Thursday, September 6, 2012

Why College Tuition Does Not Go Down

Have you ever wondered why tuition at colleges and universities does not ever seem to go down? There is a reason for it. The reason is the availability of student loans. At first glance, having money readily available for student loans appears to be a good thing. However, once you peel back the onion, then you will discover it is actually a bad thing.

When you think critically about this issue, then that is when you have the "ah ha!" moment. If you are a college and you know that anyone that wants to attend your institution can get a student loan, then why would you ever have to worry about competition from other colleges and universities? Now, I understand that there is some competition, but with a guaranteed pool of money flowing into the college from student loans, this minimizes the competitive effect.

From the college's perspective, why would you ever have to lower your tuition, if you know that there is an ever increasing pool of funds to keep your tuition high? Why should there be any accountability to your teachers and professors? Their poor performance does not matter. They will get paid no matter whether they are a good teacher or a bad teacher, because of the flow of student loan money.

Those of you who attended college will recall your own experiences. I am sure that you, like me, had teachers who simply did not care about how you performed in their class. They were just going through the motions, sometimes not even showing up for their class. These teachers could care less whether you passed their course. There was no scrutiny for their performance and because of readily available student loans, they never had to worry about getting paid.

I recall one Economics teacher who made me so mad, that I actually complained to the Dean of the department about him. When the course began, I went to him and asked him if it would be helpful to buy the study guide and CD that were companions to his text book. He told me "Absolutely. Feel free to purchase them," he said.

As the first test of the semester approached in his class, I studied my tail off because I wanted to make an "A" in this class. When I sat down for the test, I looked at the questions and realized that this test had no relationship whatsoever to the chapters we were told to study in our textbook. Come to find out, the teacher used a different textbook than the one he told us to study. What? Are you kidding me? I am studying chapters 1 through 5 in one textbook and he is giving us a test on chapters 1 through 5 in another text book. I was incensed. Why didn't this idiot for a teacher tell us to use the other text book? His answer was..."economics is all the same no matter what text book you study." Yes, you idiot, but if the subject matter on the test is not the same material as the subject matter in the book then that is an unfair advantage for students.

I was so incensed over this idiot, I wrote to the Dean complaining. Of course, not a response from the Dean. No accountability whatsoever. I took four courses that semester and I made three "A's" and a "B" in the Economics class. If I had the right text book, I am certain that I would have made an "A" in Economics. However, this idiot for a teacher eliminated any opportunity that I had at that achievement by pulling the switcheroo with the text books. As you can see, I am still ticked off about it many years later. Teachers like these have no accountability, no fear of losing their jobs and simply do not care how well their students perform. The easy availability of student loans is a major contributor to these problems.

There is starting to be some cracks in the armor of these colleges and universities. Parents and students alike are rethinking this student loan fiasco. Smarter parents are sending their kids to community colleges for the first two years, then on to the big name college the final two years. This saves a lot of money in tuition.

Other parents, who have the ability, are paying as you go, instead of defaulting to getting a student loan. Why saddle your kid with all that debt? It simply is not worth it.

Life insurance policies are being used in unique and novel ways to pay for college. There are a few whole life insurance policies out there that have special 100% cash riders on them. They work in this manner. The whole life insurance is applied for on a parent and the death benefit covers the risk of a premature death and having the funds available for college. The 100% cash rider is added to the whole life policy where parents can dump in money that can be withdrawn at any time for college expenses. The whole life policy with the 100% cash rider acts as the parent's own student loan pool. The parent is in effect borrowing from themselves and paying themselves back. These policies work for any kind of debt, but are especially appealing for college education expenses.

We will not see any real changes in tuition at colleges and universities until the student loan funds dry up. Colleges and universities can raise tuition year after year as long as the student loan money keeps flowing. Perhaps, it is time for parents to rethink this madness. Perhaps, it is time for a different plan of attack.

Perhaps, it is time to see a Certified Financial Planner®.