My column this week looks at ways to cut wasteful spending on higher education and redirect the money more productively. Another way to keep colleges in decent financial shape during tough economic times, of course, is to raise tuition.
Gary Becker, the Nobel laureate economist, and Richard Posner, the federal judge and author, argued on their shared blog last week that tuition should increase. They said it was too low at many public colleges. I imagine many readers will find this argument ludicrous, at least initially, but it’s worth considering.
As Mr. Becker writes, average tuition for in-state students at public colleges is $7,500 a year. For many families with students at flagship state universities, $7,500 is not all that much money. At the University of Virginia, to take an extreme example, only 8 percent of undergraduates receive Pell Grants, according to U.S. News, which means that only about 8 percent of undergraduates are in the lower half of the income distribution. In the freshman class at the University of Michigan several years ago, more students had parents making at least $200,000 a year than had parents making less than the national median of about $53,000.
Mr. Posner writes:
… there is no case at all from an overall social standpoint for subsidizing students who would pay full college tuition, without the inducement of a subsidy; the subsidy does not induce students to obtain a college education who otherwise would not because they could not afford to; it is a windfall to their families. Private colleges recognize this. They charge very high tuition (though not high enough to cover all their costs"”but they have other sources of funds, such as alumni donations), but grant scholarships or loans to students whose families can't afford the tuition.
Charging low tuition to everyone, as public colleges do for residents of the state in which the college or university is located), does not make economic sense; it merely as I said provides windfalls to families willing and able to pay the full tuition. As Becker points out, this results in regressive redistribution of income, because families that can pay full tuition are wealthier than the average taxpayer, who pays for the costs of public colleges that tuition doesn't cover.
Mr. Becker adds:
The average college graduate earns much more than the average individual who does not go to college. As a result, college graduates earn a lot more on average than does the typical taxpayer. It is a questionable system of regressive taxation when taxes are spent on subsidizing individuals who will earn more than those paying the taxes.
In essence, Mr. Becker and Mr. Posner are calling for a higher list price for public colleges. Well-off families would be able to pay this higher list price. Their children would still go to college, graduate and, far more often than not, earn enough of a wage premium to make college a fabulously good deal.
Middle- and lower-income families, on the other hand, would not have to pay more than they’re now paying. They would simply receive enough aid to make up for the tuition increase. The college would still come out ahead — and cash-strapped states would presumably be able to reduce the amount of taxpayer money they send to colleges.
In some respects, this chain of events has already occurred. List-price tuition — at public and private colleges — has increased more rapidly than actual tuition paid (and, it’s worth noting, we in the media generally do a bad job of telling this story, because we focus too much on the list price). Net tuition at four-year public colleges has actually fallen over the past 15 years, after adjusting for inflation, although room and board has risen. See page 15 of this College Board report for the details.
If anything, those numbers exaggerate the price for middle- and low-income students, because affluent students are indeed paying more than 15 years ago and they’re part of the average, too.
When list-price tuition rises and net tuition for middle- and low-income students does not rise, it’s similar to increasing taxes on the rich but not on everyone else. (And there are some very good arguments for raising taxes on the rich today.) Mr. Becker and Mr. Posner are trying to point out this dynamic.
I’m sympathetic to their case. But I also think it’s worth keeping two caveats in mind. One, there is typically no guarantee that financial aid will keep pace with tuition. If public colleges raise tuition, they will probably have a hard time increasing financial aid to keep pace, given the current troubles with state finances.
Two, some families are likely to be intimidated by a high list price even if it’s nowhere near the price they would pay. The list price tends to be the subject of newspaper stories and neighborhood talk. To find the net price, you have to dig deep into reports on college financing.
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