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Follow-up to Yesterday’s Post – Government Involvement in Education

By JLP | November 24, 2010

Reader and commenter, Veritroth, left the following comment on yesterday’s post, This Would Be Funny if it Wasn’t so Pathetic:

Being on the topic of student loans, I’m curious what your position is on student loans and government involvement in education. I’d imagine you’d prefer less involvement than we currently have, but I was hoping to you could elaborate a little on your thoughts.

Although I’m far from an expert in this area, I can say that I think government involvement has helped make college more expensive. Colleges and universities have basically been able to put any price they want on the cost of education. They can do this because they know that the whatever the cost, the government will provide the funding. Had this source of funds not been there, colleges might have had to do some belt-tightening. Am I correct? I don’t know. It’s my opinion of the matter.

Regardless, government involvement in education in an effort to make college more affordable has had the opposite effect. What they should have done instead was force colleges to post their budgets online for all to see and scrutinize. Put some heat on the university to show us exactly why the cost of an education is outpacing inflation. That information would go along way towards keeping college costs in check.

What say you, AFM readers?

Topics: College Funding | 18 Comments »


18 Responses to “Follow-up to Yesterday’s Post – Government Involvement in Education”

  1. Veritroth Says:
    November 24th, 2010 at 11:37 am

    Yay! A response. Thank you.

    I agree as you can see here: http://allfinancialmatters.com/2010/11/23/this-would-be-funny-if-it-wasnt-so-pathetic/#comment-447243

  2. Jon Says:
    November 24th, 2010 at 12:19 pm

    I’m a strong believer in the free market. I don’t think we should have government schools. We don’t trust the government to run religions why do we trust them to raise our children? I don’t.

    As for higher education I also think the free market would be best. Currently we have many people that go to college when they could easily function in their job(s) without a college degree. I think education is important but the paper that we have to get is a hurdle for many people that wouldn’t be there if it wasn’t for the government making it so cheap for the masses.

    Here’s a couple of examples to show my point (of course I would have to do a study to prove it). A guy at one of my old jobs lost his job because he didn’t have a degree even though he had been performing the job well for many years (he could of lost it because he was nearing retirement too, along with others, we’ll see what the verdict comes out on that one).

    A person that teaches in the local school here has the qualifications to teach farming but the school is requiring him to get his bachelors if he wants to stay on after 3 years. I’m all for education but wouldn’t it be better if he went to seminars to learn instead of getting a full blown degree? If he knows his subject matter, knows how to teach, and is successful what does a degree have to do with it?

    I didn’t like my last engineering job so I jumped ship and am now learning to program. Since I have a masters degree in electrical engineering I don’t think it would be hard to find a job in programming (once I finish teaching myself, I might be getting a contracting position soon here). My point being, A. There’s no reason for me to even have a masters degree (although I think the bachelors was worth it), B. We can learn far better on our own with occasional help than how I learned in college, C. A piece of paper doesn’t tell if you can do the job or not.

  3. Tracy Says:
    November 24th, 2010 at 12:25 pm

    It is a somewhat complicated question. But I guess as part of the answer, you can look to private colleges (or colleges like Hillsdale, who do not accept any government monies). Are they more expensive? Yes, than the state colleges, at least.

    I have mixed feelings. As a single parent, I went back to college in order to be able to earn more to provide for my 3 kids and not be dependent on welfare/food stamps (and it worked out exactly that way). I did take several years to pay off my loans. But I was grateful that option was available.

    But, both in my experience and now in my daughter’s, there was a lot of eagerness on the part of the college to have me take out MORE in loans that absolutely needed to cover tuition. “Short $2000? Well, look, you qualify for a $5000 student loan!” You will have all that “extra” money during college to pay for books and incidentals. The temptation is too great. If I had only taken out exactly the amount needed to cover tuition costs, (and my daughter) it would have been easier. But they don’t show you that option — they just say “you qualify for $$$ amount” and put it on the paperwork you sign.

    Need to be diligent and watch for these kinds of things. My son, thankfully, made it all the way through college with no debt, using scholarships and work-study to pay off everything. And that was at private institution.

  4. JLP Says:
    November 24th, 2010 at 12:41 pm

    Good points, Jon.

    Tracy,

    Your post reminded me of my own experience. Michelle and I had one semester that required us to get a loan. I got something like $3,500 to $4,000 (can’t remember the exact amount). I only needed about half that much so I took the remainder and invested it (NOT recommended). It doubled in value and I never had to borrow money again.

    I do understand the temptation factor. Still…$200,000 in student loans is extreme.

    If it wasn’t such a racket, we might might be able to offer high school students classes in college math and require all students to take these classes. These classes should cover loan amortization, college costs and expected salaries after college (cost/benefit analysis). It makes no sense for kids to spend $200,000 on college, to graduate to a career that pays $30,000.

  5. Ron Says:
    November 24th, 2010 at 1:32 pm

    Right on target, JLP.

    If you want less of something, tax it. If you want more, subsidize it. Education loans subsidize the whole educational process and make it more expensive.

    Hillsdale may be more expensive than state schools because it offers a different (better?) product.

  6. Jack Says:
    November 24th, 2010 at 9:57 pm

    The first question that must be considered is, is it Constitutional? To determine that, we need to look at what powers the Constitution gives to the federal government.

    I cannot find any that involves student loans.

  7. Dan Says:
    November 26th, 2010 at 3:32 am

    @ Jack: this is because you were apparently stupid enough to search for “student loans” in the Constitution instead of examining the state of modern jurisprudence surrounding the General Welfare and Commerce clauses in Section 1.

  8. Jack Says:
    November 26th, 2010 at 9:51 am

    Tell me then, Dan, how the general welfare of the STATES (that IS what the Constitution says) is promoted by a federal student loan program.

    The Commerce Clause is, of course, totally irrelevant. Student loans have nothing to do with regulating (i.e., making regular) commerce between the States.

  9. Manny Says:
    November 26th, 2010 at 10:10 am

    Keep in mind that there is “collusion” between the feds, the colleges & the banks here. Prior to 2005 student loans from private institutions were eligible for discharge, regardless of hardship, in bankruptcy. Now one must prove an “undue hardship” to discharge the loans.

    IMHO, colleges feel that they can raise tution & fees when they wish since loans are available. The banks are willing to provide greater sized loans since the students are on the hook for life.

    When I attended college the mid-tiered schools cost half of the top tiered schools. Now, they are within $5k-$8k of the top tiered schools. The only explanation I cam come up with is the usual one whenever money is involved, greed.

  10. Rob Says:
    November 26th, 2010 at 10:13 am

    The problem isn’t that the government is involved (I think that’s fine, since every other country is subsidizing education and therefore we probably have to as well to some extent to stay competitive over time).

    The problem is the restrictions around student loans post-graduation. Student loans should be treated like any other kind of debt. Instead, they effectively act as an indentured servitude. They can’t be refinanced, restructured, freely consolidated, negotiated in bankruptcy, traded, etc. It’s total BS.

  11. Jack Says:
    November 26th, 2010 at 12:30 pm

    Rob, the States are perfectly within their rights and responsibilities to have public education — including public colleges. The “feral” government is not.

    An education cannot be repossessed, so why should one be able to write off the loan for it?

  12. Veritroth Says:
    November 29th, 2010 at 9:27 am

    “An education cannot be repossessed, so why should one be able to write off the loan for it?”

    Credit cards aren’t securitized debt yet we allow people to default on their credit cards.

    Follow your own advice here Jack and let the banks decide if they want to give an unsecured loan to students for their education. As long as no one is forcing their hand to make the loan, people should absolutely be allowed to discharge student loan debt.

  13. BG Says:
    November 29th, 2010 at 10:27 am

    Student loans are great, the question is should the federal government be in the business?

    If it weren’t for federally subsidized Stafford loans, I wouldn’t have been able to go to college. The loan limits for Stafford is $12,500/year — so the most you can borrow is $50,000 for a 4-year undergraduate degree. Seems reasonable.

    The problem is not the federal government and the stafford loans — the problem is with our bankruptcy laws favoring banks that give “student” loans on top of the stafford loans. This is where people go beyond the $50k and end up with loans in the $200k range.

    The banks have successfully changed the laws to make it impossible to refinance, modify, or even discharge in bankruptcy certain student loans. This is where I agree with Veritroth: why are these “student” loans handled ANY DIFFERENTLY than “credit-card” loans. Who cares what the money was used for?

    The limited FEDERAL loans should be held to very high standards and repayments. The non-federal bank loans should not have the special protections (for the banks) that they have.

  14. Jack Says:
    November 29th, 2010 at 11:24 am

    “Credit cards aren’t securitized debt yet we allow people to default on their credit cards.”

    But in bankruptcy, the credit card issuers can take every physical possession you have and sell it to repay the loans.

  15. Veritroth Says:
    November 29th, 2010 at 11:34 am

    Jack,

    So why not let them do the same with bankruptcy of student loan debt?

  16. Jack Says:
    November 29th, 2010 at 11:46 am

    Because student loans are not generally used to buy anything tangible. As another person points out in the follow-up post, why wouldn’t students (who generally have nothing tangible at graduation) simply graduate and declare bankruptcy?

  17. BG Says:
    November 29th, 2010 at 2:29 pm

    #14 Jack said: “But in bankruptcy, the credit card issuers can take every physical possession you have and sell it to repay the loans.”

    Don’t think so: this is the “UNSECURED” part of unsecured credit card debt. In a bankruptcy, the judge will figure out what type of payments you can afford (over five years, for example) and lenders are paid back in priority. For example, child-support is paid first, then back-taxes, credit cards are paid last (if at all).

    I’m all for putting “non-federal student loans” a notch ahead of “credit card” in the bankruptcy payoff scheme, but it should NOT be anywhere near “child-support” and “back-taxes” like they are now. FEDERAL loans (like Stafford), however, should be in the same priority as “back-taxes”.

    All debt should be dischargeable at certain levels of pain-points — this is why the law should give bankruptcy judges the leeway to use common sense in these things. The laws should be changed back to what they were before Bush (ugh, bush again) so judges make case-by-case decisions and not bank lobbyist forcing “student” loans to be some kind of holy-debt that are untouchable.

  18. Jon Says:
    December 7th, 2010 at 11:53 pm

    I just wanted to add one more comment to my comment. A better example than the ones I gave before.

    A friend’s uncle was the CFO of Honeywell and is now retired (I don’t know how long ago) but his uncle would pride himself by saying he only had a high school degree but was the CFO. Point being, that the college bubble is way out of proportion. Although education is important is a formal college education important? For some degrees yes, but for most the education could be derived from self teaching and/or seminars and then we wouldn’t have so many young people blowing away so much of their lives when they could have be learning through experience by having a job and contributing positively to society through trade and labor.

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