Bush Says You Should Save Less
A bit of curiously off-message economic theorizing from the Bush administration as it seeks a rationale for cuts in financial aid for parents of college students:
The Department of Education says that any changes to the formula are driven by a legal obligation to keep it current, reflecting what families can truly afford to pay. For example, the administration determined that more of a parent's assets must be counted toward college expenses this year because it predicted better economic circumstances, including substantially lower inflation. Under that scenario, the administration argues, families need to save less money for retirement.
Note that when the big bucks are on the table in debate over Social Security or the tax code, the dire need to encourage more private savings is consistently cited at the motive for adopting policies friendly to the interests of really, really rich people. When it comes to helping the middle class afford college, though, it seems Americans are oversaving. At any rate, it probably is true that with inflation projected to stay low, families can afford to liquidate somewhat more of their assets in order to purchase higher education, especially because college is a pretty safe investment.
On the other hand, we once again get a glimpse here of what it is that's getting cut to pay for Bush's tax cuts -- not waste, fraud and abuse, but college tuition for the middle class, food for poor kids, nursing home care for old folks, and, of course, the part of the IRS that's supposed to make sure rich people actually pay what they owe.
Yes, this particular bullshit prescription grates with the dire diagnosis for Social Security's solvency and the measures needed to mitigate it. But it is of a piece with Bush-inspired accounting in other pension plans, namely the use of rosy economic predictions to inflate the forecasted growth of pensions plans with the aim of decreasing employer contributions. Case A: United Airlines.
June 6, 2005 6:52 AM | Reply | Permalink
...Bush's campaign line about how rich people can just afford to hire accountants to avoid paying their taxes, or whatever the hell it was.
June 6, 2005 6:58 AM | Reply | Permalink
Doubtless this story will turn out the same as the last time the MSM accused the Bush administration of "cutting" Pell grants. They lied before. And most likely it's a lie this time around too.
June 6, 2005 7:00 AM | Reply | Permalink
Most colleges engage in price discrimination to get the best students and to signal quality. You generally end up paying what you can afford to pay, with 75% of students getting aid. From http://slate.msn.com/?id=2066353
"Thirty years ago, most students at private colleges paid full tuition. Today, only one-quarter do. The rest receive financial aid in the form of scholarships and loans. These discounts are substantial: 50 percent, on average, at the elite private colleges—the 25 most selective and best-endowed private colleges and universities, including the Ivies—even higher at many less-selective private colleges. In other words, most students at good private colleges pay only half the list price or less."
That said, a college degree is still one of the best investments you can make, beating stocks and even real estate hands-down.
June 6, 2005 7:21 AM | Reply | Permalink
One other point: Matthew makes a fundamental error is this post.
Some programs, such as Pell grants, are explicitly for poor people. They rely on a wealth test to tell them who is wealthy and who is poor, and, accordingly, who is eligible for the program. By definition, if you save more money, you are wealthier. And, thus, since you are wealthier, you are less likely to be eligible for Pell grants.
Other programs, on the other hand, are NOT explicitly for poor people. Like Social Security, which is for everybody. These programs do NOT have a wealth test, because eligibility is not determined by who is wealthy and who is not.
So, it appears that Matthew simply doesn't understand the concept of a welfare program for poor people -- a program where the government by definition has to test your wealth to determine whether you are eligible.
June 6, 2005 7:24 AM | Reply | Permalink
He is giving monthly press conferences now, so read the two conflicting lines.
June 6, 2005 7:25 AM | Reply | Permalink
Matt said: "...families can afford to liquidate somewhat more of their assets in order to purchase higher education, especially because college is a pretty safe investment."
As a parent who is putting his second child through college right now, I'm not sure how this claim is accurate. What return will I get on my $80k/child investment? Good will? I certainly never expect to see the money again, that's for sure.
Just wonderin'
June 6, 2005 8:07 AM | Reply | Permalink
One of the most astonishing bits in this piece of reportage on the sudden jump in what families are expected to contribute toward college costs was that the administration's calculations hit single parents hardest (there was a useful graph that showed the differential impact across the board). According to the article, the rationale is that single parents need less for retirement. This struck me as absolutely stunning, given the extreme pressures on single parents to provide a decent life for children on one income in a world when most families struggle on two -- or more, in the case of the many moonlighters out there. This is exactly the kind of cruelty and strangeness that would seem to open some real opportunities for progressives to lambast the current administration. Did anyone else notice this point?
June 6, 2005 8:49 AM | Reply | Permalink
...Pell Grants are not the only form of federal financial aid affected (effected - I have such a hard time with that) by this change.
If you read the full article, you'll see that it mainly has to do with Stafford loans and other forms of financial aid, including work-study. Of particular, but obscure, importance is the split between Subsidized and Unsubsidized Stafford loans. The subsidized portion does not begin to accrue interest until after graduation, while the unsub portion accrues all along, though you are not required to pay anything until your grace period (usually 6-9 months after you graduate or drop to part-time status) has expired.
And because state grants and calculations of aid are generally based on the federal formula, it can also decrease the state assistance as well.
One of the changes made has to do with state income tax, so that parents in high tax states will now have part of the money used to pay that counted as money they have available to spend on tuition.
But aside from the specific problems with the formula, I just think it's ridiculous that at this point, when India and China and all our other global competitors are turning out huge volumes of highly-educated new workers, the United States would be making in harder for people to go to college, instead of easier.
In terms of investment, there are few things the country as a whole gets a higher return on than highly-educated citizens.
June 6, 2005 8:56 AM | Reply | Permalink
Yeah, I wondered about that too.
Mt son is only 6, but I have already explained to him that he will have to care of me when I am old, so in that sense, the college "investment" might pay off -- provided he's still speaking to me in 30 years.
June 6, 2005 9:17 AM | Reply | Permalink
I don't agree with the trend that parents should be covering more of the child's college expenses. If I could have paid for my entire education in terms of a loan, I would have. But NOONE would lend me enough of that money. As it is, I ended up paying less than my parents. Fact is though, my father borrowed quite a bit to make this happen. This wasn't money saved away. I don't know what the solution is, if any. But just saying, "hey parents, save more for your kids college expenses or else he's fucked" doesn't sound right.
June 6, 2005 9:46 AM | Reply | Permalink
Lending money to a 19-year-old whose future income is unknown is a safe investment? I think not. This is why governments guarantee student loans--they are to risky for private banks to take on. Something to think about when you hear that the government is going to step up collection efforts on people who default on their student loans. These loans were originally intended to be repaid by those who could afford repay them, and forgiven those who could not afford them. To do otherwise turns the government into a predatory lender.
June 6, 2005 11:15 AM | Reply | Permalink
All these cuts to government programs are being made to finance a) aWol's bogus war in Iraq and b) his tax cuts for the wealthy.
When will the media approach this issue?
June 6, 2005 11:20 AM | Reply | Permalink
My girlfriend is still going to college at a state school (she's worked the entire time she's been going - she's 26). She still works. She lives in her own apartment. She receives no help from anybody but yours truly. She's making around 14k. (Hey, she's got to go school - not enough hours in the day.) They just cut her 1700 dollar Pell grant. (I suspect they may have calculated her parents income into her income computation, which is silly, since she gets no money from them. They're too busy supporting her idiot brother.)
Charming, eh?
ash
['Bite me, Al.']
June 6, 2005 12:20 PM | Reply | Permalink
They were wrong about how many grants, but not about the value of those grants. Bush cut the average amount of each grant, forcing the students to shoulder more of the burden. He also failed on his campaign promise to raise the maximum amount of the grants. Business as usual.
June 6, 2005 4:35 PM | Reply | Permalink