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Education Notebook on Education

August 1, 2008

August 1, 2008 | Education Notebook on Education

The Higher Ed Bill-A Bad Deal for Taxpayers

The Higher Ed Bill-A Bad Deal for Taxpayers

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By Dan Lips and Lindsey Burke

Congress is expected to vote this week on the College Opportunity and Affordability Act of 2008 (COAA)-a massive expansion of government, which includes the creation of dozens of new federal programs and, if the conference report reflects the House-passed figures, $169 billion in new federal spending over the next five years.  President Bush should stand up for taxpayers and veto this legislation if it reaches his desk.

The Heritage Foundation's Brian Riedl examines the problems with the COAA in his recent paper: The Higher-Education Bill: The Unnoticed Budget Buster.  Riedl points out that the COAA would be among the largest authorized discretionary spending hikes in American history -even larger than No Child Left behind.  The legislation would authorize an average of $34 billion in new spending per year on various higher education subsidies, from increased Pell Grants to student loan forgiveness programs.  In all, the COAA would create at least fifty new federal programs. 

Passage of the COAA would just be the latest increase in federal subsidies for higher education.  Last year, President Bush signed the College Cost Reduction and Access Act of 2007, which increased Pell grant awards, reduced rates on student loans, and created new student loan forgiveness programs. The price-tag? An estimated $15 billion over the next ten years.  This long-term cost will balloon if Congress chooses to extend the lowered student loan rates when they expire after 2012.
Riedl reports that, overall, inflation-adjusted higher education spending has nearly tripled from $9.4 billion to $27.6 billion since 2001.   By adding $34 billion a year to that spending, the COAA would, if fully funded, mark an immediate 123 percent increase and a staggering 555 percent increase over 2001 levels. 

Congress needs to rethink this strategy of pouring ever-more tax dollars into higher education subsidies.  This approach is unfair for taxpayers. Moreover, it has not solved the problem of skyrocketing college costs.

This is a tough message to bring to voters.  On the campaign trail, lawmakers are often pressed by students and parents about rising college costs.  The problem is real; The College Board reports that the annual cost of attending four-year public and private colleges has increased by 41 percent and 29 percent respectively over the past decade.  Many families are left wondering whether they can afford a college education. More federal subsidies seem like an easy answer.

But, in fact, more subsidies may exacerbate the problem. For decades, Congress has increased higher education spending and colleges have responded by increasing tuition prices and other costs.  As Brian Riedl notes, Washington has poured nearly $1 trillion into student financial aid over the past 40 years, yet college has not become significantly more affordable.

Subsidies make students less sensitive to price increases.  Colleges hike their costs and capture the subsidies that were supposed to be helping students and their families.  Consider that over the past thirty years, the costs of public and private colleges have 96 percent and 124 percent respectively, even after adjusting for inflation. These increases would not be possible if federal subsidies were not growing at an even faster pace.

Supporters of the COAA will contend that the new legislation will help deter future tuition price increases by requiring new financial disclosure requirements for universities that increase tuition prices moving forward.  But this would do nothing about today's existing high prices, and even the pressure of greater financial disclosure may not discourage colleges from raising tuition rates once again.  

Another reason to oppose the COAA is a simple matter of fairness.  After all, we need to remember who will pay for these subsidies: taxpayers-a majority of whom do not have college degrees.  In effect, higher education subsidies force the 70 percent of workers who did not attend college to bear much of the financial burden of the 30 percent who do-college graduates who will one day be perched atop the income ladder.  The Census Bureau estimates that a college graduate will earn nearly a million dollars more over the course of a lifetime in the workforce than a worker who only earns a high school diploma.  Is it really fair for workers who did not go to college to be subsidizing the fortunate few who did?

President Bush should veto the expensive College Opportunity and Affordability Act if it reaches his desk.  It's a bad deal for taxpayers and fails to address the real problem of college affordability: out of control college costs. 

Dan Lips is Senior Policy Analyst at the Heritage Foundation. Lindsey Burke is a Domestic Policy Research Assistant at the Heritage Foundation and a former public school teacher in Virginia.

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