Generational Alliance: Social Security as a Bank for Education and Training

Generational Alliance: Social Security as a Bank for Education and Training by Barry Bluestone, Alan Clayton-Matthews, John Havens, and Howard Young Criticism of public programs in recent years has increasingly taken on the tone of a generational conflict. Critics point to the high cost of Social Security pensions, Medicare, and nursing homes and raise the specter of a feud between the generations, as if the old were living riotously off the young and the middle-aged.

Of course, the elderly are not really a separate special interest, since the rest of us hope to live long enough to become equally special. But the effort to frame social policy as an issue of "generational equity" has touched a raw nerve. Americans who are retired, or approaching retirement, are concerned about the commitment to Social Security, and many people of working age worry that they are paying higher taxes into a system that neither gives them any apparent current benefit nor provides them with a secure future.

Americans now have an opportunity, however, to turn generational conflict over Social Security into a generational alliance. The solvency of Social Security ultimately depends on the long-term growth of the American economy, and that in turn hinges on the skills and inventiveness of the American people. Social Security reserves are currently used to finance the budget deficit. Instead, we should invest a portion of that surplus in raising economic productivity -- specifically, by assisting students and workers to pay for postsecondary training and education. Young workers would then benefit from Social Security at the start as well as at the end of their careers.

The public policy initiative for reuniting the interests of the generations and strengthening the foundations for future economic growth is the education equity program outlined here. Under the program, part of the growing Social Security surplus would be borrowed to make awards for schooling beyond high school. Students could either cover college and university expenses or pay for vocational training, retraining, and apprenticeships. They would pay for their awards plus interest through a payroll withholding system, and the amount they repay would depend on their future earnings.

The entire program is designed so that all costs are covered by borrower repayments. Losses due to the low income, death, or disability of some borrowers are offset by repayments above cost by those who reap higher incomes. The demographic trends over the next half century or so work in favor of the program. In the program's early years, while Social Security surpluses are growing, education equity will borrow from Social Security. But about thirty years from now, when the Social Security system will need those funds to cover its obligations to retirees, education equity will be generating a positive cash flow back to Social Security Thus the system will be virtually assured of solvency while the entire economy benefits from a better educated and trained workforce.

The basic idea of an "income-contingent" system of student loans, to be repaid through the IRS, is by no means new. Indeed, one variant of the proposal comes from an eminently conservative source. Years ago, Milton Friedman outlined such a plan. More recently, Robert Reischauer, now the director of the Congressional Budget Office, put forward a similar proposal. Some universities, such as Yale, have experimented with the idea, and Michael Dukakis advocated one version of it in his 1988 campaign. We make no claims, therefore, to inventing the concept. But we have revised it considerably -- particularly as it relates to Social Security -- and worked out many of the details and long-term implications through a computer model. Here we explain how it would work and why it makes sense.

Education Equity
Ours is a plan for education equity in both senses of the term

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