Kevin Carey published his plan for reforming our higher education system in the Washington Monthly recently, and there is a lot to like in his proposal. His plan consists of three major reforms. First, the federal government would provide a $10,000 per student subsidy for every college that agreed to a transparent pricing system for tuition that made it free for those from families making less than $75,000 and charged only $10,000 for those from families making above $250,000. Second, he would require any college participating in this system to accept credits from any other college in the system. Third, he would reduce tax subsidies for charitable donations to colleges with large endowments.
Biden offers his own plan to provide free tuition at public colleges for students from families making less than $125,000, but his plan has some serious problems that I describe in an earlier blog post, and Keven Carey's plan addresses many of those. First, Carey's plan would not require states to pony up one-third of the money, which would avoid another patchwork of participating states as happened with the Medicaid expansion in Obamacare. Second, Carey would have individual colleges decide whether or not to participate, rather than having the state government arrange a deal to have every public college in the state participate. This would allow some private colleges to participate if they want, and some public colleges to not participate if they prefer that as well, and would get rid of the dynamic where the subsidies for an entire state could hinge on every public college in the state adhering to a number of strict rules. Third, Carey's plan would get rid of the tuition cliff, where Biden would have students from families making less than $125,000 get free tuition, but students from families making $125,001 could be charged full tuition. Carey smooths out this transition by ramping up the tuition colleges could charge starting with families making $75,000 all the way up to $250,000.
One of the advantages of Carey's plan is that it provides a boost in funding to colleges that charge little tuition. Many colleges charge less than $10,000 in tuition so the $10,000 subsidy would allow them to reduce tuition to zero for everyone if they wanted, and still spend more on a student's education. At the same time, it would allow expensive colleges to opt out, which would provide for some independence, but comes at the cost of doing little to reduce tuition or making pricing more transparent at the schools that need it the most. Plus, because those expensive colleges would now be competing with colleges who did get some major subsidies by participating and dramatically reduced tuition as a result, those expensive colleges would face substantial pressures to reduce education spending on their own students in order to attract them to their school. Clearly, spending more on low tuition colleges is something that is badly needed and often overlooked, but putting price pressure on schools that do not participate might decrease education spending on our best students, which is something we would probably like to avoid.
I would propose changing his proposal slightly, where schools would either get half of their net tuition revenue in federal subsidies or $10,000 whichever is higher (up to say $25,000), and could charge up to $10,000 or half of their net tuition revenue (up to say $25,000) which ever is higher. This would encourage some of the more expensive colleges to opt in, which would spread the dramatic tuition discounts to a wider range of schools, and impose some pricing transparency on the schools that need it the most, while also relaxing some of the competitive pressures to reduce spending on those schools who now decide to participate. The most elite colleges could still opt out and not be subject to the requirements of the federal government, which would still allow for some independence.
As far as Carey's other proposals, making it easier to transfer credits would be very worthwhile, but I am not sure the effect would be quite as transformative as he suggests. He also proposes eliminating the charitable deduction for donations to colleges with big endowments, and it is useful to point out that Biden's tax plan would reduce the generosity of those deductions already for high income households, which is probably a good idea. Biden's plan allows for some tax subsidy for donations to colleges, which I also support, but perhaps the full deduction could be allowed for donations to low endowment schools in an effort to spread the wealth beyond a few elite colleges. Carey would also propose having participating colleges charge the same for in state and out of state students, which is another good idea that is often overlooked. Charging different prices for in and out of state students distorts decision making among some of our best students (especially for those with few in state options), and provides no overall advantage to the country once every state decides to do it.
In his article, Kevin Carey provides a very useful proposal to reform our higher education system. It is not perfect, and I would make some tweaks around the edges, but fundamentally, his plan is much more sound than the plan to provide free tuition for those from families making less than $125,000 that Biden proposed. He specifically addresses some of the major shortfalls of Biden's plan and provides other useful ideas that would make our system of higher education even stronger. The article is definitely worth a read, and should be getting more attention in our current debate over higher education.
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