Dear G.E.: One of the major reasons that college costs are so high is that there are so many funding sources available to students to pay the annually increasing college costs. In other words, the huge amounts of money available encourage colleges to increase their costs. Consider the concept of liability insurance. If you have $1 million of coverage protection and a damaging event occurs, the lawyers will sue you for $1 million. But if you have $100,000 of coverage protection, these latrine lawyers will sue you for $100,000. College costs increase to absorb the amount of money available. Our medical system is another perfect example. This is why colleges can spend so much money on sports, myriad sports facilities, huge multimillion-dollar student-union buildings, private jets and administration offices equal in splendor to a king's palace. This is why colleges have employment ratios of one employee for every five students, hire consultants, and employ lobbyists, fundraisers and public relations firms. If we reduce their cash flow, colleges will eventually reduce their costs by an amount equal to the money they don't receive.
Community colleges are now popular, very cost efficient and do a yeoman's job educating students. However, in the next dozen years, as more student loans become available, community-college costs may rival the costs at state-financed universities.
And I disagree with your objection to the student loan bill that is wiggling its way through Congress. But the person you should write is Congressman George Miller, chairman of the House Committee on Education and Labor. I believe a "single pay" student loan program would be significantly less expensive and more efficient than the thousands of lending sources used today. It would certainly be easier to access, less prone to fraud and could "save an average of $9.5 billion each year."
Here's how the current system works. (1) Banks and other institutions submit applications to make student loans. (2) After the application is approved, the government provides these institutions with the money they need. (3) The government then pays each institution a sweet subsidy when it lends to students. Finally, (4) the government, in its perdurable wisdom, guarantees these loans so that banks have zero risks. But in most instances, these students couldn't get credit from their pot suppliers.
However, the student reform legislation that is tiptoeing through Congress is as simple as Simon. (1) The student applies to the government, and the government makes the loan. How difficult is that? Meanwhile, did you know that SLM Corporation (SLM -- $10.12), affectionately called Sallie Mae, in its 2009 quarterly report, has over $170 billion in student loans on its books? That's a lotta lucre.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com.
