‘No-Limit Tuition’

Hat tip to Carlo Salerno for tweeting this one. It’s a thought experiment by Martin Skladany, who is a law professor at Penn State. It’s a call for what he terms a “no-limit tuition” approach to college pricing.

It’s a variation on progressive taxation, but at the level of a single institution. The idea is that with financial aid, tuition is progressive—that is, it rises with perceived ability to pay—up to the sticker price, at which point it becomes flat. That flatness benefits the very wealthy by allowing them to pay a much smaller percentage of their income than everyone else. That hardly seems fair. Instead, Skladany suggests, “the only reform that can stop this disparity is for universities to stop advertising a pre-set, upper-bound on tuition.” If it requires charging someone a million dollars a year, then so be it.

I think the term for it is reductio ad absurdum. It takes a recognizable principle and extends it to the point of silliness. Honestly, I thought at first that it was a parody.

Think about it from the perspective of a student’s family, and from the perspective of the institution.

To a student’s family, it says, “Trust us. We’ll charge what’s appropriate.” The only industry that routinely gets away with that is health care, which I wouldn’t hold up as a shining example of cost control or sane pricing, at least in the U.S. At least health-care providers have the excuse that they don’t always know what’s wrong until they get in there. And while our health insurance system isn’t ideal, at least it exists; nothing comparable exists for higher education. There’s no reason it should; a college should have a pretty good idea of the services it will provide.

Families with significant means can simply shop around for a college with a sticker price. If enough of them do that, the cachet that attaches to certain institutions will shift to others. (“Harvard is so five minutes ago.”) If I were rich enough for this to apply to me, and I had a choice either to send my kids to Snooty U with a sticker price of $80,000 or to Other Snooty U that would charge whatever it damn well pleased, I’d avoid the risk of OSU. For a single institution, it would be a suicide mission.

From an institutional perspective, budgeting would become infinitely harder. It’s already difficult at many expensive places due to high discount rates. (That’s one issue community colleges are largely spared.) But at least they know what they’re discounting from. When the sky is the limit, then presumably a few very high-pay students come to wield disproportionate power. If you think they won’t use that power, you live in a lovely world.

I don’t even know how financial aid would work without a sticker price. Most colleges don’t meet full financial need now, so I don’t imagine they’d suddenly start. If the EFC isn’t binding and there’s no sticker price, that’s a lot of gray area.

Transparency in pricing is a virtue. Folks of a certain age may remember a couple of decades ago when banks started charging ATM fees but wouldn’t say what they were; you’d find out later, when you got your statement. The public wasn’t having it, and Congress passed a law requiring ATMs to disclose their service fees before charging them. That was over a few dollars. People have learned the hard way that it’s worth knowing the price up front.

But what about the presumed benefit to lower-income students from the cross-subsidies paid by higher-income students? Community colleges tend to serve proportionately more low-income students and families. From working with students, I and many others have discovered the intimidating effect of sticker prices. Even with confident assertions that many people don’t pay sticker price, students who aren’t familiar with the rules of the game find high prices intimidating and simply walk away. That’s why “free community college” got the traction it did. Now imagine replacing “free,” or even a set sticker price, with “trust us.” Nope. They don’t, they won’t and I don’t blame them.

It’s true that the inordinately wealthy get off easier than everyone else. The much simpler and more effective way to handle that is through progressive taxation that funds operating aid. You can’t comparison shop taxes quite as easily, and states could use the revenue to provide operating aid for public colleges and universities (like Penn State) to keep costs down and quality up. That would provide meaningful competition for the private and for-profit college sectors such that they’d have to provide something meaningfully different to justify their higher costs.

Yes, wild income and wealth disparities are problematic. They are political problems that require political solutions at scale. With no-limit tuition, the wealthy would simply enroll elsewhere, and the few who didn’t would have entirely too much power on campus. Low-income students would stay away, too, out of justified fear. Hard pass, thanks.