Improving on the New York Free-Tuition Plan

There is a better and simpler way for all states to achieve the goal of greater affordability within existing budget levels without imposing unreasonable requirements, argues Arthur M. Hauptman.

April 17, 2017

Bernie Sanders started the ball rolling in the most recent presidential campaign by arguing that everyone in this country should be able to go to college for free (at public universities and colleges). Hillary Clinton reworked that idea to say that public higher education should be free for students from low- and middle-income families. Governor Andrew Cuomo and the state of New York now have taken this idea one step farther by enacting Excelsior Scholarships that will make public higher education tuition-free for state residents whose family income falls below specified levels.

The debate leading to the New York legislation is encouraging in at least one important regard: it was not based on blanket statements about the desirability of free tuition and instead flowed principally from the notion that students who come from families who lack the resources to pay for college should not have be out of pocket for their tuition expenses. But lost in the recent New York debate, and the continuing national debate over the exploding price of college, is the fact that there is a better and simpler way for all states to achieve the goal of greater affordability within existing budget levels without imposing unreasonable requirements that blunt the intent and the impact of the legislation.

The new program in New York seeks to ensure that state residents from families with annual incomes up to $100,000 (eventually $125,000) can afford to attend the state’s public community colleges and four-year colleges. It would do this by providing enough state grant aid to offset tuition costs after other aid such as Pell Grants has been taken into account. Also, to ensure that assets “stay in state” (in Cuomo’s words), the legislation requires that Excelsior recipients continue to live and work in New York State after they graduate -- one year of residence for every year that they received the scholarship. The governor’s office estimates that nearly one million state residents will eventually benefit from the new program.

Some are suggesting that New York should serve as the model for other states to achieve greater college affordability. But several key concerns suggest its approach is not the way to go.

One set of concerns relate to the particulars of the plan. Making Excelsior grants into last-dollar scholarships will sharply reduce the progressivity of the plan, as the lowest-income students are most likely to receive aid from other sources and will thus qualify for less in Excelsior Scholarships. Perhaps of more concern, the requirement that recipients remain in state is not only largely unenforceable but patently unfair. What this policy says is that wealthier students who benefit from subsidized tuition incur no obligation to stay in state after college but less affluent students who receive Excelsior scholarships of some amount would be limited in making their future plans.

Other concerns about the New York plan are more generic. For one, it takes existing tuition levels as a starting point so that whatever led to those levels in the first place is frozen into the future. Ultimately, to be successful, higher education financing reforms must address underlying cost pressures rather than accept them as a fact of life.

Another generic concern is that plans that increase aid and lower public tuition place private nonprofit institutions at a severe disadvantage in competing for state residents. In the case of New York, this is a big liability. The state has many private nonprofit institutions and, for decades, its policies have recognized the value of using the private sector to reduce the costs to the state of providing a quality higher education to its residents. It does so through a generous financial aid program and longstanding “Bundy Aid,” which pays private institutions for each resident that they graduate at different levels of study.

A Better Way

What might be a simpler and more effective way to do this -- one that can be accomplished at existing budget levels in most states? It would entail following two key steps.

The first would be to move to a system in which tuition at public institutions is based on the ability of families with average means to pay for college. That would involve setting tuition as a proportion of a general index of ability to pay, such as state median family income or GDP per capita. It would be up to the state to set the percentage and decide whether that figure should vary for different types of public institutions. Such a policy would have the salutary effect of moving the tuition-setting process in the public sector from an institution-based approach, in which state funds fill the gap between what institutions spend and what they charge, to a student-oriented concept based on what families can actually afford.

The second step would be for the state to provide enough grant aid to cover full tuition levels for students from families with below-average incomes. That component is vital, as it would provide an effective safety net for students whose families lack the necessary resources.

There also is a symmetry in this relationship that bears telling. It would be up to state officials to set the tuition percentages that apply to each type of institution, but the reality is that the higher the percentage of income used to pay tuition, the less that the state would need to provide to subsidize the difference in what is spent by institutions and what is charged to students. But it is also true that the higher the price, the more that states would have to provide in the form of grant aid to allow students from families with below-average incomes to meet their tuition expenses. So it would be up to state officials to decide the appropriate balance between tuition subsidies and financial aid.

The important point here is that it is within the power of every state to make this kind of determination without the federal government stepping in to tell them how to do it or what percentage of average income should be devoted to paying tuition. It also makes sense in this context to view Pell Grants primarily as a means to help low- and moderate-income students pay for the living costs that their families cannot afford to pay. Using Pell Grants to pay living costs would also help to reduce students’ reliance on borrowing to pay those costs -- one of the biggest problems with the current loan structure, as much of the existing debt is accumulated to pay living costs.

The issue of making public higher education “free” should also be seen in the broader context of the continuing higher education policy debate in this country and the importance of finding solutions that meet the very real financial challenges that the sector faces. What we need are middle-course policies that steer between, on the one hand, free tuition and, on the other, an even greater reliance on loans and the for-profit sector to fill gaps in what the public sector can provide.

The many calls for making public higher education tuition-free tend to ignore the reality that tuition revenues are a crucial resource for institutions to maintain the quality of education. The tuition-free argument also discounts the fact that, in looking around the country and the world, low or no tuition usually results in greater inequities in enrollment. Middle- and upper-class students flock to the low-cost alternative, freezing out students with fewer resources who don’t have as good grades.

By the same token, calls for deregulating public tuition and leaving it to students to borrow more and to rely on the private for-profit sector to provide more higher education is a recipe for disaster. The result will be that the system becomes even more dependent on loans and even more inaccessible to students whose families lack the necessary resources to pay mounting prices.

The Trump administration’s recent backing away from various consumer protections put in place by the Obama administration is another bad sign of moving to the extremes rather than seeking out the middle course. Similarly, one part of the daunting student loan problems we face is that, over time, the federal government has not exercised enough due diligence in ensuring that programs of study meet minimal requirements for financial integrity and that many colleges lack the academic quality to ensure that students would benefit from receiving federal aid and borrowing for their education without defaulting.

So in this context, the free-tuition debate should be seen as an opportunity to look at policy solutions that would improve affordability and accessibility of higher education on a sustainable basis. The answer, however, is not to make public higher education tuition-free. Rather, it should entail making sure that tuition charges are reasonable in the context of what the average family can afford to pay -- not based on what institutions require to fund their ever-increasing needs. And there must be a full commitment to fund aid sufficiently to help those students who cannot reasonably pay that tuition.


Arthur M. Hauptman is an independent public policy consultant specializing in higher education finance issues.


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