Student Aid: An investment in our future?

The new State budget includes approximately $305 million annually for “Middle class scholarships” to CSU and UC campuses.  This is on top of the ongoing CalGrant program which has provided (and continues to provide) $1.6 Billion annually to those who have graduated from California high schools.

Since Barak Obama became President Federal Pell grants have grown 84% to $34.5 Billion per year.

Federal Student loans now top $1 Trillion dollars, more than all credit card debt in the country.

This is an enormous investment in the youth of America and we should be grateful to the political leaders that have led this charge to provide college to all of our young people.

Well, not really. 

In 2010 sixty percent of all college students were Pell grant recipients, a fifty percent increase from 2008.  However, only 25% of Pell grant recipients under the age of twenty-five graduate with in six years.  Of those recipients older than twenty-five when receiving a grant, only 3% graduate.   

According to the College Board, forty-four percent of the over 25 year old Pell grant recipients are laid off workers who are seeking to change careers but have few study habits and don’t really know how or want to go to school.

But students receiving Federal loans are doing much better, right?

No, According to an Associated Press study, more than 40% of full time students in four year schools with federal loans fail to graduate within 6 years and 75% of community college students fail to graduate within three years.   Of those who graduate, 50% are either unemployed or in jobs that don’t require a college degree (can you say barista!). 

And many graduate with degrees in subjects, like ethnic or women’s’ studies, sociology, and creative writing, that have little economic reward and are struggling to pay the $27,000 to $40,000 debt (the average student debt) they foisted upon themselves in college.  The default rate on student loans has grown to 12% this year, with 35% of the loans at least 90 days late, but not technically in default.  Many studies are now showing that these former students will be unable to buy a house or participate in the economy in other significant ways for years to come.

Okay, but students attending college on CalGrants are doing better than those on Federal grants and loans, right?

No.  The California Student Aid Commission, the State Agency that runs Calgrants (and other grants in the State) does not release graduation rates (which speak volumes!).   The State Legislative Analyst Office (LAO), in a January, 2013 report, indicated that colleges must maintain a 30% graduation rate and meet other requirements to remain in the CalGrant programs.  Last year one hundred and fifty-four schools were deemed ineligible to continue in the Calgrant programs, but the report did not specifically say why the schools were unable to meet such “lofty” goals.

So, on an “investment” of more than $2 trillion per year of taxpayer’s dollars we have a failure rate of 70-75%.   At least there is no fraud or financial malfeasance in such honorable programs, right?

We should be so fortunate.

Like the housing bubble where banks had no “skin” in the game, colleges and universities have had no skin in the game.   It is in their best interest to give money out as quickly as possible; all loses are on the taxpayer.  Colleges and government agencies require no credit checks and the funds come with few restrictions on how the money can be spent.  Government lending agencies are only interested in the intent of the student to attend college and their financial “need”; just last year the federal government began investigating possible fraud and, to no one’s surprise, have found “improper payments” of $829 million in the Pell grant program and $614 million in student loans.

If the majority of students do not graduate or complete a certificate program, and there is more than $1 Billion in fraud in student aid programs, why do we continue them as designed?  Surely someone must benefit.

Yes, there are people and groups who benefit.  We will examine who benefits in my next posting.