Why Should Others Pay For Students' Benefits?
President Clinton proposes a $1,500 tax credit for each of the first two years of college in addition to his earlier proposed college tax deduction of up to $10,000 per family. His goal: "nothing less than to make the 13th and 14th year of education as universal as the first 12 are today." And further: "This is not just for those individuals, this is for America."
Mr. Clinton's tax credit would cost $7.9 billion over the next six years, bringing his package of new college subsidies up to $42 billion over that period. It would be financed by raising some taxes and selling off more of the radio broadcast spectrum (apparently every politician's favorite revenue raiser).
But a 1991 Congressional Budget Office study found that tuition subsidies alone already averaged more than 80 percent of the cost of providing an education at public colleges and universities. Given how heavily subsidized higher education already is, would Clinton's additional subsidy really benefit America?
The president's answer is yes: "More than ever before in the history of the United States, education is the fault line, the great Continental Divide, between those who will prosper and those who will not in the new economy."
But Clinton's plans would actually do little to increase educational attainment, despite their hefty price tag.
College attendance would see only a small effect, because, especially at public colleges, tuition is a small part of the total cost of education. There are books, supplies, and room and board (though students have to eat and sleep somewhere in any event).
More important are the earnings forgone by going to college - roughly $12,000 over the nine-month school year for a recent high school graduate. This dwarfs public-college tuition. A $1,500 credit was chosen because it slightly exceeds average yearly community-college tuition.
Eliminating this tuition would make only a relatively small dent in the real cost of college to students. Few added students would graduate, but those attending anyway would get larger subsidies than they do now.
The tax credit would also make little difference in increasing education among students from lower-income families. Pell Grants, Stafford Loans, and other student aid sought to increase college attendance by such students, but made little difference:
Families above the median income still send about twice the percentage of college-age children to college as lower-income families, just as they did in 1970. More aid has gone to each low-income student. But, because so many more students from higher income families attend college, most of the subsidies actually go to students from families with above-average income.
WHY aren't more students already going to college, if it is such a great and heavily subsidized investment? Students should be willing to borrow to pay for college. Educational opportunity does not require added subsidies; government need only assure access to loans to finance college, which it already does.
"The prospect of heavy debt after graduation would no doubt discourage some students from borrowing," according to financial writer Peter Passell. "But that may be the wisest form of restraint. Someone has to finally pay the bill, and it is hard to see why that should be the taxpayers rather than the direct beneficiary of the schooling."
Added education subsidies, to the extent they increase college demand, would also go in large part to education providers in better wages and working conditions (a point about economics that Adam Smith made two centuries ago). Any cultural benefits of added education would primarily accrue to students, rather than to society. Since students reap the vast majority of the benefits of such training directly, there's no justification for existing public subsidies for higher education, much less for increasing them out of others' pockets.
There may be some social benefits, though difficult to articulate and measure, that justify education subsidies. But current subsidies are already very large, and given our historically high current tax burdens, the argument for leaving the money in citizens' hands, where it can be used for education if they see fit, is at least as strong.
It is hard to justify this proposed sharp increase in taxpayer subsidies to higher education, other than as an election-year ploy. Not only will it make little difference in educational attainment; it also fails to help those who are really neediest.
As commentator Edgar Browning put it, "Subsidies to higher education effectively benefit the brightest and most ambitious young people, and this group will on the average have the highest lifetime incomes even without assistance."
*Gary M. Galles is a professor of economics at Pepperdine University in Malibu, Calif.