Let's Subsidize Students, Rather than Institutions

by Daniel L. Bennett

Public colleges like to go around telling sympathetic listeners (especially legislators) that they are forced to jack up tuition charges because state subsidies are declining. Colleges and their sympathizers espouse the confusing rhetoric that the percentage of their revenues coming from state subsidies has declined, while failing to mention the reason that subsidies have declined as a percentage of their budget: because their rate of SPENDING has outpaced the rest of the economy over the past several decades. This is a much different story than saying, as Neal McCluskey and others have demonstrated: that public subsidies have generally been constant when adjusted for inflation and enrollment over the past 25 years.

The public has generally lived up to its bargain of subsidizing colleges in order to keep tuition affordable so that low and middle income people can get a postsecondary education. It is the colleges who have failed to live up to their end of the deal by engaging in a spending spree and empire expansion, mostly with taxpayer money, that has caused a surge in tuition. When organizations or people in the private world demonstrate an inability to manage their finances in a responsible manner, creditors cut them off. For those who sympathize with providing affordable access to college for the less-fortunate Americans, there is a solution that avoids turning off the spigot altogether: Stop subsidizing the institutions directly and instead subsidize the STUDENTS in the form of a voucher, grant or scholarship (whatever you want to call it) that follows the student to whatever college they choose to attend, regardless of ownership status.

That's right, empower students and their families to vote with their feet where the subsidies should be directed, rather than do so through the political process. This is akin to giving low income families food stamps to buy what they want rather than giving them bags of rice and beans. Schools eager to attract recipient students would then be much more likely to allocate their resources to areas important to students. The end result would likely be greater diversity in institutional models, with one extreme being a low cost online provider, the other the conglomerate country-club campus, and many variations in between.

We currently have institutional diversity to some extent, but the majority of public colleges are moving in the direction of the elite county club campus, making it less and less affordable for lower income students to afford to attend. So let's nudge them along to becoming fully privatized and elitist by cutting off their institutional subsidies and instead empower the students with the subsidies. My guess is that more institutions will move in the opposite direction, towards more value-based models focused on education. This would at least give students the choice in how they spend the taxpayer's money, and provide a glimmer of hope that it will be used more effectively. Doing so would also improve policymakers' ability to target funds to specific objectives, such as improving access to low income students or adult learners.