But Who Is Going To Pay For It?

 

 

 

But who is going to pay for it?

This seems to be the first question to arise when anything is proposed in the education space.

It happened to me last week when I suggested a pretty straightforward step to improving teaching quality: making sure faculty don’t teach more students than they can reasonably handle. 

It also happened when the University of Michigan announced that they're going tuition-free for any in-state student whose household income is below $65,000. 

“Nothing is free!” and its variants shows up many times in the comments on a Detroit News article covering the announcement. 

U of M is going to pay for the new policy by reconfiguring their budget to make way for a 9.5% increase ($15.3 million) in financial aid. Not all that much money because only 16.5% of U of M’s students come from households in the bottom 60% (which is about $65,000) in terms of income.[1] In contrast, their system brethren, U of M-Dearborn and U of M–Flint, enroll 37.3% and 41.8% respectively from households earning below $65,000.[2]

Rather than “free college,” U of M is simply altering policy in order to compete in the elite space they occupy. Harvard has long been not just tuition, but also cost-of-attendance free for families with household incomes under $65,000 for many years. 

Michigan is pursuing a policy of internal redistribution of funds. Students who can afford to pay tuition will pay more so those who can’t afford it as well, pay less.

The Tennessee Promise, which provides “last dollar” funding to anyone attending a two-year program, made community college free by reducing the amount of the existing HOPE scholarship for those attending four-year schools by $1000 in order to add the same amount to those attending two-year schools, equalizing the scholarship awards regardless of which institution is attended.

Redistribution.

The result? A 10% increase in overall freshman enrollment. 

Of course, this redistribution came with a cost. Overall enrollment was driven by an almost 25% increase at community colleges and a 20% increase at technical schools.

But four-year schools saw an overall decline of 6.9%, with only UT-Knoxville and Austin Peay essentially holding steady. Tennessee Tech saw enrollment decline by 18%.

“Winners” and “losers,” except that clearly Tennessee sees it as a win. They’ve increased their post-secondary education cohort by 10% by moving around the same pot of money.

When something seems worth doing and we ask who is going to pay for it, maybe the next question is: Who can afford it?

It’s true, there’s no such thing as a free lunch, but if my friend wants to have lunch with me – And why wouldn’t he? –  but I’m broke so he pays, my lunch was definitely free.

My friend’s lunch just cost double, but trust me, he can afford it.

“Redistribution” is political poison, which is strange because according to public opinion polling, lots of people are for it. 

• 63% think that upper income people pay too little in taxes[3]
• 59% say that wealth should be “more evenly distributed among a larger percentage of the people.”
• 52% say that this more even distribution should be explicitly achieved by establishing “heavy taxes on the rich.”

Ah, but there’s the rub, who’s rich?

Is it the top 1% whose after tax income has increased by 192% since 1979? 

Or is it the top 5% who, when indexed to 1973, have seen incomes rise by 70%, while the bottom 20% are essentially flat?

Is it the top 10% who hold 76% of the country’s wealth? 

Or, as Brookings Institution senior fellow Richard V. Reeves argues, is it the top 20%? “This favored fifth at the top of the income distribution, with an average annual household income of $200,000,[4] has been separating from the 80 percent below. Collectively, this top fifth has seen a $4 trillion-plus increase in pretax income since 1979, compared to just over $3 trillion for everyone else. Some of those gains went to the top 1 percent. But most went to the 19 percent just beneath them.” 

Hold on a second here. Depending on the year and which definition of top 20% you’re using (Reeves seems to be overestimating the $’s needed to make the top 20%), now you’re talking about…me.

And I’m definitely not rich.

Or am I, relatively speaking?

By the traditional definition, my wife and I have a “middle class” lifestyle. We (and the bank) own a home that’s above water and has appreciated in value since purchase. We pay our bills in full every month and have money left over. We have no debt (other than our home) and put away money for retirement every year. We go to restaurants and give money to charities.

And because we don’t have those adorable (but very costly) creatures called children, we’re even more economically secure than people of our age with dependents.

But as measured in percentiles, our “middle class lifestyle” is, in reality, much more like upper middle. The average couple has $5000 in retirement savings. One-in-three couples have nothing put away for retirement. 

We’re doing much better than that. (Again, no kids.)

While I have been known to rail at the tilted playing field that allows financial captains of industry to become obscenely wealthy, Reeves identifies policies that favor the upper middle class, most notably the mortgage interest deduction. That deduction saves my household thousands of dollars a year while also inflating our home price since anyone who may buy it will see the same benefit. If the mortgage interest deduction went away, we would lose tens of thousands of dollars of our “wealth.”

But big picture, it would change my household’s financial picture little. We would not be dispossessed of our home. Bills would get paid. We would still travel. Someday, likely while she is still relatively young, my wife will retire.[5]

And that sacrifice may be worth it, because otherwise, maybe we’re looking at a future where this house that holds so much of our net worth is actually worthless because there’s no one coming behind me who can afford to buy it because of the legacy of their student loan debts. Given that my college tuition cost less than 1/10th of today's students attending the same institution, I'm still getting off light, big picture wise.

So if we want to do something bold, like make college free – or at least as affordable as it was when I went[6] – why not fulfill the will of 63% of people and tax the rich?