The problems facing higher education cannot be resolved in a piecemeal or institution-by-institution process. We need a comprehensive plan to deal with tuition increases, student debt, decreased degree attainment, questionable educational practices, and the casualization of the academic labor force. This essay argues that we can resolve all these issues if we start off with the notion that all public higher education should be free. One reason why we need to begin with this strong claim is that if education is seen as a private good accessed by private individuals for private means, there will be no way to make higher education a universal public good.
The Cost of Free Public Higher Ed
The first question to deal with here is how much it would currently cost to make all public higher education free. In 2008–09, there were 6.4 million full-time-equivalent undergraduate students enrolled in public universities and 4.2 million enrolled in community colleges. In 2009–10, the average cost of tuition, room, and board for undergraduates at public four-year institutions was $15,014; at two-year public colleges, it was $7,703. If we multiply the number of students in each segment of public higher education by the average total cost, we discover that the cost of making all public universities free would have been $96 billion in 2009–10, with an annual cost of $32 billion for all community colleges—or a total of $128 billion (Digest, table 227).
Although $128 billion seems a large figure, we need to remember that in 2010 the federal government spent $35 billion on Pell grants and $104 billion on student loans, while the states spent at least $10 billion on financial aid for universities and colleges and another $76 billion for direct support of higher education.1 Furthermore, if one looks at various state and federal tax breaks and deductions for tuition, it might be possible to make all public higher education free by just using current resources in a more effective manner. Moreover, the cost for free public higher education could be greatly reduced by lowering the spending on administration, athletics, housing, dining, amenities, research, and graduate education.2
It is important to stress that the current tuition rates are inflated because schools increase their sticker price to subsidize institutional financial aid for low-income students and to provide merit aid for wealthy, high-scoring students. If we eliminated the current aid system and each school instead received a set amount of money for each student from the state and federal governments, we could significantly reduce the cost of making public higher education free in America. Also, by eliminating the need for student loans, the government would save billions of dollars by avoiding the current costs of nonpayment of loans, servicing and subsidizing them, and borrowers’ defaults.
Instead of directly funding public higher education institutions, state and federal governments have often relied on tax deductions and credits to support individual students. The tax code has been used to fund higher education because it is easier for Congress to pass a tax break than it is to get funding for a particular program, but what this system has achieved is a tremendous subsidy for upper-middle-class and wealthy families, while lower-income students are forced to take out huge loans to pay for their education. According to a recent study,
[f]rom 1999 to 2009, the government spent $70 billion on tax breaks aimed at subsidizing higher education for families . . . about 13 percent, or $9.4 billion, of that total went to families making more than $100,000 a year. At the same time, only 11 percent went to the neediest families, those making less than $25,000. Families in the middle—those making between $25,000 and $99,999—received the lion’s share of the aid, taking in slightly more than three-quarters of the benefits.
Later the report indicates that more of the funding now goes to the wealthiest Americans:
Nearly 83 percent of the higher education tax benefits distributed from 1999 to 2001 went to families earning less than $75,000 per year. No benefits went to those earning more than $100,000. By contrast, in the last three tax years alone, families making between $100,000 and $180,000 received nearly a quarter of the benefits. The share going to middle-income families sharply declined.
(Burd)
This tax system for higher education is a great example of how so many of our governmental policies end up subsidizing the wealthy while poor and middle-class citizens pay more and get less.
In 2010–11, the federal government provided the following tax subsidies, breaks, and credits for higher education: student loan interest rate exemption ($1.4 billion), exclusion from taxation of employer-provided educational assistance ($1.1 billion), exclusion of interest on student loan bonds ($0.6 billion), exclusion of scholarship and fellowship income ($3.0 billion), exclusion of earnings of qualified tuition programs—savings account programs ($0.6 billion), the Hope tax credit ($5.4 billion), Lifetime Learning tax credit ($5.5 billion), parental personal exemption for students age nineteen or over ($3.4 billion), and state prepaid tuition plans ($1.8 billion).3 There’s also the stimulus package’s American Opportunity Tax Credit ($14.4 billion) and the part of the deductibility of charitable contributions for gifts to educational institutions ($4.9 billion). In total, the federal government lost over $40 billion in tax revenue because of higher education in 2010.
If we made all public higher education free, we could not only do away with this unjust tax system but also stop the movement of public funds to expensive private and for-profit universities and colleges. What most people do not realize is that the use of financial aid and tax subsidies for individual students has resulted in a system where much of the governmental support for higher education ends up going to private institutions that cater to the superrich or to low-achieving for-profit schools. In fact, during a 2012 congressional investigation of for-profit colleges, it was discovered that up to a quarter of all federal Pell grant money is now going to these corporate schools, which charge a high tuition and graduate very few students.4 What this investigation did not uncover was the total amount of state and federal tax breaks that go to support for-profit institutions.
Educational Welfare for the Wealthy
Recent research calculates how much the federal government has spent on tax deductions and credits for higher education, but as far as I can tell, no one has examined how much states are spending on tax breaks for colleges and universities. It is likely that the total subsidy by the states is at least the same as the total federal level of support, because many of the states have tax deductions that exceed the national tax breaks for tuition, and most states have tax-advantaged 529 college savings plans.5 For example, in New York State, the tuition tax credit goes up to $5,000 per year per student, and the tuition tax deduction is $10,000 for each eligible student.6 It is important to note that tax deductions favor the wealthy because many low-income families pay little if any federal income taxes.
One of the great secrets in higher education funding is the role played by 529 college savings plans: “In 2000 a total of $2.6 billion was invested in 529 plans. This grew to $14 billion in 2001 and more than $92 billion in mid-2006. The student aid resource Finaid.org projects that total investment in 529 plans will reach $175 billion to $250 billion by 2010, with a total of 10 million to 15 million accounts opened” (“529 Plan”; see also “Section 529 Plans”). Not only do state governments lose billions of dollars in tax revenue each year because of these 529 plans but also the wealthy have figured out how to use these plans as all-purpose tax shelters. For example, if a couple puts $26,000 a year for each child into an account and decides later to use the money to buy a yacht instead, only the investment gains will be assessed a ten percent penalty and taxed as income. Also, contributions made to a 529 are removed from a family’s estate, and 529 plan owners can name a successor to the account when they die, which enables the plans to shelter money for many generations.
One way that wealthy people use these accounts to avoid paying taxes is by giving each other gifts. Gift taxes can be avoided if contributions into the plans over a five-year period do not exceed $65,000 for single taxpayers and $130,000 for married couples. Clearly, only the wealthiest Americans are able to profit from this type of plan. In fact, according to a Department of the Treasury report, “Currently there are effectively no limits on Section 529 account balances. Because 43 states offer plans open to residents in other states, a beneficiary can have accounts in as many as 44 states, each state with a limit exceeding $224,465.” It is obvious that only wealthy people can afford to save and invest this type of money. Moreover, the same study of 529 plans details how the richest families are using these plans for tax shelters:
Data from the 2007 Survey of Consumer Finance found that among households in the top five percent of income—average income, $548,000 per year—those with education savings plans held an average balance of $106,250. That’s more than triple the average for households in the 90th–95th percentile, more than ten times the balance for the 50th–75th percentile, etc. Second, among households in Kansas who took a state income tax deduction for 529 contributions, the average deduction for households making over $250,000 per year was $10,323. For those in the $100K–$250K range it was less than $5,000, for everyone else, less than $3,000.
(Analysis)
As this federal government report indicates, 529 plans have now become an effective way to subsidize wealthy people; meanwhile, states are being forced to cut their higher education budgets because of their lack of tax revenue.
If we took all the state and federal money that is lost each year because of these tax credits, deductions, and shelters, we could make public higher education free for millions of Americans. However, the tax code is rigged to provide aid to wealthy people, and one side effect of this system is that private universities are able to charge higher tuition because they know that the parents of many of the incoming students will pay only a fraction of the full price thanks to merit aid, institutional aid, and tax breaks. In fact, replacing the current mix of financial aid, institutional aid, tax subsidies, and grants with direct funding for public institutions would give the government a way to control costs at both public and private universities and colleges. The federal government could also require states to maintain their funding for public institutions in return for increased federal support. Once we stabilize funding and make higher education free, there will be no need for so many students and institutions to go into debt.
Making public higher education free would allow more students to attain degrees, because the biggest reason why students drop out of colleges and universities is that they cannot afford the high cost of continuing. Moreover, many students who do not drop out nonetheless fail to graduate in a timely fashion because they spend so much time working in order to afford the increasing costs of tuition and room and board (see Bousquet).
Fixing the Academic Labor System
Free public higher education could also lead to improvements in the working conditions of most faculty members who now teach undergraduate courses. If it greatly reduces the number of graduate students teaching undergraduate classes, the demand for new teachers would increase. If the federal government required that most undergraduate courses be taught by full-time faculty members, we could stabilize the academic job market and concentrate on rewarding undergraduate faculty members who focused on providing quality instruction.
To both control costs and increase instructional quality, the government could make sure that every student is taught in a small class by an expert teacher who has academic freedom and job security. We could teach every undergraduate student at American public universities and colleges in classes of no more than twenty-five students for a direct instructional cost of under $5,000 per student per year. I arrived at these figures by extrapolating salary and course-load data from the University of California in the following way. Currently 75% of all courses in United States higher education are taught by non-tenure-track faculty members, and in the University of California system these teachers receive on average $62,000 to teach six courses a year. If we add benefits (15% of salary) to this total and if each course has twenty-five students, the cost per student for each class is $475. With tenure-track and tenured faculty members, if the average salary with benefits is $100,000 and the average annual course load is four courses for professors who teach undergraduate courses, the total cost per course per student is $1,000. So if the average student takes eight courses in a year, and six of the courses are taught by non-tenure-track faculty members, the total cost would be $4,850.
I am using the University of California as the basis for my calculations because this system is known to have the best contract and compensation structure for non-tenure-track faculty members in the United States. Thus, while many adjunct and part-time teachers in America are paid only about $3,000 a course and have no benefits, my proposed model would increase the pay and job security for most teachers in United States higher education—yet it would be less expensive than the current haphazard use of graduate students, part-time teachers, and research professors.7
If the direct instructional cost per student were $4,850, we would be able to reduce the total cost to educate each student while simultaneously improving instruction, through the use of small, interactive learning environments. As the experience in countries like Finland shows, a key to improving the quality of education is to increase the respect and compensation for teachers. It might seem that increasing compensation would drive up the cost of higher education, but we could actually save money by regularizing the use of non-tenure-track teachers and reducing noneducational expenses. Because most people teaching undergraduates today lack tenure and are not on the tenure track, we need to stabilize their jobs by moving people into full-time, tenure-track positions. This change would cut down on faculty turnover and the need to hire and manage a stream of part-time teachers constantly moving through the revolving door. Furthermore, by allowing these newly full-time faculty members to participate in faculty senates and serve on departmental committees, the current high amount of service required from professors could be reduced. All faculty members would then have time to take on tasks, like student advising, that are now done by an army of staff members, which would result in significant savings.
The key to improving the accessibility, affordability, and quality of public higher education is to make it free and spend public funds on faculty, instruction, and research.
Notes
For statistics on Pell grants, see Baum and McPherson. For state spending on higher education, see Lederman. For financial aid for universities and colleges, see “State Support.” For federal support for student loans, see Student Loans Overview. ↩
With regard to the funding of graduate students, I propose that we stop the current model of forcing them to teach undergraduate courses and sections and that each graduate student be fully supported by a mixture of state and federal funds. This support would require reducing the number of graduate students, but it would increase the number who graduate in a timely fashion. Because of their need to teach while they are pursuing their degrees, many graduate students in the humanities and the social sciences never get their degrees, and many of the ones who do take ten years to earn their doctorates. Moreover, after receiving their PhDs, most students in the humanities and social sciences end up either unemployed or underemployed. If we used current federal research funds and state support and limited enrollments, we could make all public graduate education free. ↩
The federal tax breaks for higher education are itemized at Subsidy Scope (Direct Expenditures). ↩
For statistics on how many Pell grants for-profit colleges are using, see Fuller. ↩
For a list of many of the tax breaks for higher education in individual states, see “State Tax Deductions.” ↩
For the New York tuition tax deduction information, see “NYS College Tuition Tax Credit.” ↩
In the University of California system, after six years of service, non-tenure-track lecturers are eligible for continuing appointments. This practice offers strong protection against arbitrary dismissal. ↩
Works Cited
An Analysis of Section 529 College Savings and Prepaid Tuition Plans: A Report Prepared by the Department of Treasury for the White House Task Force on Middle Class Working Families. US Dept. of the Treasury, 9 Sept. 2009. Web. 22 July 2013. <http://www.treasury.gov/resource-center/economic-policy/Documents/09092009TreasuryReportSection529.pdf>.
Baum, Sandy, and Michael McPherson. “Pell Grants vs. Tuition Tax Credits.” Chronicle of Higher Education. Chronicle of Higher Educ., 28 Oct. 2011. Web. 22 July 2013. <http://chronicle.com/blogs/innovations/pell-grants-vs-tuition-tax-credits/30663>.
Bousquet, Marc. How the University Works: Higher Education and the Low-Wage Nation. New York: New York UP, 2008. Print.
Burd, Stephen. Moving On Up: How Tuition Tax Breaks Increasingly Favor the Upper-Middle Class. Education Sector. Educ. Sector, 19 Apr. 2012. Web. 22 July 2013. <http://www.educationsector.org/publications/moving-how-tuition-tax-breaks-increasingly-favor-upper-middle-class>.
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Direct Expenditures in the Education Sector. Subsidy Scope. Pew Charitable Trusts, 20 Mar. 2012. Web. 22 July 2103. <http://www.pewstates.org/uploadedFiles/PCS_Assets/2013/Subsidyscope.org%20—%20Education%20Sector.pdf>.
“529 Plan.” Wikinvest. Wikinvest, n.d. Web. 22 July 2013. <http://www.wikinvest.com/wiki/529_Plan>.
Fuller, Andrea. “For-Profits Hit Hardest by End of Year-Round Pell Grant Program.” Chronicle of Higher Education. Chronicle of Higher Educ., 29 June 2011. Web. 22 July 2013. <http://chronicle.com/article/For-Profits-Hit-Hardest-by-End/128089/>.
Lederman, Doug. “State Support Slumps Again.” Inside Higher Ed. Inside Higher Ed, 23 Jan. 2012. Web. 22 July 2013. <http://www.insidehighered.com/news/2012/01/23/state-funds-higher-education-fell-76-2011-12>.
“NYS College Tuition Tax Credit/Deduction.” New York State Higher Education Services Corporation. New York State Higher Educ. Services Corp., n.d. Web. 22 July 2013. <http://www.hesc.ny.gov/content.nsf/SFC/NYS_College_Tuition_Tax_CreditDeduction>.
“Section 529 Plans.” FinAid! FinAid Page, n.d. Web. 22 July 2013. <http://www.finaid.org/savings/529plans.phtml>.
“State Support for Student Aid, 2009–10.” Chronicle of Higher Education. Chronicle of Higher Educ., 11 July 2011. Web. 22 July 2013. <http://chronicle.com/article/Sortable-Table-State-Support/128153/>.
“State Tax Deductions for 529 Contributions.” FinAid! FinAid Page, n.d. Web. 22 July 2013. <http://www.finaid.org/savings/state529deductions.phtml>.
Student Loans Overview: Fiscal Year 2014 Budget Proposal. US Dept. of Educ., n.d. Web. 22 July 2013.<http://www2.ed.gov/about/overview/budget/budget14/justifications/s-loansoverview.pdf>.
Posted October 2013