The year is 1992, you just had a baby, and you live in Washington State. The cost of college at University of Washington is around $3000, and you talk to your financial advisor about how to plan to make it so your child has the best opportunity possible. You don’t live in poverty, so there is little financial assistance for people in your financial class. Your financial advisor says you need to invest in college, and given how college costs increase by only 4-6% per year on average, he recommends you invest in the stock market to pick up an average of 2% growth per year over the next 18 years. Plus this is tax deferred of course because it’s a 529 plan, so it’s a good plan all around.
Assuming college increases at an average of 5% per year, which was a reasonable estimate for the time, your financial advisor makes the same prediction anyone else with a knack for economics would predict, and that tuition at UW will be around $6600 when your kid hits college in 2011.
In order to invest so you have enough, he adds up the predicted cost and estimates that you will need to have around $20,000 saved up to cover tuition when your kid turns 18 in 2011, so you should talk to the grandparents of your child and work to save up $1000 per year for the first 6 years of your child’s life. This prediction will mean that you should be able to cover the cost of college, given a generous inflation rate and an average APR of 8%. This would have been good advice, and what many parents got in the early 1990s for their children’s college from financial advisors who are really good at their jobs.
In 2002 tuition at UW increased by 16%, but the difference between the prediction and your amount saved up was less than $1000 per year, which is manageable for your middle class family to pick up the tab, so you didn’t change your investment strategy much.
Then in 2008 the infamous Great Recession hit and the State had plummeting revenues. Your child was already in high school, and already planning for college. In response, tuition at University of Washington rose by 13.1. Tuition was now 127% of the prediction you made 16 years ago. In 2010 it rose by 13.1% again, making it 137% of your prediction, and then in 2011 it rose by a whopping 21%, making tuition 158% of the amount you budgeted for based on historical trends.
For the average middle class family to find an additional $500 to cover the cost of college is manageable.
But when you need to pick up an additional $5000 compared to what you planned for, and you were only given two years to prepare, most families don’t have any good options to cover the unexpected increase of tuition in the time allocated to them. The only options left are for their child to work a low income job after high school to save the difference, which delays the time at which they get a professional job which pays them over twice they can make with a high school diploma (on average), which will literally cost them for the rest of their lives, and also reduce the taxes they pay back to society, and reduce their potential retirement benefits which will impact them for the rest of their lives.
The only solution offered by the American government was for the student to take on personal loans which cannot be discharged in bankruptcy. Now if we do the math and the family did everything right and they went with the reasonable prediction when their kid was born we are looking at a difference of almost $19,000 between the amount they allocated for college and the real cost. Assuming they can’t take money out of retirement, the only option left without postponing college is to take out a large amount of student loans.
Dixiecrats are trying to portray this as a fail of “social responsibility” and “you should have worked harder, you lazy Socialist scum” but that’s not what is actually going on. For half a century part of the social contract of being American was pretty similar to other developed countries, and it included ensuring that young adults get a college education which significantly increases life time earnings, extends lifespans, increases taxes paid, and improves the health of those individuals over their lives, saving a ton of money in health care costs.
In 2008 the social contract was broken, and the United States put an unprecedented burden on the middle class, those who are too rich for Pell Grants, yet too poor to simply pull money out of their non-existent retirement funds. The children of these people are far less likely to own homes which for the last two centuries has been one of two ways American families have grown their wealth, the other of course being IRAs. Average American families were planning on the government being their for their children the way the government was there for them when they were young, and then the government just wasn’t.
College is a necessary part of society, and we need everyone who is able to do the work be able to go to college regardless of how much money their parent’s make. Education funding is important because young adults don’t have time to save up for college, and young adults are not in charge of their parent’s financial decisions. Also, in the past people were only able to cover the cost of college because the government was covering a large portion of the bill, as part of the now broken social contract. Because of this, it is the role of everyone in society to ensure that young people are able to improve their lives, and we all benefit when we have a more educated population.
I’m done with higher education, I have earned my degree. My personal student debt load is minimal. I am very lucky, I did work in college as well, and my personal college funding my family prepared for me has nothing to do with my personal work ethic or self-worth. I had no control over that.
We need to rebuild the social contract. College needs to in cost to the point where it is affordable again, and those who are still in high school need to know that they will have a chance.
We also need to do right for those of us who had the social contract broken when we were in high school, especially my peers who didn’t have the luck I had with grandparents who have a good financial advisor who made good decision with them before I was even born. We need college to be accessible to all high school students who are willing and able to do it.
We also need to fix the social contract for my peers who saw the social contract ripped in two in front of their faces when we were in high school. The easiest way to restore the social contract is to pardon student loans. It isn’t a choice between doing right for today’s high schoolers and doing right for college graduates of the last decade, we can do both. Best part of this is the total tax burden for tax payers to pardon student loans is a whopping $0.
For these reasons, we need to restore the social contract and rebuild the American dream.
Pardon student debt.
Reference:
http://depts.washington.edu/opbfiles/web/2016-17%20Tuition%20&%20Fee%20History.pdf