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07/05/95

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Stiglitz suggests reform of student loan program

STANFORD -- Stanford economist Joseph Stiglitz told a campus audience June 26 that he is pushing an idea in Washington from Stanford President Gerhard Casper to make universities responsible for guaranteeing the payment of their students' loans.

In exchange, he said, the universities would get relief from regulations and paperwork associated with federal student loan programs. "It seemed to me an example of a creative idea where everybody is better off," said Stiglitz, who is chair of President Clinton's Council of Economic Advisers.

"Stanford wouldn't have to fill out the forms, and the default rate is so low, partly because Stanford provides a good education for people, that it is a risk they could bear."

Stiglitz made his comments at a talk at the Center for Economic Policy Research. He also defended government spending on science education and research and said that making college more affordable is an important goal of Clinton's budget proposal because easier access to higher education reduces income inequality and increases economic growth.

"In the last decade, the [lifetime income] gap between those who get a high school education and those who get a college education has increased enormously," Stiglitz said, from about 46 to 86 percent. This growing income gap also means that the lowest two-fifths of wage earners are less able to afford sending their children to college. For those reasons, he said, Clinton has emphasized in his budget proposal that tax cuts be targeted to encourage investment in capital, and would include a tax deduction for education.

Stiglitz criticized the Republican Party's Contract with America for not targeting tax cuts to increase investment in human capital through education and training.

Asked about the underemployment of medical doctors trained with tax dollars, and a recent study by Stanford Professor William Massy that concludes that about a quarter of the doctoral students trained in the United States are underemployed, Stiglitz said that he believes science education is important to the nation's long- term growth. He cited another study by Kevin Murphy, Andrei Shleifer and Robert Vishny that looked at the proportion of engineers and lawyers in several countries' populations and concluded that a high number of engineers had a positive effect on the growth rate of national economies, whereas lawyers had a negative effect. The study, he joked, didn't calculate the impact of economists -- "Perhaps we are not statistically significant."

Economist Ed Lazear of the Graduate School of Business told Stiglitz he disagreed that access to higher education is the source of income inequality. "The problem in inequality is that the low end has dropped out," Lazear said. "Why is it that you think that by getting [the federal government] into college and graduate education in some significant way, we are going to bring that in line, rather than [by] bringing [better access to good education] down to the level of the high school and elementary schools?"

Stiglitz said that the Clinton administration also has a program that "acts in a catalytic role" to encourage states to come up with high school/industry transition programs that better prepare those who don't go to college for the workplace. But he added that increasing access to college is important as well "if you believe in equilibrium in markets."

"If you reduce the number of unskilled workers who are around absolutely by having more workers skilled, the supply of unskilled workers goes down and the wages of unskilled workers will go up. It is sort of like supply management and control."

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