Wait until the bills arrive.

Photographer: Timothy A. Clary/AFP/Getty Images

Clinton's Tuition Plan Gets a B-Minus

Paula Dwyer writes editorials on economics, finance and politics for Bloomberg View. She was London bureau chief for Businessweek and Washington economics editor for the New York Times, and is a co-author of “Take on the Street: How to Fight for Your Financial Future.”
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The reaction to Hillary Clinton's new, more generous college affordability plan has mostly followed partisan lines. Liberals see it as "Bernie lite," an attempt to court Bernie Sanders's young voters by offering more government help to students and indebted graduates.

Conservatives complain that Clinton's plan will cost a fortune, yet she provided few details on how she would pay for it while also keeping tuition increases under control.

Both sides have a point. But her plan's main flaw is that her solutions aren't innovative enough to attack the main problem: Relentless tuition increases and state budget cuts in the last decade have made college unaffordable for many low- and middle-income students. Seven in 10 undergraduate students at public colleges take out loans. Total student debt is now $1.35 trillion, and the average individual debt is almost $33,000. 

QuickTake Student Debt

Here's Clinton's plan in a nutshell: In-state, public universities would be tuition-free for families of four making up to $85,000. The income cap would rise $10,000 a year until 2021, when families making up to $125,000, or about 80 percent of households, would be covered.

Problem solved? Not quite. The Clinton plan is expensive: The 10-year-tab is $350 billion, about half of which would go toward tuition aid. And she would rely on states to kick in matching funds for their students to participate. This would force cooperating states to reverse some of their recent budget cuts, but it wouldn't force states to play along.

We've seen what happens when Republican governors refuse to go along with new federal spending programs. Almost half the states have rejected Medicaid expansion funds under Obamacare. Already, Republican Governor Scott Walker of Wisconsin says he would not sign up for Clinton's college plan.

For the record, Wisconsin has some of the most expensive community colleges in the country and ranks 27th overall in affordability. But nearly every state has a college-cost challenge. Higher education is less affordable now than it was in 2008, says a recent report, "College Affordability Diagnosis: National Report."

The average in-state tuition for four-year state schools is $9,410, while the average tuition at private colleges is $32,405. The rough rule of thumb is to double those amounts -- to include room, board, fees, books, travel -- to get the all-in, full-year cost. The median U.S. household income is about $55,000. It's clear why typical American families can't afford to send their kids to college without taking on debt.

The affordability study contains some damning statistics. For example, for every new federal government student-aid dollar available, colleges have raised tuition -- 60 cents on the dollar, according to a New York Fed estimate. In other words, the more aid that is available, the more tuition goes up.

While some states and schools have made more scholarship money available, the bulk of it has gone not to needy students but to those who can afford the cost and were going to college anyway. The aid is used to boost college rankings by competing for well-off students with high test scores, not to help low-income students.

An author of the affordability report, William R. Doyle, a Vanderbilt University professor of public policy and higher education, blames the states for the affordability gap: 

Under two successive US presidential administrations spanning 15 years, the Pell grant program expanded by $19 billion. And yet the net price of higher education—the amount of money students are required to pay to attend college—stands at an all-time high. How could the federal government have spent so much to achieve so little in its efforts to ensure that every qualified student can afford to attend college? Much of the fault lies not within the federal government itself, but in the lack of meaningful support from many state policy makers or institutional leaders. 

Doyle is right that something must be done to bring back the states' role as higher-education financiers and cost watchdogs.

This is where Clinton's plan could help. She would require the states to kick in some (undefined) portion of the bill. While she would hold states and colleges accountable for bringing costs down, she doesn't say how she would do that.

She could be more specific. Why, for example, is it even necessary to spend four years getting an undergraduate degree? Some states are experimenting with three-year diploma programs, automatically cutting costs by 25 percent. Why not use federal funds to encourage more such efforts?

While we're at it, if government is subsidizing colleges, through student loans and direct aid, why can't it act to discourage the arms race in student amenities? All those fancy dorms, climbing walls and gourmet dining halls are nice perks, but they aren't free: The cost of everything is embedded in the tuition bill. The government needs to give schools more incentives to freeze tuition, and get by on less.

Clinton supports income-based programs like the one created under President Barack Obama, in which student-debt payments are calculated as a percentage of income and forgiven after 20 years (for undergraduate loans). But that puts taxpayers on the hook when debts aren't fully paid off. Clinton could encourage alternatives, such as the income-share agreements that Marco Rubio championed as a presidential candidate and that some universities are experimenting with.

To build a productive workforce and a robust middle class, the U.S. has to solve the non-affordability spiral in higher education. Doing nothing is not an option. Nor is throwing money at the problem, since we know colleges will just keep raising costs. The answer lies in a carefully constructed system of incentives to achieve results while keeping costs under control, both for students and taxpayers. In short, it's a Hillary Clinton kind of program, if only she would offer it.  

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Paula Dwyer at pdwyer11@bloomberg.net

To contact the editor responsible for this story:
Katy Roberts at kroberts29@bloomberg.net