The federal government already spends enough on student aid to cover tuition for every public college student in America. Maybe it's time to try.
It's been a glum few weeks in the world of higher education. We officially learned that states kept slashing their funding for colleges and universities in 2012, and tuition in turn kept on rising. Student loan debt expanded over the year, and more borrowers are falling behind on their debt.
In other words, same as it ever was (same as it ever was). The price of a degree has been going up faster than family incomes for decades now, and nobody has a clear fix yet. So rather than bemoan college costs like most days, I thought we could have some fun mulling over a radical solution: What if Washington just went ahead and made tuition at state schools free (or close to it)?
It might be more doable than you think.
We Already Spend the Money
Here's a little known fact: With what the federal government spent on its various and sundry student aid initiatives last year, it could have covered the tuition bill of every student at every public college in the country. Doing so might have required cutting off financial aid at Yale, Amherst, the University of Phoenix, and every other private university. But at this point, that might be a trade worth considering.
Let's start with a quick survey of the numbers. Between graduate students and undergrads at both four-year and community colleges, students paid just under $60 billion in tuition to attend state institutions of higher learning in fiscal year 2012. That's the giant magenta slice of the graph below, released this week by the State Higher Education Executive Officers Association. And just in case that figure sounds suspiciously low to you, the Department of Education reports that in the 2009-2010 school year, public colleges made about $57 billion off tuition (page 268, for those interested).
That's our threshold: About $60 billion. Now how much does Washington spend on aid? According to the New America Foundation, the federal government appropriated some $77 billion worth of it in 2012 via a giant salad of tax breaks and grants, shown in yellow and orange below. The money we'd need for this grand experiment is already there.
To be sure, a good chunk of that funding already subsidizes state colleges. Take Pell Grants for low-income students, which currently cost Washington about $35 billion annually.* In the 2010-2011 school year, roughly 61 percent of that money, or $22 billion, went to students at public institutions.
But that doesn't change the big picture: With the money that's either going to private colleges, or or being paid to the public sector in a roundabout way via tax breaks, we could probably make tuition at public institutions — which educate about 76 percent of American undergrads — either free, or ridiculously cheap. The question then becomes whether that's a vision of higher education finance that we would want to embrace, and if it is, whether it would be a feasible policy.
What We're Doing Now Is Crazy
My instinct is that the answer to both those questions is yes. Many of the problems with higher education today can be traced back on some level to our current approach to aid, which has come to resemble a dog chasing its own tail. Since 1987, the SHEEO reports that states have cut per-student funding for schools by about 44 percent. The schools, in turn, have raised tuition. The federal government has swooped in with more generous grants, tax breaks, and low-interest loans to compensate. Yet, the availability of all that financial aid has probably allowed colleges to hike up tuition without worrying much about enrollment. It's also paved the way for more state budget cuts. So round and round we go.
Despite some of what you might have read, these problems haven't actually turned college into a bad investment. Going and graduating is still probably the best financial decision anybody not named Gates, Jobs, or Zuckerberg can make in their lives. But the persistent rise in costs have made college a progressively worse deal with each passing year. Perhaps more importantly, it's turned higher education into a much bigger financial gamble for marginal students at risk of dropping out — which, sadly, describes most young people who ever step foot in a college classroom.
The under-funding of public university systems and Washington's attempts to compensate have also helped nourish a giant barnacle on the side of higher education: the for-profit college industry. As scarce classroom space at community and open-admission state colleges has filled up, students turned towards alternatives like Kaplan University and University of Phoenix, which charge tens of thousands of dollars for degrees with dubious job market value. They get away with it because of federal aid. I call it the 10, 25, 50 problem: They educate around ten percent of students, who receive about a quarter of federal student aid and are responsible for about half of all loan defaults. They suck up about $8.8 billion, or around 25 percent, of all Pell Grant money.
And a "Public Option" Could Work
Turning our approach to aid inside out might be the right solution to these problems. Instead of handing money to students and parents, the federal government could instead send the cash down to the states, on the condition that local legislatures kept per student funding at a certain level, and colleges lowered their tuition rates (otherwise, it's likely some states would just cut their support further while relying on Uncle Sam to prop up their schools, all while tuition kept rising). Since student enrollment is also projected to increase over time, the federal government's contribution would probably have to be indexed in some way, either to inflation, or to the student population.
Now a confession: I went a bit overboard in the headline to get your attention. That's because we probably wouldn't want to make tuition entirely to free to all students, if only because that would risk triggering a crush of enrollment at open-admission schools, and probably encourage too many wealthier students to flood back into the public system, displacing needier kids. Instead, the goal would be to bring down the cost of school dramatically across the board, but while using progressive tuition levels so the poorest students paid nothing, while upper-middle-class and wealthy students paid a few thousand dollars each. That's not far off from what many elite schools do now, who charge rich kids more so the poor kids pay less.