Posted on 03/05/2008 8:59:35 PM PST by SeekAndFind
My friend and former Spellings Commission colleague Charles Miller and I compete with one another over who can say the most times that the American system of financing student higher education is dysfunctional. We often talk about it in terms of its excessive complexity, the contradictions between various loan programs, the fact that the loan system gives schools carte blanche to raise prices, etc., etc. All true, all damning.
But that is not the half of it. Let me repeat an example I used a few months ago, but illustrate it even more vividly. Let us take two kids who are virtually identical --same grades, same SAT scores, from families with identical incomes. Let us suppose one kid has fiscally conservative prudent parents while the other comes from a go-go family of socially pretentious people who engage in conspicuous consumption.
Patrick Prudent's parents make $120,000 a year, the father $60,000 as a veteran high school teacher, his mom $55,000 a year as a senior nurse, and they earn $5,000 annually from $150,000 in carefully accumulated investments in stocks and CDs. They live in a nice, but unpretentious $200,000 house that is all paid for. They both drive sensible cars, like Toyota Camrys or Nissan Altimas. They have no debt. Total net worth is about $400,000.
Stephen Spender's parents also make $120,000 a year, the father making all the income in his job as an insurance salesman. The Mom does not work, preferring to spend a lot of time at the country club or at the Florida condo. They have a $300,000 house in an upscale neighborhood with a $200,000 mortgage, a small $200,000 condo in Florida with a $150,000 mortgage, no savings, a $40,000 car loan on the wife's Porsche Boxer sports car (the husband leases his Lexus), and a $15,000 loan on their boat that they keep at the Florida condo and $$10,000 in credit card debt-- big spenders, fiscally irresponsible. The family net worth is about $175,000 --far less than the Prudent's who saved for their son's education and did not join country clubs, buy fancy sports cars, or a condo in Florida. Suppose both sets of parents are the same age, have the same retirement schemes, and have no other children.
The federal tax system slightly favors the Spenders over the Prudents --they have more deductions for mortgage interest. The federal government says "we give you benefits if you borrow to finance your consumption, but take them away if you save for your or your children's future." But that is nothing compared with what the collegiate financial aid system does.
Suppose both boys are accepted at good quality private schools a notch below the elite Ivy League schools --maybe Boston College, George Washington University, or Carleton College. Because of robust savings revealed on their FAFSA form and non-existent monthly mortgage payments and credit card bills, the Prudent family likely will end up having to pay most of the $45,000 annual tuition, room and board charges --maybe a tuition discount of $5,000, leaving $40,000 to be taken from savings and cash contributions. After four years, the family will have very little savings. The Spenders will get a significantly larger tuition discount --say $15,000 a year, borrow $25,000 a year (a good portion federally subsidized), and get the remaining $5,000 from a small family cash contribution and some small work earnings by Stephen.
This system punishes the savers, rewards the spenders. It rewards parents who are so self-centered that they put their own interests ahead of their children, and punishes parents who believe their first obligation in life is to nurture and support their kids. The system sends all the wrong signals. It is bad for the Nation, contributing to our low savings rate, the need to borrow investment funds from abroad, etc. It raises interest rates, other things equal. The damage done by government through tax and spending policies is aggravated by the privately imposed "tax" on savings levied by the colleges and universities. That is why I think a decent case can be made to abolish the FAFSA form.
The new Harvard (and most likely Yale) financial aid system is a boon to the Prudents, who would only have to pay $12,000 if Patrick were accepted there --the same as the Spenders would pay. It is a step in the right direction, moving to a less perverse incentive system. But if college itself were less expensive, the problem for both families would decline. The root cause of the problem is the inefficient system of higher education delivery in the United States which third party payments, the non-profit nature of university organization, and other factors combine to create.
DON’T WORRY...ITS ALREADY UNAFFORDABLE!
With the exception possibly of hard sciences, college is just a place to show submission to the right people and skill at dominating others, to be traded for high paychecks later.
Keep raising those tuitions! Perhaps some will be saved from an empty life, and actually learn how to produce something.
The author makes a very convincing case. Why in the world should the family living in the upscale house, with the condo, fancy car and boat, pay less for college than those living in a paid for unpretentious house and driving a Camry instead of a Boxter or Lexus?
Geez Louise looks like Harvard got it right!
It doesn't seem too difficult to figure out that things have gotten, er, a bit out of whack.
Supply and demand ride again, eh? Especially when the demand is considerably artificial.
I've been there - daughter graduating this spring. We KNOW Fafsa.
I have a daughter graduating HS this year - she has been accepted at a small private Christian college. She earned a small tuition reduction due to decent grades and decent ACT score. After going through the FAFSA process, we are no better off - the fed loans we qualify for still do not cover the tuition, let alone room and board. Most private scholarships are based on “financial need”, not merit. According to FAFSA we can contribute $8K per year to our daughter’s college expenses - and there ain’t no way we can do that.
If my daughter were dumb as post but could throw a softball 80 MPH or shoot a 3-pointer, her college would be free. If she were a minority she would go to school for free. If we were poor, divorced, or if I died she could go to school for free. She has many friends with lesser academic credentials that will be going to school free or nearly so, because of “financial need”. But because we are white, middle class and fiscally responsible, and because she is smart but not driven enough to get a 4.0 in HS or score 31 on the ACT (math is her downfall, alas), she is out of luck.
This all made sense when I went to college - my tuition at Univ. of Pittsburgh was $460.00 per semester when I was a freshman, and I could afford to pay that while the people who could not were being subsidized. Paying $7K per semester tuition (or $4-5K at a state school)+ $5K per semester room and board is a different story.
I like Stanford’s new financial model best myself - students whose families earn less than $100k don’t have to pay tuition, and if their families earn less than $60k they’re off the hook for room and board as well.
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