Subsidizing College, Revisited
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This week's Becker-Posner exchange asks whether the government should increase direct aid to college students.
Sigh.
It's all well and good (and sorta kinda libertarian) to try to bring a cost-benefit analysis to government spending, which both scholars try to do. But it would have been nice if either, especially Posner, had bothered to ask whether giving non-emergency handouts to non-starving college students qualifies as "spending for the general welfare" (i.e., a proper function of government) in the first place. (Posner too briefly asks the question in abstract but not constitutional terms.)
Two additional hasty stitches:
1. As I've mentioned previously, the argument that "elementary and secondary education is a public good because a universally literate populace creates substantial positive externalities" is not unreasonable but also not axiomatic. Regardless, that argument becomes far less tenable at the post-secondary level and is utterly preposterous at the graduate & professional level. The government has no business using taxpayer dollars to help people become rich doctors, lawyers or CFOs. And besides, the externality argument only legitimizes public financing, not public provision, of K-12 education.
2. It is universally understood that colleges, especially competitive schools, are at least partial price discriminators. "Tuition" is simply not the same as "price" and is largely a random, meaningless number. Rather than setting a market-clearing (yet competitive) price, the schools decide first how much a student's family "ought to pay" based on their finances and then try, rigorously or half-heartedly, to assemble a bundle of aid to get the nominal tuition down to the pre-determined "ought to pay" level. I recall vividly being told as an incoming freshman that the two nominal external scholarships I had won would be offset, dollar-for-dollar, by reductions in my need-based grants. "My" scholarship belonged to the university from the beginning.
Now consider a hypothetical regime where Congress raised the level of student aid. Assume a very simplistic model where every student receives an extra $1,000. The result is pre-ordained: every college would simply raise their tuition by $1,000, pocket the federal subsidy and continue implementing their "ought to pay" financial aid regime.
The real education market is not so simple or homogeneous, but the effect will manifest itself nonetheless: government subsidies will simply be offset, in whole or in part, by higher costs. So why bother?
Bottom line: "Subsidizing college students" is largely a myth; such programs subsidize colleges, not students. Perhaps not entirely, but mostly.
A modest alternative proposal would be for the federal government to get out of the student aid business altogether, reducing tax burdens in the process. If college is such a great bargain (and it is -- see Becker's post), then there is nothing cold, cruel or unjust in expecting students to pay for it without help from taxpayers.
Yes, I know: Too modest. Go figure.
Sigh.
It's all well and good (and sorta kinda libertarian) to try to bring a cost-benefit analysis to government spending, which both scholars try to do. But it would have been nice if either, especially Posner, had bothered to ask whether giving non-emergency handouts to non-starving college students qualifies as "spending for the general welfare" (i.e., a proper function of government) in the first place. (Posner too briefly asks the question in abstract but not constitutional terms.)
Two additional hasty stitches:
1. As I've mentioned previously, the argument that "elementary and secondary education is a public good because a universally literate populace creates substantial positive externalities" is not unreasonable but also not axiomatic. Regardless, that argument becomes far less tenable at the post-secondary level and is utterly preposterous at the graduate & professional level. The government has no business using taxpayer dollars to help people become rich doctors, lawyers or CFOs. And besides, the externality argument only legitimizes public financing, not public provision, of K-12 education.
2. It is universally understood that colleges, especially competitive schools, are at least partial price discriminators. "Tuition" is simply not the same as "price" and is largely a random, meaningless number. Rather than setting a market-clearing (yet competitive) price, the schools decide first how much a student's family "ought to pay" based on their finances and then try, rigorously or half-heartedly, to assemble a bundle of aid to get the nominal tuition down to the pre-determined "ought to pay" level. I recall vividly being told as an incoming freshman that the two nominal external scholarships I had won would be offset, dollar-for-dollar, by reductions in my need-based grants. "My" scholarship belonged to the university from the beginning.
Now consider a hypothetical regime where Congress raised the level of student aid. Assume a very simplistic model where every student receives an extra $1,000. The result is pre-ordained: every college would simply raise their tuition by $1,000, pocket the federal subsidy and continue implementing their "ought to pay" financial aid regime.
The real education market is not so simple or homogeneous, but the effect will manifest itself nonetheless: government subsidies will simply be offset, in whole or in part, by higher costs. So why bother?
Bottom line: "Subsidizing college students" is largely a myth; such programs subsidize colleges, not students. Perhaps not entirely, but mostly.
A modest alternative proposal would be for the federal government to get out of the student aid business altogether, reducing tax burdens in the process. If college is such a great bargain (and it is -- see Becker's post), then there is nothing cold, cruel or unjust in expecting students to pay for it without help from taxpayers.
Yes, I know: Too modest. Go figure.
Posted by Kip on
4 December 2006
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