By Richard Vedder
In November 2005, the Kalamazoo, Michigan, Public Schools made a dramatic announcement. It said that henceforth every successful graduate of a Kalamazoo public high school (there are three) who had been in the district since kindergarten would receive 100 percent payment of tuition fees at any Michigan public community college or university as long as the student was making satisfactory progress (taking 12 hours of classes with an overall average of at least a "C"). Students who had begun school in Kalamazoo for between four and 12 years would receive smaller reimbursement, but not less than 65 percent. The project was funded by massive private gifts --probably at least $200 million in endowment money.
My friends at the Mackinac Center in Michigan tell me that Governor Jennifer Granholm in her forthcoming "State of the State" address plans to propose expanding the Kalamazoo Promise idea to more areas, financed it appears by a combination of public and private monies. On the surface, this sounds like a nice idea, taking a giant step towards making college more affordability to the citizens of Michigan. No doubt the governor will argue that this will promote long-term economic growth.
However, the unintended consequences of this well intended effort are many, and mostly very bad. Here are three of my concerns:
1) When third parties (private donors, governments) pay the bills, the student pays little or no attention to tuition fees (the demand for higher education is nearly perfectly inelastic, us economists would say), and this enormously increases the incentives for colleges to increase tuition fees.
2) The lack of strict performance limits and penalties for poor academic performance creates incentives for mediocre students to go to college for an extended period of time -- 5 or 6 years.
3) Many of the students receiving assistance are perfectly capable of paying for college, so public or charitable funds are partly being redistributed to relatively well-to-do persons; dollar for dollar, this does far less to promote equal educational opportunity than programs that are restricted to lower income persons.
There are some indications that the Granholm proposal may deal in part with the third point, not providing assistance for students from affluent Detroit suburbs like Gross Pointe. But on the whole the proposal will enhance inefficiencies and waste, stimulate academic mediocrity, etc.
Moreover, Jonathan Leirer and I have been running regression after regression, trying to see if the provision of state resources to colleges has any impact on growth, as is often alleged. We continually find either no significant relationship or, more often, a negative one --appropriations are associated with lower growth rates in per capita income. If as Charles Murray, Harry Stille, and Jackson Toby (among others) have been telling me, that too many kids go to college, efforts like these will take scarce resources and use them to try to train some kids to go to college who would be better off attending a trade or vocational school than a college.
If, despite all of the above, someone wants to increase support for higher education, a better way to do this is to give vouchers to students (not to institutions) usable at any public or private school, with a finite dollar amount on the voucher --$3000, $1,500, etc. The voucher size can be made progressive -- diminish as family income rises. A scheme like this is, dollar for dollar, likely to be less tuition enhancing, empowers students more relative to university administrations, and enhances competition.