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No class: Bill Clinton's education-as-entitlement programs threaten to reverse positive trends in higher education - Editorial

Reason - May 1, 1997

It's not surprising that Bill Clinton has decided to become the education president. Southern governors always emphasize education, hoping to drag their states up a few economic notches and prove they're on the side of civilization; hence, the South has produced such secretaries of education as former Tennessee Gov. Lamar Alexander and former South Carolina Gov. Dick Riley. Clinton follows in this tradition, hailing from a state in which a mere 13.4 percent of the population had college degrees or better as of 1990 (an even worse showing than Mississippi). He knows education is important because he grew up in and later governed a place where it was relatively rare.

Now he wants to make two years of college an entitlement and turn tuition into a tax shelter. He demands a "new nonpartisan commitment to education" and declares that "education is a critical national security issue for our future, and politics must stop at the schoolhouse door." That declaration is, of course, backed by piles of polls showing that education handouts are popular among voters in general and women in particular. And it's tied to programs designed to make educational entitlements as much a part of middle-class life as Social Security or the home mortgage deduction.

In a moment of ideological frankness, Assistant Secretary of Education David Longanecker blurted out this allegedly nonpolitical policy's goal: bribing Generation X and its successors to back big government. "We want to make a very strong statement," Longanecker said following the State of the Union Address, "that it is worth it to this country to invest in these middle-class students. We believe it will help them re-engage in civic life and make them believe that government does something for them too."

Maybe politics should stop at the schoolhouse door, but intelligent analysis shouldn't. Clinton's higher-education policies are harebrained and irresponsible, obviously concocted by people who care more about poll results than about what they might be doing to the nation's colleges or their students. They ignore the basic, well-understood dynamics of higher-education finance and evince no knowledge of how colleges actually work or what challenges they face.

Over the past year or two, American colleges have begun to address two linked problems: rapidly rising tuitions and rampant grade inflation. Clinton's plans threaten these promising trends.

College tuitions rose rapidly in the 1980s - 2.7 percent annually for state schools and 3.9 percent for private schools, after accounting for both inflation and expanded financial aid. That increase had many causes, but the most important was simple supply and demand: Supply was essentially fixed, and demand was rising rapidly. Students were willing to pay, for good reason. In crass financial terms, a college degree is an excellent investment, with an average return of around 13 percent a year after inflation.

"In almost any other unregulated market, an increase in demand against a fixed supply is sure to push up the equilibrium price," writes economist Charles Clotfelter in Buying the Best, a 1996 study of higher-education finances that focuses on four elite schools. "It is a distinctive feature of the market for higher eduction, however, that the supplying firms made it a practice not to charge what the market might bear, choosing instead to ration demand by electing talented and diverse student bodies who would best fit their institutional objectives. At the same time, however, the trustees and administrators of these favored institutions could not fail to observe that their admissions offices were being besieged by eager applicants, and that an unusually large tuition increase would not cool the ardor of prospective students." At all but a few elite and well-endowed schools, in fact, prices were what the market would bear - and it could bear a lot.

At some point, however, parents simply don't have the cash - you can't take out a mortgage against your kid's future earnings. And families paying full freight have started to balk at the price discrimination that charges them high prices and subsidizes scholarship students. Those shocking list prices can be misleading: A University of Chicago official notes that the average student there pays only about half of that private school's approximately $22,000 list price. But family income is at least comparable at the public University of Illinois, where tuition is under $3,000 a year. Families that make too much money to qualify for financial aid find it hard to justify full fare at a private college.

And not every expensive private school offers a world-class, Chicago-style education. These run-of-the-mill colleges are feeling competitive pressures. Susan Lee and Daniel Roth of Forbes have documented how numerous private colleges that compete with nearby state schools have cut tuition to compete. Most are small, non-elite regional schools such as North Carolina Wesleyan, which slashed tuition by 23 percent. And some more-selective colleges are getting price-conscious: Rice University is limiting increases to inflation, while Lehigh University is aiming for that goal. Even Bennington College, long the most expensive school in the country, has frozen its tuition.

So tuition increases are finally decelerating. "Although there is no evidence that the University is losing a significant number of students because of the cost of a Princeton education,...large tuition increases in the face of the growing public concern about the overall cost of higher education would be contrary to the long term interests of the University," declared that school's budget-setting Priorities Committee, recommending a 4.9 percent increase in tuition and fees for 1996-97 not exactly modest, but the smallest jump in two decades.

Into this evolving situation blusters Bill Clinton, trying to buy students' love. His plan is twofold: First, he calls for making "the 13th and 14th years of education - at least two years of college - just as universal in America by the 21st century as a high school education is today." To do that, he would provide a $1,500-a-year tax credit for tuition, as long as the student maintains a B average. Second, he proposes a $10,000 tax deduction for any post-high-school tuition.

The immediate effect of both plans would be to push up tuition. As David Henderson notes in Fortune, the average tuition at community colleges was only $1,114 in 1994. Clinton's dollar-for-dollar tuition credit "would make college students paying less than $1,500 in tuition unconcerned about increases" because the federal government, not the student's family, would be footing the bill. In other words, the average community college tuition could rise to $2,614 before the effective cost rose at all. Pressures to keep costs down would be severely reduced. (Since most community college students work and go to school only part-time, there's even more room for unnoticed increases than these figures suggest.) Those painless price hikes would not only give schools an incentive to increase overheads but also make the tax credit all but impossible to remove, lest large numbers of people be priced out of the market.

But the tax deduction is almost as bad. It lowers the cost of tuition by the tax rate - say, 28 percent - so that the first $10,000 of tuition actually costs only $7,200. That means those schools can go right back to jacking up tuitions. They'll still feel competitive pressure, but only after they've raised their prices to the post-bribe equivalent of today's levels. Again, the critical fact is that the supply of higher education is more or less fixed. Increasing demand simply drives up prices.

But what's truly worrisome about Clinton's education plan lies in his belief that two years of college should be a universal entitlement - as common as high school and just as meaningless. Already, community colleges give far too many students the education they should have gotten in earlier years. (Nor is this role unique to nonselective two-year schools. California State University branches, which accept students in the top 25 percent of their high school classes, devote enormous resources to remedial education.) By requiring a modest entry fee and maintaining the special aura of higher education, community colleges screen out the people who don't want to be in school. Many will accept anyone with a high school diploma or its equivalent; selection is based not on the student's academic record but on his or her willingness to work. As a result, students actually have a chance to learn. Their teachers do not have to worry about maintaining basic discipline or giving assignments no one will complete.

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