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There are plenty of issues with it.
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I don't see them.
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1. How does the gov't define "good moral character"?
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Documentable things like no arrests help. School records of being in trouble or not. Community service, volunteerism, etc.
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2. How do you prove a minor has been in the country for 5 continous years?
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School records.
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3. Who exactly is going to pay for them to attend a 4 year college?
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They do. It's part of wanting to be a citizen. Earning it.
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And is it fair that illegals will get preference over citizens?
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Nobody said that. They get no "preference" That's something you made up.
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As we all know colleges lie to have a "diverse" student population and what is more diverse than illegal ailens?
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Your "preference" fear is completely false. You'll have to deal with the private and public colleges of the country regarding their admissions policies, if you don't care for them.
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4. And why in the world do they have to only do 2 years at a 4 year school? Wouldn't a degree at a 2 year school be better than 2 years and out the door at a 4 year school?
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Because the plan is to encourage advanced education (continuing on to finish a degree) which tends to ensure a fairly contributing citizen to society. Or, they can do a little military service to give back to their country. Either way, if they want to stay here and earn their citizenship, they have to earn it. They can't just drop out of high school, or finish high school, and just stay here illegally.
(I'm reminded several countries require 2 years military service of all their young citizens)
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I believe we need a much better immigration policy. But this is simply pandering to the latino voters
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Or, one can see it's making the children of illegals, who through no choice of their own were brought here, lived here throughout their childhood, speak English, grew up here, attended school here, know and have already integrated into our culture - a way to legally stay in their home country. Because we don't punish the innocent for crimes they didn't commit. If they want to stay here when they reach majority, they can do so, if they go through the path to citizenship. It's logical, it doesn't cost the government other than the paperwork, and it encourages productive, dedicated Americans.