Shea-Porter - Did she ever take an economics class? - Granite Grok

Shea-Porter – Did she ever take an economics class?

When I started at BU, my floor at 700 Comm Ave ("the Zoo") consisted of 40 freshman guys who were primarily bio, chem, and engineering majors.  Pretty much, we were all in each other’s classes.  When it came time to take electives, like all undergrads, we looked for easier courses. Most of us picked Economics 101 & 102, where we met a lot of the Business majors. Now, this is NOT a crank on Business majors….it IS a crank on those that do not understand basic economics, seemingly like my Congresswoman, Carol Shea-Porter (D-NH). 

Now, what I remember most was the first couple of classes of EC-101 and how hard it was to not burst out laughing as the poor TA was trying to teach a lot of my classmates what I and my floormates was elementary school stuff – how do you describe a straight line on a graph (hint: Y = MX + B anyone?).  Our mirth knew no bounds when we saw kids dropping out right and left because they "didn’t get it" (sorta like the Physics and Math majors did, in turn, when we had problems in Multi-Variate Calculus).

When I saw this over at NH Insider, all those EC-101 memories came flooding back (and actually, I believe everyone should be exposed to basic micro- and macro-economics => ESPECIALLY if you are a legislator.  Heck, I believe you should have a number of years as a private sector employee and employer to boot to be a legislator or Governor or President).

Anywho, let’s launch into this analysis:

Congresswoman Shea Porter announces House Passes College Cost Reduction Act

 Right off the bat, this is absurd just from reading the title and reading the rest of this post.  Please tell me, WHERE does it put forth any items that would deal with the real cause of why college education – such as cost limitations?  Isn’t that what the title says?  Cost reductions?  Naw….

Bill Includes Shea-Porter’s Amendment to Increase Pell Grants

Washington, DC – Congresswoman Carol Shea-Porter (D-NH) today applauded the passage of a bill aimed at expanding access to higher education. The House passed the College Cost Reduction Act, which included language offered by Congresswoman Shea-Porter to increase funding for the Pell Grant program, by a bipartisan vote of 273 – 149.

Let’s see if I get this straight – increased funding at no cost to tax payers?  Last I knew, we all pay taxes and fees to the Feds – if spending increases, it has to come from the taxpayer – the government cannot just  print money (otherwise, as the money supply increases, inflation increases if all other things remain constant).

Let’s remember this, shall we?  I looked over at her Congresssional site for any further explanation but found nothing.

The legislation marks the single largest investment in college financial aid since the GI Bill – and does so at no new taxpayer expense. It pays for itself by reducing excessive federal subsidies paid to lenders in the college loan industry by $19 billion.

"The new Congress is keeping its promise to help lower and middle income families pay for higher education," said Congresswoman Shea-Porter. "Not only will this bill increase the funding for Pell Grants to allow more students to attend college, it does so without any additional cost to taxpayers."

Excessive federal subsidies, eh?  In other words, just not pay those that process and service the applications.  Well, basic economics says that if there is less profit, companies will leave that sector of the marketplace.

Possible Law of Unintended Consequences – let’s see if it becomes more difficult for students to get the loans due to paperwork backups?

You know, the type that has fouled up the passport system lately? 

 

During the committee mark-up of the bill, Shea-Porter, along with Representatives Joe Courtney (D-CT) and Danny Davis (D-IL), introduced an amendment to increase funding for the Pell Grant program by approximately $860 million. As a result, the maximum value of the Pell Grant scholarship would increase by $500 over the next four years – a full year sooner than timeline put forward in the original bill. This will bring the total Pell award to $5,200 by 2011, up from $4,050 in 2006, when combined with other Pell increases already passed or pending in Congress.

So what Shea-Porter has helped to do is to make it easier for students, at the lower end economic scale, to get into more debt faster.  Again, while on an individual student level, paying for college can be expensive, the real problem is skyrocketing costs at colleges. 

When there are no incentives for colleges to rein in their cost structure, tuition and board / room costs continue to rise.  When the Feds simply throw money into the hopper at one end without making the outflow smaller, enlarging loan amounts will only exacerbate the problem – not make it better.

In addition to the Pell Grant increases, the legislation will cut interest rates in half on need-based student loans, reducing the cost of those loans for millions of students and their families. The House passed similar provisions earlier this year to cut interest rates from 6.8 percent to 3.4 percent over the next five years. Once phased-in, this would save a typical student borrower $4,400 over the life of a loan.

One question – if interest income was helping to fund the loans (lenders have to reap a return on their investment somehow), they have now made it harder to keep that program going – unless John Q Public forks it over.

 

The College Cost Reduction Act also includes a number of other provisions that would help ease the financial burden imposed on families by rising education costs, including:

·       Tuition assistance for excellent undergraduate students who agree to teach in the nation’s public schools;
·       Loan forgiveness for college graduates that go into public service professions;
·       Increased federal loan limits so that students won’t have to rely as heavily on costlier private loans; and
·       New tuition cost containment strategies.

In other words, let’s discriminate against students that wish to go to the private sector.  Let’s artifically pump up the size of government by making it more attractive over the long haul.  What’s not to like?  Better pay in the middle to lower end of government, great benies, and a good defined retirement program.  

 
In other words, again distort the marketplace by by ‘good intentions".
 
I looked at the CRS Summary for the bill over at Thomas and found this gem:
 
Provides student loan forgiveness to borrowers who serve in areas of national need as early childhood educators, nurses, foreign language specialists, librarians, certain highly qualified teachers, child welfare workers, speech language pathologists, National Service participants, and public sector employees.
 
[snip]
 
Forgives the balance due on DLs by borrowers who have been public sector employees for 10 years and made 120 income contingent payments on such loans.
In other words, nothing more than a new entitlement that you ONLY get if you work for government.  Looking at the list, the only early childhood educators and nurses seem to have much of a role in the private sector.
 
Look, a college degree is not a right.  It is not a privilege either.  This is a payment for services – cash for knowledge and training.  There is an economic worth to a degree and that worth is determined by the success in earning that degree (i.e., grades), where the degree is obtained (Yale or the local community college), and the field of study of the degree.
 
Example:  a chemical engineering degree from a top tier school may have a graduate having $50,000 of debt but with a starting salary of $70,000.  Contrast that to an early childhood graduate with $35,000 of debt – but who may have an income expectation of a salary of $15-$20,000.
 
One is smart in determining that the long term cost is worth it – the other just plain stupidity.
 
Cost containment they say? 
Withholds specified HEA funding from states that reduce their current higher education funding.
One one hand, this makes sense – why have the Feds ante up more just for the States to rein in their costs?  BUT, does this help to rein in overall costs?  Course not – it just makes sure that the college income stream stays at a higher level.
 
Note: the Thomas site is currently reporting that it does not have the actual text of the bill as of yet so I could not parse it to see what these "cost containment" features are.
 

Additional Background on the College Cost Reduction Act of 2007 (H.R. 2669)

Increase the Purchasing Power of the Pell Grant Scholarship

·       The Courtney, Shea-Porter, Davis Amendment increases the maximum Pell Grant scholarship by at least $500 over the next four years, ultimately reaching a maximum scholarship of at least $5,200 – a full year earlier than the original timetable.

·       Expanding eligibility to include and serve over 600,000 new college students.

When a provider of services sees that the consumers of their services have more to spend, it is to their own economic benefit to extract that extra money from their consumers.  As I said before, unless there are restrictions on colleges to limit the growth of their cost, this bill is not going to do much to "make colleges more affordable".

 

All in all, this is an economic dud in the sense that this is NOT a way to make college more affordable.  That will take a process by limiting the growth in the expenses of colleges that are passed on to students.

This bill does not do this; it only provides more money to students that not only feeds their debt but also only provides more income
for their colleges.  For Carol Shea-Porter to claim that her amendment makes college more affordable only by providing more money (instead of reining in costs) such is a shame.

>