Let's admit it: Bernie Sanders' "College for All Act" proposal has some good ideas

Bernie Sanders' "College For All Act" proposal: "That's not gonna happen."

In an old episode of The Walking Dead, an armed wacko asks Sheriff Rick if he and his buddies can join Rick's tribe of survivalists. "That's not gonna happen," Sheriff Rick rasps with his impeccable Georgia accent.  And then Rick shoots the wacko dead with his trademark service revolver.

Something similar might be said about Bernie Sanders' "College For All Act" proposal. That's not gonna happen. Nevertheless, Bernie has come up with some good ideas that are worth examining.

First, and most importantly, Bernie proposes free college tuition for Americans to attend 4-year public colleges or universities. That's a great idea and would actually cost Americans much less than we are spending now in federal student aid.

But, as I said in a previous blog posting, the for-profit college industry and the private non-profits are happy with the status quo and couldn't survive a week without federal financial aid. The only way Bernie's free tuition plan could work would be to shut down the present student-aid program, and that's not gonna happen. So Bernie's College For All Act is--as I said earlier--Dead On Arrival.

Bernie's college funding proposal has some other good ideas, however. Along with a lot of other responsible people, Bernie proposes a simplified Student Aid Application process. Last year, Senators Lamar Alexander and Michael Bennett proposed a FAFSA form that only has two questions.  Almost everyone agrees that the present Student Aid Application process is confusing and overly complicated, so we should listen to Bernie when he says the process should be simplified.

Bernie also proposes lower interest rates and an unlimited opportunity for students to refinance their student loans at lower interest rates. This is a great idea because, as a recent New York Times article made clear, it is the accruing interest on student loans, not the amount that students originally borrowed, that is crushing millions of student-loan debtors. The Times told the story of Liz Kelly, who borrowed about $25,000 to get an undergraduate degree and then borrowed more to go to graduate school. The total amount Kelly borrowed was less than $150,000, but she now owes $410,000 due to the interest that accrued while her loans were in forbearance or deferment.

Critics will say that lower interest rates and easy loan consolidation will cost taxpayers billions, which is true. But let's face it: The people whose loans have ballooned out of control due to accrued interest and fees will never pay the loans back anyway. Do you think Liz Kelly will ever pay off the $410,000 she now owes?

There is one huge caveat to Bernie's proposal to allow students to refinance their loans. There are now 41 million outstanding student-loan debtors, and many of them took out multiple loans. Allowing millions of borrowers to refinance their loans would create an administrative nightmare. In my opinion, it would make more sense to just forgive the interest on those loans or give overwhelmed debtors reasonable access to the bankruptcy courts.

But, as Sheriff Rick said to the armed wacko, "That's not gonna happen." Apparently, our national government would rather create a real-life class of The Walking Dead than take responsible action to give honest but unfortunate student-loan debtors some relief.

The Walking Dead: These folks will never pay off their student loans.

References

Lamar Alexander & Michael Bennett. An Answer on a Postcard. New York Times, June 19, 2014, p.  A25. Accessible at: http://mobile.nytimes.com/2014/06/19/opinion/simplifying-fafsa-will-get-more-kids-into-college.html?_r=0

Kevin Carey. (2015, November 29). Lend With a Smile, Collect With a Fist. New York Times, Sunday Business Section, 1. Accessible at: http://www.nytimes.com/2015/11/29/upshot/student-debt-in-america-lend-with-a-smile-collect-with-a-fist.html?_r=0

Private Colleges Behave Like Car Salesmen and They Deserve the Same Level of Respect

When I was young, car buying was a very stressful experience. In the old days, car buyers were always at a disadvantage. They didn't actually know the fair price of 1962 Ford Fairlane, and they didn't know how much other people were paying for them. Thus car buying involved tense negotiations, urgent consultations between car salespeople and their supervisors, and sweaty car buyers sitting in showrooms wondering if they were about to pay too much.

And sure enough, right after you drove your shining new Plymouth Fury home and parked it proudly in the driveway, your neighbor came over to tell you that his brother-in-law got the same model for a hundred bucks less and the dealer threw in whitewall tires for free.

How much is this beauty really worth?

Today, car buyers have a lot more information about car prices, thanks to websites like Edmunds.com. But families are much in the same position as car buyers in the 1960s when they shop for a college. They really don't know what the fair price of a college education is, and they don't know what other families are paying. And colleges, just like 1960s car dealers, do all they can to obscure the fair price of a college education.

For example, Utica College in central New York and Rosemont College in Pennsylvania recently slashed their tuition prices drastically. Utica cut its tution from $35,466 to $20,000--a 42 percent price reduction. Rosemont dropped its tuition price from $46,000 ($46,000!) to $30,000--a discount of more than 30 percent.

Wow! Prices Slashed! Everything Must Go! What a lucky break for college students and their families. Just like the end-of-the-year sale at the Chevy dealer.

But wait. According to Inside Higher Education, very few Utica and Rosemont students were actually paying the full cost of tuition. At Utica, only 271 out of 2,300 students were paying the sticker price. And at Rosemont, only 9 out of 1,100 students were paying full tuition--less than 1 percent!

Rosemont and Utica, like most American colleges and universities, are engaging in differential pricing. They set a very high sticker price, hoping a few suckers will pay it; and then they offer steep discounts to the students they really want to attract--minorities, students with high SAT scores, athletes, legacies, etc. In fact, nationwide, the average tuition price at private schools is about half of the posted tuition.

Of course, all businesses adjust their prices somewhat to attract buyers at various income levels. That's the way business has been done since the beginning of time.

But American colleges have taken differential pricing so far that they've tarnished their integrity. How can a college honestly say that its tuition price is $46,000 when less than one percent of its students actually pays that price?

The hocus pocus about college tuition prices is part of the general confusion about college costs. The FAFSA form for financial aid is unintelligible, tuition varies from student to student, and the student-loan process is so complicated that many students don't know how much money they borrowed, how much they still owe, or whether their loan is a federal loan or the loan from a private lender.

But that's the way the colleges like it. Keep 'em confused. And if a customer asks too many difficult questions, throw in a set of whitewall tires to seal the deal.

My brother-in-law told me you'd give me a really good deal . . . .

References

Big price cuts, small savings at two private colleges. Inside Higher Education, September 17, 2015. Accessible at: https://www.insidehighered.com/quicktakes/2015/09/17/big-price-cuts-small-savings-2-private-colleges