Higher education in America is too costly, too little learning is going on, and increasingly college graduates are taking relatively low paying jobs not requiring a college degree. While universities historically have been either private or subsidized by state and local governments, since 1965 the federal government has played an increasing role. Studies at the New York Federal Reserve and National Bureau of Economic Research confirm huge federal government financial assistance programs have dramatically pushed up tuition fees, and on balance made college less accessible to those from low income backgrounds.
Can the new Trump Administration and Republican Congress implement reforms that would ultimately make higher education more affordable, with students learning more and getting jobs more in line with realistic expectations? In a world free of political obstacles, I would advocate the federal government completely getting out of the federal student financial aid business, turning college regulation back to the states. Since that is probably not politically feasible, let me suggest 10 reforms that would still improve things materially.
Simplify And Shrink Federal Student Financial Assistance Programs
There are more than a dozen federal programs: reduce them to two: a grant program that replaces the current Pell Grant, and a single student loan program. Eligibility for the grants would be limited to students from families below the median income, and would be given directly to students upon application, not to college financial aid offices, increasing the clout of the customer (student) relative to the service provider (university). They would be akin to vouchers offered in K-12 education. Loans would be limited to five years duration, including graduate and professional school. Programs like tuition tax credits or PLUS loans for parents of students would be abolished. I predict that this would reduce the ability of schools to raise tuition, thereby putting a crimp on the academic arms race leading to excessive bureaucracies, bloated presidential salaries, fancy buildings and other unnecessary expenses.
Make Colleges Have Some “Skin in the Game”
One reason we have huge problems of students not repaying their loans is that colleges have little incentive to reject students who they know likely will fail academically. If a school has a disproportionate number of students fail to repay their loans, it should have to shoulder some of the burden otherwise borne by taxpayers.
Encourage Private Income Share Agreements
Student borrowing from the government is the equivalent of issuing bonds; but why cannot students issue stock? Specifically, why cannot students sell a percent of future incomes to investors who help finance their college education? That transfers the risk onto seasoned investors from teenage students, and partially privatizes a service the highly indebted federal government can ill afford, since effectively it borrows the money it lends to students. The Feds need to pass legislation making Income Share Agreement contracts enforceable. This could take up some of the slack from slimming down federal lending programs.
Review Tax Exempt Status Of Non-Academic Activities And Endowments
University borrowers and donors receive special tax breaks to finance activities with no academic purpose: housing and eating facilities, stadium sky boxes, and recreational centers. Schools like Princeton and Yale have over two million dollars in endowment money for each student (and still charge high tuition), providing sometimes $100,000 annually per student, and yet we give these schools and their donors special tax privileges. Why?