A Better Way to Make College More Affordable

Making College More Affordable and More Equitable Does Not Require Spending More Public Funds Than We Do Now

There is no lack of ideas these days for making college more affordable: Eliminate tuition at public colleges, double the maximum size of Pell Grants, forgive large chunks of student debt, and/or create a new federal program to augment state higher education spending. As diverse as they sound, each of these ideas shares three important characteristics: they would all cost a lot of money, they typically are good politics, but they also are bad economics.

It’s worth noting federal, state and local governments already spend more than $200 billion a year on higher education. That amount is enough to slow cost increases, reduce the reliance on student loans, close chronic equity gaps and improve the quality and relevance of higher education. The trick is not to spend more, but spend smarter.

Current federal and state policies are largely based on concepts first adopted in the 1970s. These policies have helped millions of students go to college but don’t fit current realities well. Several were enacted as part of the landmark federal Education Amendments of 1972, including Pell Grants, a voucher program which is the primary form of non-repayable aid. Pell Grants have become politically popular by expanding eligibility up the income scale but exploding prices over time have muted their effectiveness. This experience underscores that vouchers don’t work well when prices are rising rapidly.

As tuition has soared, loans have become increasingly necessary to plug the gaps when grants fell short, with another 1972 creation, Sallie Mae, standing by to grease the skids. Meanwhile, another troublesome legacy of 1972 is that for-profit schools were first declared eligible to participate fully in student aid programs without the establishment of adequate quality assurance measures.

At the state level, the perfectly reasonable recommendations of two national commissions in the early 1970s to increase tuition to reflect the private benefits flowing to students attending public schools inadvertently led state policy makers and others to begin viewing tuition primarily as a means of financing public institutions rather than as a reasonable measure of what students and their families could afford to pay.

It’s time to rethink these policies rather than simply throw more money at real problems. Here are a few examples of new approaches that would address very real challenges without increasing overall government spending for higher education.

Rather than double the maximum Pell Grant, we should redesign the program to cover the living costs of students from qualifying low-income families while they are enrolled. For this policy change to work, states and institutions would need to become primarily responsible for ensuring that tuition is affordable for the most economically disadvantaged students. The federal government could also help make this work by strengthening tuition tax credits for middle-income families to offset the income taxes they pay.

Instead of making public colleges tuition free, states can make public colleges affordable for all students by basing tuition at public colleges and universities in the future on a formula that reflects what the average family can afford to pay. States would then be obligated to provide enough student grant aid to cover tuition for students from families with below-average resources.

States should also take steps to ensure greater efficiency by not relying on what colleges say they spend per student in allocating state funds. And states could encourage public institutions to grow by allocating some funds in the form of a government paid-fee to be layered on top of student-paid fees.

Cancel some student loan debts, but not all. Student borrowers who went to poor-quality schools should have their debts fully cancelled because the federal government failed to exercise due diligence in policing the loan system. In addition, all student borrowers should be able to refinance their debt at reasonable cost both to the borrower and the taxpayer based on their income after graduation.

Stop charging tuition for remedial courses. This would make it unnecessary for students to borrow to take courses below the college level. Instead we should move to a system in which the various providers of remediation would be paid based on how well they raise the basic skills of these students.

Other future loan-cutting efforts should include charging all institutions a fee based on the repayment rate of their student borrowers: the lower the rate, the higher the fee. This would encourage more judicious loan policies. We should also limit how much students can borrow for living costs, relying instead on a new Pell Grants program to cover these costs for the most hard-pressed students.

To improve completion rates of low-income and minority students, the federal and state governments should set aside funds to pay institutions for Pell Grant recipients they enroll and graduate. This is a more cost effective way to raise historically modest college completion rates than the Biden proposal for big new grant program that would require institutions to apply for grants to show how they would increase completion rates in the future.

To promote more early intervention when disadvantaged students are in middle school or high school, the federal government should enact a new matching-grant program that encourages states and NGOs to establish and expand programs that provide mentoring and complete the financial aid package for groups of disadvantaged students. Early intervention efforts have a proven record over the past quarter century and investing $1 billion in them would provide greater benefits than the funding that is now required to raise Pell Grant maximum award by just $100.

Cutbacks in the reliance on loans, reductions in loan subsidies and reallocation of current funds would pay for all of the suggestions above within what federal, state, and local governments already spend in support for higher education every year. And with much better results.