Combatting the high costs of college with... Loans?!?

One of the amazing things about college costs is that they go up, year after year, faster than inflation. I suspect this is due primarily to the ever-increasing ratio of administrators to teachers, and the pension and healthcare costs associated with all these non-student-facing folks, but that's neither here nor there. The fact is that college is becoming so expensive people cannot possibly save for it or work their way through it.

So, how does the government help? Pressure schools to reduce costs (like they do with some industries)? Encourage non-traditional education or alternatives to 4-year schools? Naw... They offer to loan students money. Lots and lots of it. Take a look at this chart:

Careful, that's not a ten-year chart, that's a two-year chart.

See this blog entry for some good information on this topic.

Colleges can keep raising prices, despite the recession, because the government keeps lending students more money to pay them.
According to a report cited by Anne Marie Chaker in the Wall Street Journal on Thursday, the government will lend students $75.1 billion to pay for college this year, up a spectacular 25 percent compared with last year.
But the extra credit isn’t benefiting students. It’s just inflating the price of their education, burying them under a bigger pile of debt despite stagnant wage growth and poorer employment prospects.

And remember, student loans are not discharged in a bankruptcy. Indentured servants had it better...

Time Machine: Health Care in USA circa 2025

It's been a struggle not to pull the trigger and blog about the health-care reform law and its implications. I'm smart enough to know that I don't really know enough about the new rules to add anything to the dialog out there already, other than to remind folks that there is no free lunch. You want to cover a lot of uninsured folks, and force coverage availability (at no additional cost) for people with pre-existing conditions who wait to join a plan until they need the coverage, be prepared for premium increases that will make your head spin over the next 4-5 years. And that, of course, will lead to the ultimate end-goal of the reformers: socialized healthcare.

If I jump in my time machine and go forward about 15 years, I believe I'll find a "single-payer" healthcare system in the U.S. much like Canada has today, where health care is cheap but unavailable. Today in Canada if you want to avoid month- or year-long waitlists you pony up your own $$$ to private companies like Timely Medical Alternatives which publish a cost sheet as shown below:

Hmm. Investment opportunity? Perhaps clinics in Mexico? Stay tuned...

Quick Link: Get Ready for Increased Taxes

In our personal lives, when expenses exceed income, we have two choices if we want to avoid debt: spend less or make more. We don't usually have the option of "making more" whenever we want, so we learn to budget, live within our means, and spend less.

The government has the same problem (in spades!) and the same two options, and it sure looks like the Obama administration is opting to increase taxes in lots of sneaky ways rather than find any real savings:

I’ve noted any number of times that government taxes comprise 14% of the national income and government spending is at 25% of the national income.  That’s as high as its been since WWII I believe.
The point, of course is there are three obvious choices here – cut spending to the income level (and beyond, really, if you plan on paying off debt) or increase taxes to the spending level (and beyond, again, if you plan on paying off the debt) or a combination of both.
Watching this current administration, it appears option two is in the works.  Lots of lip service about “unsustainable” spending, etc., but the only movement I’ve seen is legislation that increases that.  And, also, plans to increase taxes.
The health care bill is chock full of new taxes.  If you don’t believe it, review these two listings of the new taxes to be found in there.
Cap-and-trade, and now “Son of Cap-and-Trade” being sponsored by Senators Lindsey Graham and John Kerry significantly raises taxes on utilities (which means everything will cost more for consumers).

We've gotten to the point where the big-ticket spending items are off limits, taxes are being paid by a shrinking pool of people, and an entrenched government is more interested in protecting their position and power than in governing and serving. Any wonder I'm pessimistic?

Social Security to start cashing Uncle Sam's IOUs

Well, it had to happen eventually... Social Security payments now exceed income (taxes) and it is time to start cashing in all those trust-fund IOUs.

For more than two decades, Social Security collected more money in payroll taxes than it paid out in benefits — billions more each year.
Not anymore. This year, for the first time since the 1980s, when Congress last overhauled Social Security, the retirement program is projected to pay out more in benefits than it collects in taxes — nearly $29 billion more.
Sounds like a good time to start tapping the nest egg. Too bad the federal government already spent that money over the years on other programs, preferring to borrow from Social Security rather than foreign creditors. In return, the Treasury Department issued a stack of IOUs — in the form of Treasury bonds — which are kept in a nondescript office building just down the street from Parkersburg's municipal offices.
Now the government will have to borrow even more money, much of it abroad, to start paying back the IOUs, and the timing couldn't be worse. The government is projected to post a record $1.5 trillion budget deficit this year, followed by trillion dollar deficits for years to come.

It's the perfect storm: Employment weak, folks "retiring" early after losing their jobs, basic demographics catching up with the Ponzi scheme. Should make for a very interesting next 5-10 years.

Non-Payers Grow to 36% Of Tax Filers

I had been wondering about the way that "credits" and income-limited deductions had been reducing the tax burden on lower-income individuals and families in recent years. It always felt like a strong "hockey stick" model in which taxes paid stayed relatively low until you reached a certain income and your taxes (as a percentage of income) suddenly exploded up. I'm not just talking about the progressive tax rates themselves -- I'm also talking about the various credits and deductions that get eliminated at different income levels.

Mark Perry has a great blog, and he recently posted the following charts from the Tax Foundation showing the percentage of filers who pay no federal taxes (now at 36%) and the income level at which you pay no taxes.

The statistic that bothers me the most is the rapid growth of non-paying filers to 51 million, or 36% of all filers. Add to that huge number the millions of non-filers and you've got an enormous block of people who (rightly? naively?) believe they can vote themselves any benefit or entitlement and will not pay a dime toward it.

At what point does the process become untenable, with a non-paying majority holding guns to the heads of the paying minority and demanding higher and higher levels of benefits? As the boomers retire, we may find out.