Saturday, September 29, 2007
Generational Collegiate And Residential Thoughts
With almost all my projects finished, I turn to one of the many items that piqued my interest this week. I have a somewhat jaded view of our education system, as you may have noticed. So, upon hearing of Hillary Clinton's suggestion to the Congressional Black Caucus of providing a $5,000 bond to each child born every year to be used towards purchasing a home or their college education, I couldn't hold my tongue. Don't think that I'm using this as a means to slam a presidential candidate as the idea was implemented two years ago in Britain and brought up here in the U.S. by Time magazine.
When it comes to colleges, they already figure in the average amount in government grants when setting their per-credit costs. (In the last 10 years the cost of tuition and room & board rose 79% at public colleges and 65% and private universities.) This measure will not slow nor hold the price of education down but increase the speed it rises. The scarcity of funds for 4 million students to enroll will be lessened providing the limited number of universities reasons to raise costs. In 18 years, at a yield of 4.5% (which may be dependent on current economic factors when setting it up), you would earn $225 on the first year... in aggregate, it would more than double the initial $5,000 put in. (At 3% interest, the $5,000 baby bond would build to $8,512 by the time toddlers turned 18.) Of course, some stats show that only 25% of all children leaving high school will continue on to college (even though 94% of parents believe their children will.)
So, 75% will have to put the money toward homes. These new home purchasers will have a good chunk of their down-payment ready after high school. But, most will not have a sufficient job or credit history to purchase the home at a decent interest rate. Many lenders may see someone using only what was saved in the bond as a riskier loan. And, as any influx of cash into a market, the price of that home will inflate (which could be good news for some home sellers.)
Of course, I could be upset with the spending of $20 billion in tax dollars yearly (as well as several billion more in administrative costs) on what some people see as an entitlement to housing and higher education for the next generation. A chicken in every pot! But governments find ways to spend money. Programs that get started rarely get shut down for ill or lack of performance. I foresee fights over raising the bond that will be similar to minimum wage hikes. The problems I have with the program are with the unintended consequences. The creation of Social Security instilled a sense that one was provided for and didn't need to save for their retirement (most people have learned their lesson on this one.) The providing of tax dollars toward college tuition or house down-payment will likewise discourage saving for these areas and enlistment in Section 529 plans.
Of course, as with mentioning any entitlement, the immigration issue will come up and I'm not going to beat that dead horse... the bones are poking out and the flies don't even visit anymore. What I will say is that this allows the government to assist another country's citizens in their competition with your children in attempting to go to college or buy a piece of the American dream. I also wonder what government agency the money goes if one can't purchase a house (credit or other reasons), decides not go to college or sadly, dies before either become possible.