Monday, June 6, 2016

Wasting Time, Money and Borrowing Capacity ... The Unintended But Frequently Harmful Lifetime Effects of Student Loans and 'Free College'

There are at least three precious things in life that should be invested wisely and not wasted needlessly and foolishly. They are (1) time, (2) money and (3) borrowing capacity. Each is available to us in limited quantities. Tradeoffs are always an issue when quantities are limited, and time, money and borrowing capacity come in limited amounts.

And since we can't have everything or do everything we'd like to have or do in life, learning to make good and productive choices is a personal habit we need to develop and keep improving during our lifetimes. And on those occasions when we make bad choices, as we inevitably will from time to time, we should take the time to learn from them and 'fail forward' instead of dwelling on our bad 'luck.'

That's because time lost is gone forever and tomorrow is never today twenty fours hours later.

Now let's talk about government's proper role in influencing our precious personal decisions.

When it involves preparing young Americans for a lifetime of adult achievement, 'do no harm' should become our government's stated objective. Sadly, that's not the case today and likely won't be the case for a very long time to come, if ever.

In many cases, if not most, America, our government, our kids, their families and U.S. taxpayers would all be better off if the government simply did nothing to 'help.' Let's take our probable future President Hillary Clinton's bogus 'free' college proposal, as an example.

If a student is ill prepared to succeed in college after completing a K-12 curriculum at the local government sponsored public school, college for the student will not be free. And that's the truth, regardless of whether tuition payments are waived or not.

The very high opportunity costs of attendance in terms of (1) time invested or wasted, (2) financing, commuting and living costs, excluding tuition, (3) foregone income opportunities from not working a 'real' job, and (4) the likelihood of not graduating on time, if ever, all argue persuasively for implementing credible selection criteria which would limit rather than expand college attendance.

We need to avoid setting kids up for failure, and the simple fact is that after enrolling, too many of college students do fail to graduate. Meanwhile, the time, money, borrowing capacity and self esteem are gone --- and sometimes forever. Government provided blank checks for unqualified students are wasteful and expensive freebies.

Over half of the kids who enroll aren't the 'beneficiaries.' Instead the real beneficiaries are vote seeking politicians, public sector union leaders, and countless self interested individuals who depend on the government for their daily bread by working 'in the system' as educators, administrators and other taxpayer funded employees.

For a clear understanding of what as a society we're doing to and not for all too many young Americans by providing them with free college, please take the time to read and reflect on the following comparison of government's role concerning today's developing college debacle with the enormous and most recent government 'aided' colossal American housing fiasco.

College Loan Glut Worries Policy Makers is subtitled 'Massive investment in improving skills turns sour, echoes of housing crisis' has this to say:

"The U.S. government over the last 15 years made a trillion-dollar investment to improve the nation’s workforce, productivity and economy. A big portion of that investment has now turned toxic, with echoes of the housing crisis.

The investment was in “human capital,” or, more specifically, higher education. The government helped finance tens of millions of tuitions as enrollment in U.S. colleges and graduate schools soared 24% from 2002 to 2012 . . . .

The government financed a large share of these educations through grants, low-interest loans and loan guarantees. Total outstanding student debt—almost all guaranteed or made directly by the federal government—has quadrupled since 2000 to $1.2 trillion today. The government also spent tens of billions of dollars in grants and tax credits for students.

New research shows a significant chunk of that investment backfired, with millions of students worse off for having gone to school. Many never learned new skills because they dropped out—and now carry debt they are unwilling or unable to repay. Policy makers worry that without a bigger intervention, those borrowers will become trapped for years and will ultimately hurt, rather than help, the nation’s economy.

Treasury Deputy Secretary Sarah Bloom Raskin compares the 7 million student-loan borrowers in default—and millions of others who appear on the same path—to homeowners who found themselves underwater and headed toward foreclosure after the housing crash. . . .

In a working paper released last week, economists at George Washington University and the Treasury Department tracked the earnings of some 1.4 million students who left a for-profit college in the two years through September 2008. Seventy percent of them dropped out. Those who enrolled in associate’s and bachelor’s programs earned an average of $600 to $700 a year less in the six years after leaving school compared with the six years before they entered. Almost all of them left with student debt—an average $8,000 for associate’s candidates and $13,000 for bachelor’s candidates....

There are similar problems in nonprofit colleges, which enroll about 2.7 million students a year. A report released in May by Third Way, a nonpartisan think tank, revealed that among students who enrolled in 2005, on average only half graduated from such institutions within six years. On average, nearly four in 10 undergraduates at those schools who took on student debt earned no more than $25,000 in 2011, the same as the typical high-school graduate. Other research shows similar dropout rates at public colleges and universities.

Along with the weak job prospects, most of these students are now severely behind on their payments, damaging their credit and limiting their ability to borrow for homes and cars. More than a fifth of all student debt is at least 90 days delinquent, according to the New York Federal Reserve, and federal data show dropouts are three times more likely to default than degree earners.

No group saw its net worth decline more between 2010 and 2013 than college dropouts. The median value of their assets minus debts fell 14% over that period, according to the Federal Reserve’s Survey of Consumer Finances. By comparison, the typical college graduate saw her wealth increase 5%.

In that sense, student debt threatens to widen the gap between society’s haves and have-nots. A disproportionate share of for-profit college students is poor, black and Hispanic. . . .

During the housing crisis, plummeting home values left millions of Americans underwater on their mortgages, preventing them from selling their homes and moving to better jobs. The lack of mobility in turn hurts productivity, since it limits the pool of workers that employers can choose from.

The Obama administration faced criticism that it was too slow to help ailing homeowners during the foreclosure crisis, which impeded the economy from recovering more quickly from the recession. The administration is determined to avoid similar criticism with student-loan borrowers.

It has already put forth an array of programs to help borrowers, including slashing monthly bills by tying payments to incomes, and forgiving some of their debt. But this time they face a different challenge: How to get borrowers to pay anything—even a penny—for an asset they never received."

Summing Up

It's absolutely unfair to many of our American youngsters, after having given them an inferior K-12 education, to then add insult to injury by 'encouraging' them to attend college for another several wasted years.

We're all capable of getting A grades at the beginning of our K-12 school years. But that desired payoff down the road for an 'investment in a solid education' will be earned only by those who make the sustained effort and do the required work.

All it takes is a willingness to do hard work on their part accompanied by ongoing support and encouragement by parents, friends, role models and educators.

But when the requisite preparation for success hasn't been done, it makes absolutely no sense to enroll those unprepared kids in college. That only results in failure instead of a lifetime of productive and gainful employment.

Pretending that all kids are college ready when they aren't is doing a great disservice to our unprepared young Americans, regardless of whether it's politically labeled as 'free' tuition or not.

It also makes for a weaker America.

That's my take.

Thanks. Bob.

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