How the USA Lost Its College Mojo

The government intervention in full-blown love affair between college degrees and the middle class (and lower classes) began in the aftermath of the Russian launch of the Sputnik satellite in 1957. The G.I. Bill after World War II started the movement of greater accessibility to college but Sputnik launched a new era of education. Leadership in government, industry and academia were panicked that the Red Menace may have eclipsed the mighty, rising American Democracy. Coincidentally, universities and colleges across the United States were bursting with some of the best talent that the world had ever known at the time of the launch. Thirty-three thousand German Jewish scientists and artists, the epitome of European intellectualism, had been expelled from Nazi Germany in 1933 and they, along with their talented American students, were bringing American intellectual prowess to the fore on the world stage. Then Sputnik announced itself with a plaintive beeping from outer space.

There was a rush to prioritize American intellectual and technological innovation. The challenge for the leaders of that time was finding a methodology that harnessed the resources of the country to meet the needs of what they believed was a decades-long race into space. They discovered that were neither enough engineers or scientists in the specific bleeding-edge STEM fields nor enough classes for new students to learn these disciplines. Everyone agreed that expanded, elite education (and a tremendous amount of money to the military-industrial complex) was the necessary element to win the space race. They were thinking long-term, looking for promising students in public school and pushing them through the college process.

The United States reinvested in a part of the scientific process called Basic Research. They paid professors through their colleges to do basic research in university laboratories with their graduate students and promising undergraduates at their sides. Colleges built laboratories and hired more professors. The students from the public schools came, understanding that a secure financial future could be had with a college degree.

The plan worked. The United States put a man on the moon in 1969 and then several times more. No other country or corporation has been to the moon since.

When Ronald Reagan became president in 1980, he came with a certain set of ideas about the relationship between government and industry. During his tenure as governor of California, he had been a great supporter of the state college system but he did not follow the same pattern as President of the United States. As president, Reagan argued that the government was paying for basic research that benefited private industry but the government received nothing in return. Advanced research as done by industry was proprietary. Private industry would use the basic research as a foundation for their own specific, advanced research but they did not contribute to the basic research funding. President Reagan decided that industry could pay for their own basic research and cut funding to universities for research so deeply that private college undergraduate tuition jumped up as much as 33% between 1982 and 1984.

The cutting continued unabated through this year. Tuition has surpassed a boundary from affordable to unaffordable even in state schools. Tenure for professors is rapidly disappearing and adjuncts cannot make a living wage. Federal loan programs for college and graduate schools are predatory with alarming interest rates. Aberrant and predatory pro-profit post high school institutions have monetized education.

Over the weekend, the Department of Education announced a new program of debt forgiveness for victims of the for-profit Corinthian College. The expected tab is as high as $3.5 billion. All sides of the education debate can agree that this allocation is wasted taxpayer money as far as investing in workers and jobs for the next years. The money invested by students and the government in this for-profit corporation has disappeared into a black hole of high finance.

Would it or would it not have made sense to spend taxpayer money on basic research in universities that would have kept tuitions lower and the quality of education higher? Would it not have been better fiscal policy to pay professors and colleges to produce boring and laborious research while training students in those laboratories? Professors are not paid just to teach; they are paid to produce research and train the next generation in scientific theory and in practical application. Private industry and for-profit colleges are not engaging in nor plan to engage in such costly activity. The long term prospects for the country’s economic health have been endangered by short-term shareholder priorities.

Ronald Reagan was wrong. Thirty years later, college students are either dropping out because of the lack of funds or they are saddling themselves with unbearable debt. The emerging world economy demands a college degree or two just as states are ratcheting up education cuts. Reagan’s model of higher education is failing and the youngest generations are being sacrificed.

In the pragmatic realities of the world, the U.S. government was going to spend billions of dollars in higher education. The post-Sputnik model worked and generated the enormous benefits that we still enjoy in the science, technology and engineering sectors. We need to return to this older model, not as a matter of a political ideology, but as a matter of investing in American prosperity in the coming decades.

Piggy bank for College?

The New York Times ran an op-ed column by Andrea Levere on October 7, 2014 (yesterday as of this writing) on Children’s Savings Account (CSA). Ms. Levere is attempting to address the issue of sending lower income children to college by starting CSA’s for disadvantaged children in kindergarten or even at birth as a government program. The idea is worthy but the presentation has a terrible flaw – saving money even from birth does not pay for college any more.

My good friend was so proud of his first born and had great dreams for her. He put $100 in a 529 College Savings Plan every month through her first 18 years. At the end of her 12th grade year, her account had $40,000. For a capital investment of $21,600 with compounding interest, the child had a great start so it seemed.

Except that $40,000 did not cover completely her first year of college. She was an excellent student who excelled and secured a slot an fine university that was not Ivy League. If her father had put away $500 a month for 18 years, then the power of compounding interest would have paid for her undergraduate career. That is $6000 compared to the $1200 that my friend socked away each year. For middle class families in the United States, putting away for each child $6000 a year for college is not a possibility. Putting away 8% of the household income per child when the average income for a two adult, two child middle class household at $75,000 a year is a fantasy.

Adding insult to injury is the manner in which the government calculates estimated family contribution (EFC) for government sponsored loans and grants for college. The higher the EFC number, the more the family has to pay out of its own pocket. If the money is still in the 529 College Savings plan, the government calculates 100% of the money for college, which raises EFC by hundreds or thousands of dollars. If the college money is not in the 529 plan but under the parents’ name in any sort of investment fund, then the government calculates a percentage of the money based on the 1040 tax return, which will be less than 100% including the parents paying income tax on the college money the previous year! The money is the same amount but the EFC will be lower. The system is disconnected by college savings under one agency and college loans under another agency and thus broken.

The real kicker is that if the family has not put aside any money for college, the EFC will be lower and the student and the family will qualify for more subsidized loans and/or grants.

College tuition along with room and board has risen much faster than inflation in the United States and real wages have been stagnant for at least twenty years. Also, the middle-class paying jobs of the foreseeable future require a Bachelor’s Degree. Without government intervention into this non-market driven segment of our economy, more and more of the population will be disenfranchised from achieving or even maintaining a middle class livelihood. This is more than bad economics, this is a recipe for the decline of a nation.