The College Savings Delusion

Kevin Carey thinks that "saving for college" has mostly been a scam on the middle class:

Except it turns out the that stock market is run by liars and thieves who, instead of efficiently allocating capital to productive purposes etc. etc., actually spend their time constructing ever-more-elaborate schemes to defraud the entire world out mind-boggling sums of money. Worse, they turn out to be really stupid thieves who ended up blowing up the entire edifice on their way out the front door with all the money they stole in plain sight of the aforementioned policymakers who were apparently too busy doing things like choosing the font size on the stationery for the Center for The Study etc. to notice.

As a result, there are now tens of thousands of families across the land with children starting college or in college who would have been better off sticking their money in a mattress than investing in a 529 plan. Heck, they’d have been better off sticking 70 percent of their money in a mattress and spending the other 30 percent on a flat-screen TV and a Wii, because at least that way they’d have a fun way to spend time with their kids during the day while they’re not at the job they’ve just lost and their kids aren’t at the college they’re not attending because it’s too expensive and half their tuition money disappeared in the Wall Street rubble. Meanwhile, the people who run 529 plans have nothing to offer other than utterly senseless comments like this from the p.r. guy in Maryland, who said “We remind people that investments for college are meant to be for the long-term. It’s important to stay the course.”

And that’s whole the problem in a nutshell. Retirement is long-term, in the sense that it happens both in a long time and over a long time. People saving for retirement can afford to ride out ups and downs in the market, and since the goal is to live off the income from your investments and retirement itself lasts (hopefully) for several decades or more, there’s also more flexibility to weather a financial storm once you’re retired. College, by contrast, is at most a mid-term proposition, eighteen years at the outside. And paying for college is decidedly short-term, since, last I checked, colleges still get paid up-front.

There’s an alternative to all of this: Families pay their fair share of taxes under a reasonably progressive system and policymakers use that money to adequately support higher education and need-based aid while also exercising oversight over colleges and universities that in turn show some restraint in pricing while rejecting enrollment management techniques that direct scarce aid dollars to wealthy students. And when the time comes for people who ride Metro to pay for college, they don’t have to worry about astronomical bills or whether their hard-earned money somehow ended up paying for a disgraced trader’s second summer house in the Hamptons, because college is affordable.