Federal Subsidies For College Is A Scam

I decided that rather than just coming up with a list of federal government programs that could be cut or eliminated, which is a valuable exercise in itself, I would instead pinpoint a few areas where the U.S. government overspends and illustrate the negative aspects of these spending policies. The first one I'll tackle is the arena of federal expenditures on student financial aid beyond high school. In 2011, the federal government will spend $42 billion (that's 42,000,000,000 dollars!) on Student Financial Assistance. The lion's share of this money goes to Pell Grants, which subsidizes student loans at low interest rates. Some of this money goes to direct assistance to defray tuition costs for low-income students. And, of course, a decent chunk of this mound of cash goes to the bureaucracy needed to run the program.

Let me start with the most obvious critique of this program, which is the same with most federal programs: THIS IS NOT THE ROLE OF THE FEDERAL GOVERNMENT. Unless someone has rendered a valuable service to our nation, such as serving in the armed services, the national treasury should not act as a piggy bank to help people afford college loans. By doing so, the federal government is acting in its typically redistributive mode, taking money from taxpayers who decide not to go to college, and giving it to those who do. Why should a hard-working plumber, electrician, construction worker, or landscaper be forced to fund other people's higher education when they have chosen to forego college themselves? Also, college graduates, on average, earn a great deal more money over a lifetime than those who do not attend college. By taking money paid by non-college-goers to fund the education of those who choose to pursue higher education, we are engaging in a redistributive measure of the most illogical kind, from those who have less to those who will most likely have more.

More importantly, however, federal subsidies of student loans act to skew the market price of higher education in a steeply more expensive direction. Whenever additional money is made available to purchase a product of limited supply, such as medical care, or, in our example, higher education, the price of that product, as a rule of economics, will rise. In fact, the college inflation rate has ranged from 1.47 to 2.01 times the rate of general inflation from 1958 through 2008.








Source of Table: http://montana.collegesavings.com/montana/pdf/inflation_table.pdf















Source of both graphs: http://www.finaid.org/savings/tuition-inflation.phtml



These increases in college tuition are made possible (and inevitable) by the flow of federal money into the coffers of our nation's institutions of higher learning. Some may argue that the high cost of a college education necessitates government subsidies. The truth of the matter, however, is that these very subsidies have created the college tuition monster, and at taxpayer expense.

If colleges had to compete in a fair and free market for the dollars of prospective students, with no government money to skew the market, the price of a college education would drop and stabilize. And it would save $42 billion this year, or 2.6% of our current federal deficit!




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Location:Panera McHenry

National Debt Crisis, Part 1

As a nation, the United States is quickly spinning toward debt Armageddon. Our national debt is currently somewhere north of $14 trillion - that's 14,000,000,000,000 dollars. Even more portending of fiscal doom is the percentage of U.S. Gross Domestic Product (GDP) this represents. As of 2010, our debt stands at about 92% of GDP, if all foreign and domestic debt is included. To put this in terms that are easier to grasp, imagine a household with an annual income of $100,000 that has accumulated a credit card bill of $92,000. Such a situation would require immediate and significant change to avoid financial collapse.

How do we, as a nation, address this crisis? Somehow, we need to get federal spending to match, and eventually fall below, revenues coming in to the federal treasury. But projected budgets for the next 5 years show annual deficits that will increase our debt to over $20 trillion, which will most likely increase debt to GDP to over 105%. In other words, far from beginning to balance our budget and pay off our debt, we are significantly increasing it. And this at a time when spending on Social Security and Medicare will be skyrocketing as the disproportionately large Baby Boomer generation begins to retire.

Clearly, we are heading into a financial abyss that is currently swallowing some Western European nations, such as Greece and Portugal. One only needs to turn on the news to see the recent violent repercussions of such a debt-induced crisis in Greece. So how do we avoid the inevitable coming crisis that our current fiscal policies have wrought? I will be addressing this from 2 perspectives in upcoming entries: from the revenue side, and from the spending side.

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Location:Panera Bread, McHenry, Illinois