By Richard Vedder
Our nation's leading universities are feeling a bit guilty about the pronounced decline in the proportion of lower income students in their midst, and worried about rising anger over the growing reality that these schools are becoming taxpayer-subsidized country clubs with some academics thrown in. Across the land, schools are deciding to drop tuition for students from families with relatively low incomes. Today President James Wagner of Emory announced the latest of these initiatives (I am indebted to Andrea Jones of the Atlanta Journal-Constitution for bringing this to my attention).
The Emory plan guarantees that students from families with less than $50,000 a year in income will graduate with no student loans, and those from families with incomes of between $50,000 and $100,000 a year will graduate with no more than $15,000 in loans. The Emory program is somewhat different in that it limits financial liability for a wide range of middle income students, and it ties its programs explicitly to student loan debt, not to tuition levels.
This is a good news, bad news story. The good news is that a major private university is making a real effort to improve affordability and access to persons, and trying to reduce somewhat the "rich kid’s school" image of the place. It is showing some appreciation for the recently neglected role of higher education as an engine of social mobility and equal economic and educational opportunity.
The bad news is that the program has some technical defects that could prove embarrassing, and masks a more fundamental problem. Speaking first to technical issues, as I read the press release, a family whose income is $50,500 a year and sends a kid to Emory can expect that kid to incur $15,000 in debt, while the family with a $49,500 percent income will have a student who will go debt free. The earning of an extra $1,000 in income (say over 4 years) will lead to a tax on that income of several hundred percent -- making it worse off than before. There are tremendous negative incentives to work hard and more to pay for college -- or do other productive things to help the economy. A similar problem exists for students whose incomes are just over $100,000 -- they are royally hurt relative to those with just a wee bit less income.
If this program is ultimately financed by bigger increases in sticker tuition fees (paid by those with high incomes), all that has been accomplished is a redistribution of income from one class of students to another, with the university attempting to set social policy (regarding income distribution) through its complex discriminatory pricing scheme. Putting that aside, the big problem is that the Emory program, like many other ones previously announced, deal with the symptoms, not the disease. They provide a temporary patch for lower income kids, but do nothing to change the fundamental problem (the disease, if you will), namely the huge increase in the cost of higher education in modern times, and the unwillingness to make the necessary structural changes to alter this. As long as per student college costs rise substantially in real terms, someone, maybe not students themselves, will be burdened by covering the bills. That problem still needs to be addressed.
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Within the scope, or framework of higher education; is money demanded for its usefulness in producing a service, rather than for its own sake? What would Ludwig von Mises say? I must think upon this.
This whole perplexing and paradoxical question that CCAP is exploring is like trying to figure out the speed of dark.
This does nothing to address the key problem: education--both higher ed and K-12--absorbs an ever-increasing proportion both of the GDP and of the lifespans of Americans--yet the actual knowledge being gained is frequently pathetic.
I guess I will take a simple-minded shot at trying to get my head around these issues near and dear to CCAP.
First of all, my "deep thinking idiot" opinion based on "The Quantity Theory of Money" (from left to right and right to left). If tuition and fees were lowered at institutions of higher education, the supply of college candidates would surge, and demand would rise - thus driving the costs of higher ed up.
On the other hand, if the "money supply" for college candidates increases, the supply of candidates increases; demand increases and higher ed costs rise.
Conversely, if colleges increase tuition for no other reason than "they can", the demand for money increases. So politicians "help" by making more money available to subsidize the cost(s) of higher ed.
This is a circular analysis - or a paradox, if you will. To analyze this phenomena is dropping your bucket down a dry well. At least at my level of intelligence.
So the issue becomes affordability for those who are not wealthy, or just plain can't afford college. An issue of equality or inequality - I believe Jonathan did a blog on this.
And here is where my brain short circuits. So here is where I digress and devote more time to thought.
I thought about the equality/inequality question last night as I slept. I ended up dreaming I was in a bar fight in Los Angeles – I think I was at “The Palomino” on Sepulveda Blvd. However I did conclude that inequality is a constant; and that trying to explain my take on the relationship between inequality and higher ed costs is not necessary.
After doing some superficial research, I found some areas that I consider trouble spots that directly affect how colleges can determine what they can charge. I looked at the FAFSA Worksheet and the ABC Worksheets. I was amazed, to say the least. I can provide much less documentation of income, assets, and liabilities to buy a house – whether it’s a $100,000 house or $1,000,000 house. The amount of detail and accuracy is ridiculous.
I then visited several Financial Aid Office websites of several universities. Seems the universities and the Federal Student Aid programs sleep in the same bed. Based on the amount of research I did, I noted a couple of trouble spots.
First, why does the university need the FAFSA? They need to get out of the student loan business and keep a scholarship office only. It appears that a need-based scholarship funded through a specific university by an endowment or foundation usually has merit criteria attached to it. This is the only time the university should see something like a FAFSA but much less intrusive like a credit application, in my opinion.
Get rid of the FAFSA. The government doesn’t need it – they have tax returns, and neither does a university – because a university is not meant to be a lending institution. Last time I checked they were in the business of educating – some more so than others. If you look at the cumbersome process that revolves around a FAFSA - the deadlines, pin numbers, and on and on; it is simply beyond ridiculous in my opinion.
Federal Student Aid should be handled by the banking/lending sector. The student deals with a bank – not a university, and indirectly with the government. Parents of students should be able to borrow based on their creditworthiness – in the same way almost every creditor I know of lends. If a kid’s parent(s) have a terrible credit history, let creditors lend money based on need – the way they do it now – but without the FAFSA, and certainly no more information than what is required to get a mortgage. Other criteria can be added, such as a minimum GPA and minimum credit hrs/quarter or semester - or no more loans. Need based lending doesn’t consider credit worthiness – does it? So anyone could apply for a student loan; whether it is based on creditworthiness or need – equality. In either case, the student loan would not be a secured loan. It would be backed by the full faith and credit of the U.S. government – just like T-Bonds. Are student loans “secured loans” now?
The FAFSA seems to be an extraordinary intrusion into a family’s finances. It goes far beyond what even the IRS requires one to report. Student Loan administration must be taken away from higher education institutions. I can determine if a family needs financial assistance for college by simply knowing their annual income, expense, and what college the kid wants to go to. For example, for the FAFSA, one needs “records of untaxed income, such as Social Security benefits, Welfare benefits…” STOP! WELFARE BENEFITS??!! For Christ’s sake! What in the world are they thinking?? Also “information on … business and farm assets for yourself, and your parents…” How many high school seniors own businesses with capital assets of any significance? How many of them own farm assets?? “Hey Pop, I just got my paycheck from Taco John’s, I’m going to go buy a combine and tractor. Say, do we need a new thrasher and bailer?”
What if I wanted to go back to school and needed financial assistance? Do I fill out the “Student Information” section and then tell my poor old broken down retired Ma & Pa down in Florida (non residents of Montana) to fill out their section? See, here is one example of the ridiculousness of the FAFSA. My parents are retired. I am not a dependent. The FAFSA asks if my parents are deceased (dead). Well, no they aren’t. But does anyone think they would fill out a FAFSA? I don’t even need to talk to my father to answer that one. I can hear him saying, “Are you CRAZY?”
Now, under the example of me going back to school. Under Section 3 – Student Finances (in the FAFSA), it asks “If you filed or will file a 1040, were you eligible to file a 1040A or a 1040EZ?” Well, the answer is, “Hell yes, but I’m not a retarded moron, so I didn’t.” But this is a trap – read on… “You are not eligible if you itemize deductions…” Yep, I get penalized for not being a dumbass. So the FAFSA may work for a soon-to-be HS grad, but it sure doesn’t work for anyone who makes enough money to itemize deductions.
So does this mean that everyone who itemizes their deductions is rich and can afford to send themselves to college? Is that it? If it is then IT NEEDS TO BE THE FIRST QUESTION ON THE FORM – THE FIRST THING YOU READ!!
At the top of page one it should say, “If you are not a dependent –and- you are smart enough to itemize your deductions rather than throwing your money away like a dumbass, STOP HERE – YOU ARE NOT ELIGIBLE.
Next I attempted to determine what the money supply for higher ed is. I locked on to a website that paints a very rosy picture of just how affordable higher ed is. In their effort to paint this rosy picture, they published statistics of what monies are available for students to gain accessibility to higher ed. In my reading, I determined that my thinking that a FAFSA, besides being a pain in the ass to complete, is not the culprit I thought it to be.
I am now convinced that I could get a government contract job doing helicopter drops of cash over colleges and universities all over the U.S. The information I got was at www.collegeboard.com. I am now convinced that colleges are raising tuition because the money supply for students is so incredibly large, they would be stupid not to raise their prices. Not what I expected to find - what a mess. Higher ed institutions have transformed themselves quite well from being a somewhat affordable to affordable post-secondary educational service to institutions much like the real estate market where few can pay cash for a house and most must borrow to do so. Is it reversible? I should think not. I am left with many questions about the affordability of college and acknowledge that I am neither an expert on the subject, nor have I done anywhere near the tremendous amount of research CCAP has done. To be sure, I am left with questions, a margin of doubt about the magnitude of the problem, and a willingness to make no judgment at this point – I must learn more.
Reference collegeboard.com
http://www.collegeboard.com/prod_downloads/press/cost06/trends_aid_06.pdf
Total student aid, including grants from all sources plus loans, work-study, and tax benefits from the federal government, increased by 95 percent in inflation-adjusted dollars over the decade from 1995-96 to 2005-06.
During the 2005-06 academic year, about $135 billion in financial aid was distributed to undergraduate and graduate students in the form of grants, work-study, federal loans, and federal tax credits and deductions. In addition, these students borrowed about $17 billion in private nonfederal loans to help finance their education.
Total aid to undergraduate and graduate students increased by 95 percent between 1995-96 and 2005-06. Total grant aid increased by almost 90 percent
About half of the student aid used by undergraduate and graduate students to finance postsecondary education is in the form of loans from the federal government, including subsidized and unsubsidized Stafford Loans to students, Perkins Loans to high-need students distributed through institutions, and Parent Loans for Undergraduate Students.
2003-04 bachelor’s degree recipients who borrowed to finance their education accumulated median debt levels of $24,600 in for-profit institutions, $19,500 in private nonprofit colleges, and $15,500 in public institutions. Overall the median debt level of bachelor’s degree recipients was $19,300.
Debt levels as high as $30,000 are rare among associate degree recipients, but 40 percent of students who borrowed and received bachelor’s degrees from for-profit institutions in 2003-04 graduated with more than $30,000 in debt. Twenty-three percent of graduates of private nonprofit colleges and 14 percent of graduates of public four-year colleges who borrowed had debt of at least $30,000.
Note: Student loans from both federal and nonfederal sources are included. PLUS loans and credit card debt are not included.
Source: NPSAS: 2004, Undergraduates; calculations by authors.
Reference collegeboard.com
http://www.collegeboard.com/student/pay/add-it-up/4494.html
There's no escaping the fact that college costs are rising. According to recently released reports from the College Board, most students and their families can expect to pay, on average, from $90 to $1,238 more than last year for this year's tuition and fees, depending on the type of college.
But there is good news. There is more financial aid available than ever before—over $134 billion. And, despite all of these college cost increases, a college education remains an affordable choice for most families.
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