Thursday, January 24, 2008


I am always bemused by politicians "solutions" to the problem of the costs of higher education. In general there seems to be two schools of thought (raise taxes or create more tax breaks/credits) as to how make college more affordable and no challenge to the underlying premises that college isn't affordable or that the sending more people to college is optimal as opposed to another vehicle for improving human capital.

With regards to the solutions my main problems with either increasing state subsidies to universities and/or creating new tax breaks for college tuition is that I think that it actually causes price escalation as opposed to mitigating it. Say Minnesota raises property taxes or some form of sin tax to increase public funding to Minnesota's institutions of higher education so that tuition can be reduced or frozen, in practice this doesn't appear to occur. Over the last 25 years increases in state subsidies and tuition increases have tracked each other. And this is entirely predictable, universities get a wad of taxpayer cash ostensibly to offset tuition but decides it would be better spent on any number of other worthy or dubious projects (new science building, updated fitness center, better mess hall, maybe even a healthier COLA for professors, new departments, or more professors), then turns around and raises tuition again shortly thereafter. My basic problem with operating through the tax code, unless it is in the form of a nonrefundable tax credit (or is it a refundable credit?), is that the benefits primarily inure to the wealthy. If I sock away a $1000 a year in a Coverdell account and my marginal tax rate is 10% then I have merely saved a hundred dollars, whereas if my marginal tax rate is 35% then I have saved $350. Those that need the assistance the least get the most. This doesn't seem to do much to spur affordability and actually can exacerbate the problem by making the wealthy even less price sensitive.

I would like to see States attempt to deal with the tuition problem in two ways, which I dub: the administrative solution and the market solution. The administrative solution is essentially wielding a big stick. Simply legislate that your state's public universities (and any private universities receiving state funds) cannot increase tuition beyond inflation. I think this while seemingly clean will be circumvented by ginning up increases in housing costs and whole myriad of new user fees (a $500 library card, maybe). The market solution would be to shift public funding away from institutions and instead have the funds follow the students. I think this would incentivize cost control.

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