HIgher ed costs get serious attention

by Andy Taylor, professor of political science, NC State University, published in Carolina Journal, October 29, 2015.

Sadly, much of this presidential campaign has been a media circus, with most attention focused on the antics of Donald Trump and the emails of Hillary Clinton. This has been illuminating because it says much about whether either has a temperament suitable to be president, but it robs the American public of a debate about substantive policy.

An issue on which this has happened, however, is the cost of higher education. According to the Labor Department, average out-of-pocket tuition expenses rose by 6 percent annually between 2000 and 2014, well beyond the rate of inflation. Edvisors reports that in 2014-15, about 71 percent of students graduated owing money, the average about $35,000.

The figures are worse — and accelerating rapidly in the wrong direction—for students finishing graduate and professional schools. Both Democrat Clinton and Republican Marco Rubio have offered interesting plans to address the problem.

Let’s take Clinton’s first. At the cost of $350 billion over 10 years, she proposes to use roughly half to help refinance existing debt and the remainder to allow students to avoid taking out loans to attend public institutions.

This federal assistance would depend on states investing more of their own resources in higher education and colleges stemming increases in tuition. Much of the tab would be paid by capping the amount of itemized tax deductions high earners could take.

At the center of Rubio’s plan is an income-based repayment schedule permitting students who enter lower-paying occupations to repay loans on more favorable terms. The proposal also provides for the beginnings of a system of equity funding for students who would secure support from investors in return for a share of their future earnings.

Although Rubio is vague on cost containment, he is interested in the subject. He believes the federal government should provide tangible rewards to institutions that restrain spending in significant and innovative ways.

Note the main difference. Clinton’s plan shifts the burden onto taxpayers much more. Trust me, as a professor who believes liberal arts contribute tremendously to a robust civil society and general economic prosperity, I believe the public can secure a valuable return on its investment in higher education. But it is a question of degree.

The Federal Reserve Bank of San Francisco estimated last year that, on average, a college diploma is worth about $830,000 in additional lifetime earnings. Georgetown University’s Center on Education and the Workforce calculates that, after age 35, even humanities majors are making over 125 percent more each year than peers who only graduated high school.

Why should other residents pay much of the proportion of this that is purely private gain?

In North Carolina, the Constitution asserts that “as far as practicable” the “benefits” of public higher education should be “extended to the people of the state free of expense.” This is generally interpreted as meaning tuition in the UNC system should remain low and state support high — which is indeed the case today, at least in relative terms.

According to the State Higher Education Executive Officers, in 2013 North Carolina was, per student, the nation’s fourth most generous in direct appropriations and 45th when it came to the proportion of university revenue derived from tuition.

But the Constitution makes no mention of students, present or past. It implies higher education is a public good and taxpayers of North Carolina should not have to pay very much for it.

The problem with equity is that money inevitably will flow to students in programs that produce highly paid graduates. That’s why some, like The Economist, have proposed a mixture of equity and debt financing.

But there is an alternative. Institutions could create differentiated tuition rates that better reflect the cost of providing particular programs and courses. Currently a student generally pays the same amount to sit in a history class as an engineering one, even though the faculty member in the latter is paid more and the facilities and equipment costs in STEM tend to be substantial.

With tuition rates set this way, those in the liberal arts will no longer have to subsidize engineers, and their investors might realistically expect appealing returns.

Some Republicans, notably Gov. Rick Scott of Florida, have suggested taxpayers and students in other fields should subsidize STEM even more than they do. The goal is to encourage greater enrollments in the natural sciences and technology.

Not only is this a tad reminiscent of Soviet-style social planning, but, by encouraging heedless spending on science and technology education, it would not contain aggregate costs.

Rubio is on to something.

Let’s hope we get to see similarly substantive and imaginative positions on other important policy matters as the presidential campaign proceeds.

Andy Taylor is a Professor of Political Science in the School of International and Public Affairs at N.C. State University. He does not speak for the university.