Commentary: A British Solution To America's College Tuition Problem?

How a radical scheme proposed by Tony Blair might work here

The soaring cost of a college degree is a gnawing problem in the U.S. Financially strapped states have steadily jacked up tuition at public colleges, which enroll 80% of students. Financial aid has helped offset the hikes, but more and more middle-class kids struggle to cobble together a package of loans, grants, and family money and often wind up with debts that weigh on them for years after graduation. Poor kids fare far worse: Fewer than 5% of students from low-income families get a BA, a figure that has barely budged in 30 years.

As the cost of college continues to climb, the U.S. needs to find a way to solve the seemingly intractable problem of making higher ed accessible to all. In that, the Brits may have something to offer. On Jan. 27, Parliament in a close vote passed a radical scheme proposed by Prime Minister Tony Blair. The gist of it is that students pay no tuition until they graduate and get a job and then pay for their education according to how much they earn. At first glance, it may seem far-fetched to compare the two countries' systems. After all, most U.S. students go to colleges run by states -- not the national government, as in Britain. Blair's plan is kicking up a big political fight because it triples tuition, but that's less of an issue here, since tuition is already high. We could adapt Blair's plan to our system by, for example, giving grads federal tax credits for student loans that vary with their income once they find work.

Loans contingent on graduates' earnings would go a long way toward delinking college admission from family income. U.S. taxpayers subsidize higher ed for the same reason they pay for public schools: America strives to be a land of opportunity and to give everyone a chance at education. Yet, inclusive as our public college system is, it has barely picked away at class barriers. A mere 4.5% of those from the bottom quartile of income brackets get a degree by age 24, according to an analysis of Census Bureau data by Thomas G. Mortenson, who publishes an education research newsletter in Oskaloosa, Iowa. About 12% of students in the next quartile get a BA, while 25% of those in the third quartile do. In the top quarter, meanwhile, 51% of students finish college.

EASING THE BURDEN. Of course, the barriers aren't all financial: Students from middle- and lower-income families are often not pushed as hard by parents to excel in school or take college-prep classes. But shifting financial aid from grants to loans has only made the problem worse. Poorer students are more reluctant to take on debts, says Mortenson, since their families have fewer assets and often rent, giving them little or no experience with loans.

Making debt contingent on income after graduation could help ease the minds of both middle-class and poor kids. President Clinton pushed an income-contingent loan program, the Stafford Loan, but it covers just one-third of all student loans and involves only a small taxpayer subsidy. Even worse, "if you reduce your payments because your income is low, you have to pay more years, so the total interest you owe ends up being more," says Frank X. Viggiano, executive director of the Minnesota State University Student Assn., which like many other student groups has been battling tuition hikes in recent years.

By contrast, Blair's plan covers all students and provides more support for those whose incomes never rise over their lifetimes. It also lets grads pay nothing if they're not working. The formula goes something like this: Students who earn $22,000 a year or more would pay 9% of their income. This works out so that the average graduate would pay off his or her loan in about 13 years. Obviously someone earning huge sums right out of school would pay it off faster, and anyone can pay it off at any time. The tax subsidy comes if earnings stay at the low end, because the remaining unpaid debt is wiped out after 25 years.

Such measures in the U.S. would go a long way toward reassuring prospective students about the risk of debt. And the market-oriented approach of tying the cost of a college degree to the value students get from it should resonate.

On the other hand, Americans might well balk at the Blair idea of requiring grads to pay their educational debt as part of their income tax. That's essentially asking the Internal Revenue Service to administer an entire new tax system. But the U.S. could simply adapt the existing loan program by giving a credit to those whose loan payments exceed a certain percentage of their income, says Thomas J. Kane, a professor at the University of California at Los Angeles. He made a similar proposal in a 1998 book called The Price of Admission: Rethinking How Americans Pay for College. Says Kane: "Given their poor fiscal condition, states will probably continue to raise tuition, so why not figure out a system to make it easier to live with?"

Despite its meritocratic self-image, the U.S. doesn't subsidize college enough to erase the drawbacks of being from a poor family. Making costs contingent on how students fare as adults would be a step in that direction.

By Aaron Bernstein

With Stanley Reed in London

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE