January 26, 2015

By: Kelly Diamond, Publisher

Free collegeReading some of the recaps of the State of the Union Address from President Obama, I felt like I missed a very benevolent episode of Oprah! I could just picture him pointing at members of the listening audience shouting, “YOU get a free ride through college! YOU get a free ride through college!”

But when I hear a politician say the word “free”, I immediately clutch my purse a little tighter and check my bank account.

The latest in free stuff is community college. The cost benefit analysis is spectacular! It’s an investment that cannot fail! These kids will get a degree that will land them a job that will ultimately generate a lot more in tax revenue and keep them off the dole. It paid for itself before it even made it into the SOTU speech!!!

A lot of assumptions are made in these claims:

  1. The price won’t increase for community colleges at the same rate as four-year universities.
  2. Everyone who takes advantage of this service finishes and goes on to get a well-paying job that actually required those years in college.
  3. They will keep their well-playing jobs and there will be no economic hardships that would cause them to lose said job.

Much like claims on the “savings” or efficiencies in breast cancer screenings, the numbers are deceiving. YES, if you detect breast cancer early, your chances of survival are without question greater. And yes, early detection means the treatment is not likely to be as costly as late detection. Perhaps a small lumpectomy and you’re sent on your merry way? As opposed to repeated sessions of chemotherapy and several operations, and all the medications that come with that package deal.

I don’t deny ANY of that. Here’s the rub. Each mammogram is on average $120. You’re supposed to have one every year with your wellness physical. 1 in 8 women develop invasive breast cancer. So we pay $960/year for every 8 women, to save on costs for one. From an insurance company perspective, it makes sense to have every female policy holder get an exam, since that company is going to get the bill. And the cost of the exam is built into their premiums already. In fact, my mom’s policy gave $100 gift card each year if she got her screening.

But from a national perspective, it makes no sense since it isn’t the responsibility of the entire country to pay for the treatment of cancer patients. Basically – and rather tragically – the only way the national argument works for this is if every woman was diagnosed with breast cancer.

This is the same mentality of the “free” community college. It only works if certain variables remain stagnant and everyone does as is expected or necessary to make the numbers work.

With just these three factors alone, short of a vacuum or a snap shot, there is no chance they won’t fluctuate dramatically. 4 year university prices have skyrocketed an astounding 1,120%!!! No, that isn’t an “extra 1” nor is the “zero” a mistake. Most of the increases in tuition do not go toward more professors, but toward administrators. It looks like our universities are becoming as bureaucratically bogged down and bloated as the public school system.

Free money does that, though. Readily available funds from federal student loans have made it so that universities only need to name their price and the federal government will lend it to these kids who are statistically not going to land the job necessary to pay off the loans. Over a third of college graduates are working jobs that neither require their degree of expertise or a degree at all for that matter!

The real kicker is how this will be paid for! With educational savings accounts. Oh no, not the kind where congress cuts a couple billion off the Department of Defense budget, and stashes it away in a protected escrow accounts instead. All the political sacred cows survive this wave of economic commitments. Instead, the feds will be taxing the 529 accounts of those gullible enough to start one for their kids in the first place. They were SOLD on these accounts with the promise that they would be deposited post tax, but accrue interest tax free, and if the money was directed to educational purposes, then it could be withdrawn tax-free.

Not anymore: “Under the Obama plan, earnings growth in a 529 plan would no longer be tax-free. Instead, earnings would face taxation upon withdrawal, even if the withdrawal is to pay for college.” (Source: Americans for Tax Reform)

So then the question is, why bother saving for college and using a 529 plan at all? If they aren’t tax free, just shove it under a mattress! Then you can use it for whatever you want without being taxed again for it.

Gordon Haave did a wonderful piece on this a while back called: “Price Discrimination and the 529 College Savings Scam”.   It goes in to greater depth regarding how university price tags are rigged.

Recklessly creating these asset bubbles, and manipulating the market this way isn’t going to solve a damn thing. Handing out college degrees and Nobel Peace Prizes in every box of Cracker Jack isn’t going to make our country smarter and more productive. There are so many government barriers that prevent those who are struggling from ever escaping their plight, and price manipulations of education has to be at the forefront of that list.

This is just one of the many taxes the middle class will be facing, ironically to help the middle class! There are several others, including a new capital gains tax, a huge hike in the death tax, and a cap n’ mandate policy regarding retirement plans. The long and short of it is, get your money out of anything that is named after an IRS tax code. Strongly consider anything that could offer more opacity and limit the access of the IRS.

2 Responses

  1. Rather than “Free Junior College” how about revamping high school into something meaningful again?
    Instead of twelve years of babysitting service (all free), let’s really teach kids something during those twelve years. Revise the wasted time and dysfunctional schedules that are the current norm. Let them concentrate on three or four subject in a meaningful way for reasonable time periods.

    1. In Japan, there is a low university attendance rate mainly because what kids learn by the time they graduate high school in Japan is still more than what most kids with a Bachelor’s degree have. Now, granted, the suicide rate is a hot mess out there… but that’s more a cultural thing than an educational thing. They spend less per year per student and get better results. What does that say?

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