A Great Debate, Part I: In Defense of Pay It Forward, Pay It Back

December 5, 2013 | Economic Opportunity Institute

Matt Bruenig

By Matt Bruenig, political and economic blogger on Demos’ Policy Shop and at www.mattbruenig.com

This post is part one of a three-part debate of Pay It Forward that recently appeared on City University’s Graduate Advocate between bloggers Matt Bruenig and Mike Konczal.

Here’s an idea: let’s eliminate student debt and make college education free by increasing income taxes. This is not my idea of course. It has been the central plank of college-obsessed leftism for decades. As much as the left talks about debt-free, tuition-free higher education, the left’s support for it is oddly contingent upon the minutiae of the tax policy used to fund it. If the tax is imposed on everyone, all is well. On the other hand, if the tax contains an exemption for those who never attend college, it is an intolerable injustice. In my view, the standard left position here is wrong: exempting non-attendees from higher education taxes is both tolerable and preferable.

The Problem

The problems with our higher education system are many. I am particularly bothered by the existence of selective institutions and legacy admission policies, among other things. In our present discourse, however, the problems that receive almost all of the attention are financial in nature: students are accumulating higher debts and the price of attending college is on the rise.

Much of the discussion around these problems is as sensational as it is misleading. College tuition has not, despite what many claim, tripled over the last twenty years. In reality, net tuition has increased by less than a sixth of that amount. In fact, due to the rise of price discrimination, public four-year students from the poorest fourth of households have actually seen their tuition decrease since 1992. Counting in room and board, their total cost of attendance increased by just 3.4 percent over the same period.

The sheer scale of price discrimination — charging poorer students less and richer students more—has gone almost completely unnoticed in this conversation. We discuss the rising price of college as if it there is a single price, but there isn’t. Students from the poorest fourth of households pay just 55-57 percent of what students from the richest fourth of households pay. In public schools especially, the story of rising tuition has largely been a story of soaking the rich and upper-middle class. This trend towards price discrimination helps explain why indebted students from all class backgrounds leave college with very similar debt loads.

The deception doesn’t end at tuition either. The severity of our student debt problem has also been overstated. Student debt campaigners are fond of citing aggregate student debt figures that are meaningless by themselves. The most popular in the bunch is that student debt is over $1 trillion, which in addition to telling us nothing was also contested by the Federal Reserve. When the campaigners are not sensationalizing with useless aggregate figures, they are feeding everyone stories about people with very atypically high amounts of student debt. One report found no less than seventeen prominent news articles about students with over $100,000 in debt, even though just 0.2 percent of undergraduate students and 1.5 percent of all students graduate with that kind of debt.

Even statistics about average student debt totals tend to mislead. The Project on Student Debt, for instance, reports that the average student debt for 2011 graduates was $26,600. But if you include the one-third of students that graduate with no debt into that average, it falls to $17,733. Even then, the figure remains misleading because the average is pulled up substantially by a small number of very indebted students. The most recent National Postsecondary Student Aid Survey figures put the median debt of public four-year students below $10,000, and the median debt of private four-year students below $20,000. That’s not nothing, but with the college wage premium standing at $1.05 million, student debt hysteria could probably afford to be dialed down a bit.

With all of that said, student debt is on the rise as is the overall price of attending college. It is sensible to regard both trends as problems deserving of some kind of policy solution.

The Solution

To eliminate student debt and make higher education free, I propose that the entire nation fully subsidize all college education by imposing an income surcharge tax on everyone who has attended college. Such a tax could be made progressive by using marginal tax brackets. It could also be calibrated so that the taxes imposed on community college students are lower than those imposed on four-year colleges. The only difference between my proposal and those usually coming from the left is that I exempt non-attendees from the taxes that fund free higher education while the usual proposals do not. This exemption, which turns my system into a kind of income-based repayment (IBR) scheme, makes my proposal the better of the two.

Higher education is not the kind of program that should draw funding from everyone, including those that never utilize it. As a committed leftist, I support using general funding for two kinds of benefit programs: universal programs that serve everyone and programs that redistribute income downward. Free college is neither universal nor redistributive (except upward). Proponents of generally-funded higher education often claim that they are on the side of programs like Medicare and Social Security, but this is entirely false. Unlike college, Social Security and Medicare are universal programs that serve all people when they reach a certain age. To make a program like Medicare analogous to college, you’d have to change it so that Medicare only provided healthcare to a fraction of retired people.

In addition to being non-universal, free college disproportionately serves the rich. For every poor kid (bottom quarter) that attends college, 2.8 rich kids (top quarter) attend. For every poor kid that graduates college, 6 rich kids graduate. And no, this is not purely or even primarily because the high cost of college keeps poor kids out. In the 1970s, a period when higher education was much more affordable, the imbalance between rich and poor students was even worse. The reason poor kids don’t go to college is more insidious than tuition: it is hard to do well in school when contending with poverty and it is hard to go to college if you haven’t done well in school.

Given the problematic nature of taxing everyone to provide a benefit to select rich few, an IBR system is clearly the way to go when it comes to creating free higher education. It achieves everything a general funding scheme achieves; it makes college free at the point of delivery; it eliminates onerous student debt burdens; and it forces college attendees that go on to lucrative careers to effectively subsidize those that don’t. Most importantly, an IBR system is much better for the purposes of egalitarian distributive justice than the general funding scheme the left seems so enamored with.

In closing, it deserves emphasizing that the IBR proposal is almost identical to the usual left position that we should generally tax the public to provide free higher education. The only difference is that under IBR, the disproportionately poor non-beneficiaries of free higher education are exempted from the tax. That’s it. Such an exemption, even if it were deemed bad for some reason, surely is not so bad that it warrants opposing a system that includes it, especially when that system wipes out student debt and tuition.

Read Konczal’s response in Part II.

Via The GC Advocate

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