Higher Education Watch
Bigger Subsidies, Higher Prices

In an bid to assuage her party’s restive left flank, Hillary Clinton borrowed part of a key policy initiative from her socialist primary rival: a massive expansion of federal subsidies to public colleges and universities. But even the New York Times is warning that the policy might not work quite as it is being advertised to starry-eyed millennial liberals:

Hillary Clinton’s plan to allow most Americans to attend public universities at no cost could have the perverse effect of driving tuition higher as the federal government chased a tuition target that universities would simply raise at taxpayers’ expense, some experts warn.

In recent decades, the federal government has significantly expanded tuition subsidies, only to watch the cost of college climb even faster. Some experts see evidence that colleges have responded to past increases in federal subsidies by raising prices.

A 2015 study published by the Federal Reserve Bank of New York found that colleges pocketed up to 60 cents from every $1 increase in subsidies, either by increasing tuition or by cutting their own aid packages. The government pumps in money, and the colleges soak it up.

In fact, according to the study in question, which we reported on here, federal subsidies for higher education have raised tuition so much that they have probably reduced the overall number of people who could access a college education. The free money seems to flow directly into the pockets of academic administrators, whose numbers have been multiplying over the last several decades.

Clinton doesn’t offer details about how she would pay for the new program, but unless her administration is prepared to micromanage college budgets, it is unlikely that the initial price tag will still obtain after colleges have raised their tuitions to account for the anticipated federal windfall. Congress will need to keep expanding the outlay to keep college “free”—or, more likely, the program will diminish as prices rise, and subsidized students will be expected to share the burden through loans, which do not have such a glorious track record either.

It’s hard to overstate the short-sightedness of the “subsidize more” public policy approach to the college tuition problem. Policymakers should be focusing on disciplining the higher education market—by breaking the federal monopoly on accreditation, forcing colleges to share the risk from student loans, and promoting vocational education and other alternatives to the four-year BA—rather than offering colleges no-strings-attached windfalls.

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