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Sunday, March 26, 2006

Interest Free Loans for Jewish Schooling:
Neither Solves the Problem and Might Even Contribute to It


Joe Schick and another friend referred me to an article written by his father that appeared in the Jerusalem Post. The article can now be found on Marvin Schick's website. The article advocates for pursuing government aid for private and parochial schools, an approach that I certainly think should be pursued.

However, the article also refers to an interest-free loan program that has caught my attention. Here is a quote from the article,

"AN INTEREST-FREE loan program to assist day school parents with tuition is reportedly about to be unveiled. Any effort to ameliorate the expanding Jewish tuition crisis deserves consideration.

I sense, however, that this is not the way to go - even with $100 million available for loans - because the dollars and numbers do not work out in view of the size of day school families, the number of years (as many as 14) that children are enrolled in day school and the rising cost of tuition.

Yossi Abramowitz, a leading advocate of the loan approach, seems to think that it will go a long way to resolving the tuition crisis. American day school education is now a $2 billion dollar a year enterprise. While Abramowitz favors loans, he opposes government aid, saying that "if we go after [tax] credits and vouchers, we'll divide the country over church-state issues for a mere $1,000."

If he did the arithmetic, he would see that "a mere $1,000" per day school student amounts to more than $200 million dollars a year, which is a far larger sum and far more meaningful than a one-time loan program. "

It took a while to settle my thoughts about an interest free loan program, but now that my thoughts have settled, I decided that it was time to put my fingers to the keyboard.

I do not believe that an interest free loan program to assist parents in paying tuition is good solution in the least. But, I fear that it is a "sexy" solution that could ultimately do more harm than good.

Why do I say more harm than good, you ask? There are numerous reasons that I believe this is true. The first and foremost reason that I believe that free loans could do more harm than good is that free loans do nothing to tackle the real problem: the cost of tuition. All the while, this "solution" could threaten to take already scare funds away from the schools themselves and scholarship funds, leaving tuition to continue rising, while the supporters of the program pat themselves on the back thinking that this "BandAid" covered cuts many times its size.

Secondly, debt financing is no long term solution and debt leaves the payer and those surrounding the payer believing that everything is just fine. But, debt that finances living beyond your means, catches up no matter what. Interest free debt certainly is less painful than interest financing and there certainly is something to be said for temporary alleviation, but when Jewish education spans a minimum of 13-14 years per child, why are we trying to treat a gaping wound with a BandAid?

Lastly, I fear that the poorest among us will be turned away by scholarship committees everywhere and told to borrow money to finance their children's education. Currently, parents are being told to turn to just about anyone (usually their own parents and grandparents) before they appeal to the school and its scholarship committee. Our current multi-billion dollar educational infrastructure is already being propped up by those that should be saving for their own rainy day. How much longer will we continue to try to prop up a system that is showing cracks, instead of seek more permanent and meaningful relief?

Marvin Schick advocates for school vouchers, a cause that I support also and a cause that I support for reasons beyond that of Jewish education. I hope that school vouchers are a reality. But, I certainly don't want to hang my hat on that one sliver of hope alone, allow I hope that someday vouchers will be a reality. (Editor's Note: Marvin's Schick's main advocacy is for communal support of day schools. This should not be lost in the discussion and I apologize for leaving this note out of my post).

We need more solutions and not just BandAids.

12 comments:

Bob said...

Secondly, debt financing is no long term solution and debt leaves the payer and those surrounding the payer believing that everything is just fine. But, debt that finances living beyond your means, catches up no matter what. Interest free debt certainly is less painful than interest financing and there certainly is something to be said for temporary alleviation, but when Jewish education spans a minimum of 13-14 years per child, why are we trying to treat a gaping wound with a BandAid?

>>>>>>>>.
You hit on the main reason why in my opinion, this interest free loan fund makes tremendous good sense. Many people, particularly those who get scholarship help,have to run large credit card balances in order to have enough money for tuition bills when they come due. So its a comparision between 0% debt financing through this fund and 20%+ thru credit cards; clearly this fund makes ense for this reason alone.

queeniesmom said...

An article in the Sunday Times caught my eye - it was about how our generation is saving less than prior generations and how this will be a problem later on when retirement hits, as social security, etc is on shakey grounds. All I kept thinking was saving for retirement would be great but who can save given the current school costs?

Like everyone else, we do it on a wing and a prayer and hope the costs keep pace with whatever raise one of us gets. Like everyone else our budget is very precariously balanced and has been pared down to a bare minimum.

There are no grandparents to bail us out, so we just keep treading water. Like you I firmly believe in yeshiva education but hope we can continue to afford it. College and retirement? The absolutely crazy part is that by any other standards, our family would have lots of money and should have very large savings/college accounts.

The whole situation is out of control and crazy. But there is no end in sight. Hopefully there will
be a solution soon.

SephardiLady said...

Amen Queensiemom. As we say "speedily in our days."

There was a great cover on Business Week about how the baby boom generation essentially has no savings and is in debt up to their eyeballs. I can only imagine what will happen when our baby boom generation NEEDS to retire.

Joe Schick said...

While I can't speak for my father, I believe his main advocacy is for communal support for day schools and yeshivas, so that tuition costs are subsidized by the entire community, and the entire burden does not fall on parents.

See, for example, http://mschick.blogspot.com/2004/08/turning-our-backs-on-orthodox.html

SephardiLady said...

Joe-You are correct and I have added an editor's note. Now that I have your attention, what is your opinion on a loan program?

Joe Schick said...

I don't think a loan program would be inherently bad, but I agree that it doesn't address the real problem.

Bob said...

Another good point to this program is that its availabe now. I understand from the article that the program is already funded and ready to go. Some day in the future we may get our fair share of the education money from the government but the need is now and this is something that can help now.

SephardiLady said...

When the program is rolled out, I will be curious to see the specifics.

But, I don't think that it addresses the problem of tuition and if tuition keeps rising, people will still be priced out even with loans.

One thing that would help a lot (loan program or no loan program) would be to allow parents to pay over 12 months, rather than 10 months, as most schools require.

Maybe I will write about the payment schedule another time. But, the schedule is punishing and allowing flexibility could help easy the burden for many.

SephardiLady said...

Should say ease (not EASY). As, the burden is not EASY in the least.

Anonymous said...

Some schools don't even allow you to split the payments up over 10 months. One schools we sent our kids to required 5 postdate checks and one reuired 2 (July and January). If you wanted to split up those 2 payments you needed to use a spcial service that costs an extra $100.

Charlie Hall said...

I think that a loan program will add to the financial burdens of observant families. Very few families will have sufficient increases in their incomes to pay off the loans AND pay full tuition in the future. Young people are often unrealistic about their future incomes and a loan program like this is not going to encourage making the right choices.

And there is another kicker: A little noticed feature in the new bankruptcy law is that anyone who files bankruptcy is limited to paying $3,000/year in private school tuition. I wrote to the OU about this while the bill was being considered and got a brush-off -- they said that Jewish Day Schools would take a family's situation into account and offer scholarships.

SephardiLady said...

Thanks for posting on this Charlie. I find it incredible that any agency would believe that a family that could only pay $3000 in tuition (is that per kid or for all children?) would have their situation taken into consideration.

We have friends with large families and serious problems with employment over the years. The schools have told them point blank that they would not consider their situation insofar as "things that are their fault." I'm guessing that the schools with this policy would not be so kind to families that bankrupted.