We Should not Help the Poor go to College




obama in the twilight zone
Photo by: Bernie

You enter this blog at your own risk, because it will show you a country where up is down and left is right. It is not a made-up nation in a story book, but one that you are living in presently. We will show you your future; not a future that must happen, but one that might.

The country we are speaking about is now placing faith in the same pipe-dreams of every dictator who has ever tried to raise the wealth of the poor by taking from the rich, as if one can brighten a cave by dimming the Sun. It is now on a path to the destruction of human freedom, accomplished not by force of arms but rather by the willing submission of its citizens. It is in a grave crisis caused by the massive interference of Government into business, the offered solution of which is more Government interference.

Here for your inspection are two candidates for a government loan to medical school: Peter Burkle, a poor, and here we mean dirt poor, student who barely finished high school and has almost zero aptitude for any successful career and John Wordsworth, an upper-middle class high school student with an excellent aptitude for medical studies and exemplary grades.

As citizens of the Obamanation, one will have to be eliminated, because he's smart and because he is wealthier than the other. In this new country, the loan will be decided not by merit but by need. The promises made by the new leader to the poor will be fulfilled. Or so it seems. A few years later the mistake will be realized that Peter Burkle, no matter how poor, should not have been given the loan as he will never become a doctor nor even graduate college. The country is not only out the loan money, it is also short the moneys it could have made over the next five decades taxing the wealth created by Doctor Wordsworth who is now still looking for work in the Twilight Zone.

Today I received an email from my attorney friend Bernard Wishnia:

Obama budget to seriously hurt middle class student college loans

Here is a nice little gem in the proposed budget that the mainstream media will NEVER mention.

There is a major expansion of the Pell Grant program, which provides money to poor students to attend college. To pay for it, the government is going to withdraw support for private student loans, which are generally used by middle to upper middle class families (1).

That will make it very very hard for middle class students to borrow money for college, so that very poor students can get grants.

Maybe some of you think that this is fair and reasonable. Poor students will get more money and many middle class students will have to go to community colleges, since they will not be able to afford any more than that.

My question is whether the millions of middle class parents who voted for Obama as pres knew that it might keep their kids from going to college. My next question is why you do not get this info anywhere in the media.

There is a hope that this will fail. The Republicans in the Senate are uniformly against this and so are a few key Democrats.

Dem Senator Ben Nelson from Nebraska is up in arms since the largest private student loan companies are in Nebraska. (Nelnet, I think). This would cost Nebraska more than 1,000 jobs.

The only reason that I learned of this is that I read about Sen Nelson's objections to the bill.

Any of you who might have kids who will be looking for college loans (nieces, nephews, etc.) think about this one. 1,000 people who work on loans for middle class students will no longer have jobs, since there will be no loans.

BW

Here's where we really get into the Twilight Zone. The student loan industry makes Bernie Madoff look like a Saint. There is nothing as corrupt and vulture-like than the companies who give out government-backed student loans. Many young people do not even realize that they cannot get out of paying the loans back even in bankruptcy. In addition, many of the students will never make enough money to pay off the loans and pay their living expenses. They will be in debt for the duration of their lives.

The problem is giving loans to low-income students, those least likely to be able to repay the loans, or get jobs when they graduate, driving up the default rate and making loans more expensive for middle-class students who would have been able to repay the loans but for the fact that all the government-backed low interest loans are going to the needy, not those who can finish college, get a job and repay the money.

Filling up colleges with needy students only makes it more expensive for middle and upper middle class students to get there. The wealthy obviously do not need loans. If the government would just stop trying to help the poor the poor would be better off. In fact the poor in America were getting better off every decade since our founding until the War on Poverty was declared, see my post American Dominance on the Decline?

I should mention that Obama is right in one thing: in pushing to bypass the loan industry and making all the loans directly, saving about 4 billion dollars a year (2). However where I find fault is that this savings is meaningless when we consider that student loan defaults total more than $6 billion a year and in this economic climate we can expect student loan defaults to climb even higher. This is not a time to increase loans and grants to poor students. Even middle-class students will find it hard to get jobs when they graduate. Pell grants should be given to middle and upper middle-class students because at least they are more likely to get some kind of work.

College Loans are Unrepayable Scams

I also place blame on University admissions offices at private colleges which encourage young men and women into taking out massive student loans they will never be able to repay. In fact it is criminal. Let's stop putting so much pressure on young people to get an education they cannot use or pay for. What is the point of getting a $250,000 loan which will take 30 years to repay, when most will not finish college or will change their major, and even if they graduate will not get a decent job, and even if they do get a decent job they'll still be stuck paying $15,000 a year in interest alone? It makes much more sense for the young person to delay school, go get a job for a year or two, take some affordable, non-loan, night classes in the profession they think they will like, and after a few semesters can finally decide if that is what they really want to study before borrowing humongous sums of money for over-inflated college tuition.

Here's an interesting quote: "Around 50 percent of students enrolled at Central Michigan University start their college careers not knowing what career to pursue, said Julia Barlow Sherlock, director of Career Services.

In addition, 85 percent of the ones who think they know what they want to do end up changing their mind once they are in college" (3).

I should mention that I discouraged both of my sons from going to college. Neither has any debt at all and both spend time studying subjects that directly benefit their jobs. When they decide to finally go to college they will know exactly what they want to study and will actually have an interest in the subject because they will genuinely desire to study it. There will be no need for electives, fraternities, drinking parties, or other wastes of time. And since they have been saving money all along, they will be able to pay for their education - in cash. No debt, no worries, no pressure. My sons may be slower out the gate, but they'll be at the finish line sooner and worry-free.

High Tuition Fees are Consequence of Government Help

Stop sending every idiot who can get a government handout to college and colleges won't be so overcrowded. If colleges had to beg for students the tuition would be reasonable. If I ran a hot dog wagon where the government handed out hot dog money to every poor person and I had to turn down 50% of those applying for a hot dog, you can be sure my hot dogs would be selling for twenty bucks a piece. Why not?

This is another example where government funding of something makes it worse. If the feds would simply mind their own business and stop helping poor people, college would be affordable for middle class students, lowering their borrowing needs. With more middle class students educated since they can now afford to go to school and with almost no debt, many can start their own businesses and hire those poor people who wouldn't be working even if they went to college.

This country started out great but we have egregiously hobbled ourselves with the War on Poverty, the War on Drugs, welfare, a byzantine tax code, entitlements, unions, the list is too long.







ENDNOTES




(1):

The Washington Post, Democrats Stung by Dissenters

Already, a pair of provisions in Obama's budget have attracted determined, if limited, Democratic opposition. One proposal would overhaul the federal student loan program to guarantee yearly increases in the Pell Grant program. That idea enjoys broad Democratic support. But to pay for the Pell Grant expansion, Obama would end federal support for private lending. And one of the major corporate providers of student loans is NelNet, a company based in Lincoln, Neb., the home state of Sen. Ben Nelson, a moderate Democrat who balked at the stimulus package and teamed up with three moderate Republicans to cut $100 billion from the final bill. Cutting off support for NelNet would cost Nebraska about 1,000 jobs, according to Nelson's office. Nelson said the move could hurt middle-class students who do not qualify for Pell Grants. "I don't support anything that could reduce those benefits," Nelson said.

(2):

The Nation, 2 Jan 2009, The Student Loan Bailout

The federal government provides students with college loans through two main programs. Through the Direct Loan Program, the federal government directly finances loans to students without a private intermediary. In the Federal Family Education Program (FFEL) private lenders--most notably Sallie Mae, cousin to mortgage lenders Fannie Mae and Freddie Mac--provide the money to students, while the government guarantees the loans against default and pays the financing fees during the years students attend school. This latter program accounts for a significantly larger share of overall college loans--$52 billion in FFEL loans were generated in 2007, compared to only $12 billion in direct loans.

Because the government does not have to outlay the entire initial loan, supporters often argue that the FFEL program is cheaper, but the cost advantage diminishes over the long term. According to the Office of Management and Budget, a $3000 dollar FFEL loan costs the state $157 dollars to service and finance, while a comparable direct loan only costs $23 dollars in fees. Projected across a year's worth of loans, the difference comes out to a potential savings of $4.4 billion. "Direct is almost certainly cheaper," says Sandy Baum, a senior policy analyst for the College Board, begging the question whether the additional federal money would not be better spent on generating new students loans, rather than covering the servicing fees of financial institutions.

(3):

Central Michigan Univ Blog, 13 Feb 2006, Many students change major during college

"On average, students change their major at least three times during their college career," Sherlock said.

Without a clear understanding of what to pursue, these students still have to choose a college and start a degree program.

That causes many students to enter programs blind, said Dr. Fritz Grupe, president of mymajors.com, a Web site dedicated to help students find a major.

About 80 percent of all high school students who plan to attend college have no idea what to major in, Grupe said.

He said the problem is students are not being prepared enough in high school to help decide what career path to take once in college.

Many educators think if a student is given time to explore, Grupe said, he or she will find the right major for themselves.

"Coming into college I always thought it was all right not to know what you wanted to do," said Zachary B. Martin, an Indiana junior.

The problem with that is students may not find a major just by exploring different classes, Grupe said, which could cause them to get discouraged and drop out of school in thousands of dollars in debt with no degree.



### End of my article ###

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