Paul on April 15th, 2014

brokepersonFor more than 20 years, I have been a member of NASFAA, a professional association of college financial aid administrators, the people who have to deal with what passes as a support system for students and parents who need help paying for college.  As a group, the NASFAA membership is a band of heroes.  They are the 21st century’s version of alchemists who try to turn the dysfunctional system of financial aid into something that has public value.  It is an impossible job.

In the April 11th edition of its daily newsletter to the membership, Erin Timmons, a communications staffer at NASFAA reported that “nine out of ten parents think college is an investment in their child’s future”.  There is probably some truth to that but it is a mixed metaphor at best.

Every known dictionary defines “investment” as “the investing of money or capital in order to gain profitable returns, as interest, income or appreciation in value.”  So for a student who spends money on college, given its rate of return, it is an investment, often a very good one but for parents, it isn’t.  After thirty ears in this business I have yet to see any parent yield any monetary returns from their “investment” in their child’s education.  For 99+% of us, paying for our kids’ college is not an investment but, rather, a bill, one which we pay with somewhat grudgingly willingness because it benefits our kids while possibly stroking our own parental egos. The problem with treating it as an investment is that it changes our attitudes to the point of becoming far more tolerant of rising college costs and a dysfunctional and unreliable system of financial aid.  If it were solely about us parents, we would quickly turn into raging predatory creatures out for blood because the system is so stacked against us and so threatening to our slowly dwindling future.

Investment implies risk and we all made some good investments and some bad ones but we knew, beforehand, that there were risks involved and thus while we were disappointed when they don’t work out we acknowledged the risks and moved on.  No parent will ever see the money spent on their kids’ college education again.  It is always a financial loser except in those very rare cases when a student parlays his college education into a paycheck or company that yields enough returns to take care of mom and dad in their sunset years.  If you think that your children will take care of you in your retirement you may want to adjust your medication.  They won’t and they shouldn’t unless they have the ready means to voluntarily do so.

Not only is paying for your dependents’ college education not an investment that benefits you as a parent but it usually affects those investments you have made in yourself by reducing both their size and rate of return.  529 Plans have already diverted retirement resources to college costs (and made your student less eligible for need-based aid). Roth IRAs, mutual funds, rental property, home equity, cash in the bank and life style itself are usually invaded on the sacrificial altar of paying for your kids’ college education.  Even if the system of college financial aid actually worked which it doesn’t (as discussed in an article by Richard Pérez-Peña in the April 13th edition of Education Life in The New York Times), the “investment” in college will be a loser not only in terms of your own retirement but also for the colleges, the national economy and the long-term financial well-being of the nation.

Imagine if you will, the economic impact if the $1 trillion of current student loan debt were put into the economy instead of the pockets of public and private lenders.  Imagine the economic stimulus of excusing all existing student loan debt in 2009 instead of bailing out the irresponsible financial institutions that created the great recession that drags on endlessly.  It is a curious system that comes to the aid of the perpetrators and ignores the plight of their victims.

When the college-funding “dust” settles for the majority of parents, you may discover that the college financial aid system as it is currently configured and administered actually increases the cost of college for families across the economic spectrum.  For now, we’ll leave out the national impact of a system that annually discourages as many as 500,000 college-ready students from going to college.

The only way to make paying for college an investment for parents is to do it in such a manner that makes the economy boom and creates jobs and safety nets….not one that bleeds all parties to the point of adding to older parents’ costs as a function of their remaining financial reserves and marginalizing their life styles.  They deserve so much more than that.

There is a model out there, one that achieves the following benefits.  It…

•    Eliminates forever the scourge of student loans for non-proprietary colleges
•    Preserves the financial well-being of parents
•    Is 100% reliable and transparent
•    Protects and even enhances the financial strength of colleges
•   Provides incentives for colleges to rein in costs and to assure graduation in four years
•   Creates unrivaled college access to all qualified, college-ready students regardless of economic status, race or ethnicity
•    Dramatically reduces the growing bureaucracy in the U.S. Department of Education
•   Eliminates the FAFSA and CSS Profile financial aid forms along with their associated paperwork
•   Encourages and enables parents to focus on saving for retirement rather than college
•    Mobilizes the full talent reserve of the nation
•    Reduces the reliance on off-shore human resources
•    Benefits “Main Street” and ordinary Americans instantly
•    Creates a huge, ongoing economic windfall for the economy

The Obama administration has had the outline of such a plan since 2009 and it has opted to ignore it.  I know it has the document because I hand delivered it to the White House in the spring of that year.  One cannot be serious about the future of this nation unless or until it ensures access to the highest forms of education possible given the student’s talent.  That is going to take some new thinking by people unwed for cause to the current dysfunctional “system” of college financial aid.

Anyone who doubts the impact of smart, college-trained people as the nation’s most important security asset only needs to look at the lessons learned during the Second World War.  To be sure, the force of arms and the sacrifice of many precious, irreplaceable lives were important but in the end the three most critical components to victory were the bright, unarmed people of the U.S. Navy’s Intelligence Unit OP-20-G who broke the Japanese Code; the pipe-smoking, thoughtful groups of Brits at Bletchley Park who unraveled Hitler’s Enigma Code and its mysterious decoding machines and the team of scientists with long and deep roots in higher education institutions around the globe who developed the game-changing atom bomb that brought the war to an earlier conclusion and in doing so saved hundreds of thousands of lives on both sides in the war in the Pacific.

We have it within our power to make paying for college not only a real, long-term  investment for the parents who foot the bill, but one that ensures the financial health of the colleges and secures both the economic well-being of the nation and its best chance for survival in a very competitive, complicated world.  To do so, we must create a college funding system that is an integral part of the nation’s larger economy not a standalone construct divorced from reality and the nation’s economic master plan.

The solution is a somewhat simple yet elegant model that marries the strengths of all parts of the political spectrum and in doing so it reminds us that we are all important contributors to this remarkable experiment we call the United States of America.

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