more than 2.2 million dollars in lifetime earnings.

As shown by the chart, the additional revenues realized by the government in the forms of all taxation streams also concurrently grow as individuals increase their levels of education.

Looking at the overall value to the government of the additional tax revenues expected, each person who graduates from college represents an average of more than $300,000 in additional taxes paid when compared to typical individuals who do not graduate from college.

From the perspective of society, there are multiple economic benefits to expanding the percentage of working people with college educations. Not does higher levels of education correspond with higher contributions in terms of taxes paid, but higher levels of education generally correspond with dramatic lower service demands in areas that include the costs of police, emergency medical care, courts, social workers, and prisons.

The issue of cost from the family’s perspective.

The cost of a college education is spiraling past the ability of many families to bear. In some families, the commitment to funding large portions of their children’s college education translates to a depletion of savings that could otherwise be used for retirement and medical care.

Informal surveys of children of working class families reveal that the prospect of emerging from college with a large debt is reason enough for some not to attend college. In lower-income neighborhoods, the prospective of such debt is a powerful disincentive to pursue college.

Considering the lifetime benefits, the burden of college loans should not be seen as a legitimate excuse for not attending college, but internet discussion boards with countless messages to the contrary are in abundance.

Some might hold the answer is merely in educating the public via advertising and other marketing approaches. The position of this paper is that the individual concern over debt is a real one and that a different terminology and financing framework should be developed to increase comfort with the wisdom of educational debt.

The issue of cost from the government’s perspective.

The government today participates in the financing of (typically less than 25% of the cost of) college education in generally two approaches. Those approaches are grants and loans. A grant is any scholarship or other funding either directly to students or to colleges that does not have to be repaid. Loans are any funding that must be repaid.

With regard to grants, the federal government provides limited grant monies out of general revenues from within the federal budget. At the time this document was last revised (July 1, 2004), the federal budget is running significant deficits and expanding scholarship grants does not appear to be a fiscally prudent approach.

The reason for government involvement in the financing of student college loans (as opposed to leaving loans purely to the private sector) is that students are typically bad risks for large (college tuition sized) loans by banks and other private lending institutions. This is because college age students are typically individuals with minimal assets, minimal credit, and who are at high risk of bankruptcy and other loan defaults. If lending for college was purely a private sector function, the number of students eligible for such loans would plummet and the remainder face interest rates bordering on the usurious.

The majority of government backed college loan financing is in the form of student loans and loan guarantees. Most of these loans are provided through three federal programs. Those programs are Stafford Loans, Perkins Loans, and Federal PLUS Loans.

These programs have two advantages over traditional forms of financing. First, the government guarantees either a portion of or all of each loan, lessoning the risk incurred by the lender. Second, students become better risks as loans remain student liabilities even after filing for most types of bankruptcy. Loans can then be “packaged” and sold on the private market through banks and through organizations such as the government charted Nellie Mae and Sallie Mae corporations.

For most students, the government loan programs are inadequate as they limit the amount that can be borrowed in any year to an amount between $2,600 and $5,500 per year. In other words, for most college students, 75% of college costs must be raised from other sources.

While the government bears a portion of the risk of individual defaults, the vast majority of funds that flow through this system are provided by private investors and repaid by individual students.

College costs.

The cost of a college education can vary greatly depending on the type of institution attended. State and community colleges often cost much less than the typical $20,000 annual cost of private colleges. (In most private schools, $20,000 is a typical budget to cover tuition, books, fees, housing, and meals. Some are lower and some are higher.) This is because they are subsidized by state and local taxpayers. Many of those institutions are operating well below demands for their services. Take the example that some community colleges “admit” virtually anyone with an acceptable high school diploma and test scores. Imagine the surprise of many of their students that many of the courses required for their major are completely booked by the time they try to register. The result for some is a part-time situation that can trigger the required repayment of loans that normally does not begin until graduation.

According to recent population trends, the number of students eligible for college will increase very year from now until it is projected to level off in 2007. Immigration, foreign citizens studying in the United States, and adults attending college part-time to further their careers may increase the demand for educational resources..

With regard to the private colleges, tuition and other expenses is now averaging $20,000 per year (*3) and increasing at an annual average of 6%, well beyond the current level of inflation.

For most degrees, the cost now translates to:

	Average		Payment
Educational	Graduate		if 100%	Percent
Experience	*Income(1)**	Tuition	Financed	of wage

High School	$ 26,667
Trade School (or 2 year Junior College)	$ 40,000	$ 40,000	$166.67	5.0%
Bachelor's Degree (4 year)	$ 51,220	$80,000	$333.33	7.8%
Master's Degree (Bachelor plus 2 years)	$ 64,103	$120,000	$500.00	9.4%
Terminal Degree (Doctorate, Ph.D., etc.)	$ 91,892	$160,000	$666.67	8.7%

Annual tuition:	$ 20,000

In practice, the actual payments are typically shared by students and parents, with students working part or full-time jobs. This practice often strains parental finances, distracts students from focusing on studies, and prevents more than 2 million high school graduates each year from attending college at all. (*3)

Looking at payments over loan lifetimes, they average out to 10% of gross income during the length of the repayment period. The reality of career income is that for most individuals, income in the early years is substantially less than income in later years.

Many individuals looking at college are frequently overwhelmed by the perceived complexity of the multiple sources of required financing and can become discouraged with the seemingly enormity of first raising, then paying, between $80,000 (typical Bachelor degree costs) and $160,000 (typical doctoral degree costs) of debt.

Based on the above discussion, the challenges identified thus far are:

To fund 100% of each student’s college education.
To provide such funding without substantial increases in taxpayer costs
To market the debt to private investors
To convince high school students and their families that payment of such debt as reasonable
To use the resulting solution to entice more students to both graduate from high school and to graduate from college.

The elements of The Roomberg Taxpayer Scholarship© defined on pages 2 and 3 of this document addresses all of these requirements.

Magnitude of the challenge:

The number of college students in the United States increased from 13.8 million in 1990 to 14.7 million in 1999, according to the U.S. Department of Education. The department projects enrollment to increase by 15 percent, to 15.3 million, in the next 10 years. (*4)

“According to the Advisory Committee on Student Financial Assistance, cost factors prevent 48 percent of college-qualified high school graduates from attending a four-year institution, and 22 percent from attending any college at all. The statistics are similarly bleak for middle income students and families. At this rate, by the end of the decade, more than 2 million college-qualified students will be completely denied the opportunity for a postsecondary education.” (*3)

“For the 2002-2003 school year, average tuition and fees at a public four-year institution was over $4,000, an increase of 9.6 percent over last year. Average tuition and fees at a private college or university was over $18,000, an increase of 5.8 percent over last year’s average. These increases exceeded the rise in the Consumer Price Index by 8.4 and 4.7 percent, respectively, and these figures do not include the additional costs associated with higher education, including room and board, books and supplies, lab fees and additional academic costs, transportation, and other personal expenses.” (*3)

As of 2003, the federal government annually spent 65 billion in direct financial aid to students. (*3) This figure does not include local and state expenditures on subsidizing community and state colleges, and on community and state tuition grants and loans.

If one divides the 65 billion dollars in current annual expenditures by a project increased student population of 15 million, which translates to $4,333 dollars per student per year or $17,333 for a bachelor’s degree. This amount is enough to pay not only the first four years of interest payments, but also to fund an insurance policy for the few borrowers who do default on their loans.

The net effect would be a leveling off of funds spent for higher education, an addition of potentially millions of additional college graduates, and the addition of billions of dollars in additional tax revenues over the next forty years. Based on the previously calculated estimate of $300,000 in additional lifetime tax revenue for each additional college graduate who would not have otherwise attended college, lifetime government tax revenue would increase 600 billion dollars for each additional 2 million graduates added to the economy.

Just as the post-World War II GI bill gave skills to a generation who fueled the largest economic expansion in history, the impact of additional personal income would add 1.8 trillion dollars of additional Gross Domestic Product to the economy for each 2 million additional students.

The statistics in this document are based on the assumption that the historic advantages in personal income and taxes paid by individuals who have college educations will continue their wide margin over the personal income and taxes paid by individuals who only have high school educations. Research consisting of perusing more than a thousand web sites returned by searches on keywords including “education,” “income,” “trends,” and “economics,” have found no argument to the contrary recognized as credible by the author. Instead, it appears the incidence of globalization and outsourcing low-skilled jobs to other countries may actually magnify these differences.

This document will be submitted to various educational and political authorities. As time permits, their feedback will be posted on the www.RoombergInstitute.org website.

This document (or excerpts and summaries of this document) may be submitted to various publications for public education and comment.

Due to our 503 not-for-profit status, we can publish statements by political figures who endorse The Roomberg Taxpayer Scholarship©, but are prohibited from endorsing political figures, parties, or campaigns.

We will use our position to promote this program within legal parameters, and will accept funds from foundations, individuals, and educational institutions to further that cause.

Donations may be sent to:

AAADC – RTS Education

304 Garwood Place

Cherry Hill, NJ 08003

Endorsements:

Endorsements should be sent to:

AAADC – RTS Education

304 Garwood Place

Cherry Hill, NJ 08003

For endorsements to be considered for our acceptance, they must

be received on printed letterhead
contain

ink signatures
printed individual name(s)
title
address
city
state
zip
telephone
email
clear identification of organization affiliation

We welcome endorsements from all major political, educational, economic, civil rights, parenting, religious, community, publications, and similar organizations.

Email endorsements may not be accepted.

Endorsements should include one of the following two statements:

I (we) endorse the implementation of the Roomberg Taxpayer Scholarship© program and may be contacted by any news organization for confirmation of this endorsement

I (we) endorse immediate congressional investigation and evaluation of the Roomberg Taxpayer Scholarship© program and may be contacted by any news organization for confirmation of this endorsement

Suggested Changes and feedback:

Suggestions for changes to the draft are welcome and should be emailed to:

rts@roomberg.com

Changes and all communications become property of the Roomberg Institute.

Due to the volume of communications, we are unable to acknowledge many communications.

Sources

(*1) The Big Payoff: Educational Attainment and Synthetic Estimates of Work-Life Earnings. Issued July 2002, By Jennifer Cheeseman Day and Eric C. Newburger. U.S. Department of Commerce, Economics and Statistics Administration, U.S. CENSUS BUREAU, Document P23-210,

Alternate title: Current Population Reports by Jennifer Cheeseman Day and Eric C. Newburger.

http://216.239.41.104/search?q=cache:Ms_AuE2jRXsJ:www.census.gov
/prod/2002pubs/p23-210.pdf+Current+Population+Reports+By+Jennifer+Cheeseman
+Day+and+Eric+C.+Newburger.&hl=en

(*2) A Carnival of Taxation. http://216.239.39.104/search?q=cache:I4X1OYNXacwJ:www.independent.org/tii/media/pdf/TIR
33_Higgs.pdf+taxation+%22percentage+of+income%22+%22united+states%22&hl=en.

Reprinted from The Wall Street Journal, April 15, 1998.

(*3) The Skyrocketing Cost of Higher Education, House Education & the Workforce Committee, John Boehner, Chairman. 2181 Rayburn HOB · (202) 225-4527

http://edworkforce.house.gov/issues/108th/education/highereducation/factsheetcost101003.htm

(*4) Competition crowds college field, Union College News, “An increase in applications makes wait for acceptance all the more agonizing for this year's high school seniors,” By Alan Wechsler , Staff writer, Reprinted From The Times Union Wednesday, February 19, 2003 http://www.union.edu/N/DS/s.php?s=3493.