The Presidential Candidates on College Affordability

Each candidate has identified college affordability and high student loan debt as important issues. And, while there is some overlap among their proposed remedies, sadly, none of the proposals get at the real root of the problem. They just put bandages on where some real surgery is needed.

High college tuitions and fees either price large numbers low- and moderate-income students out of the market or saddle them with inordinately high student debt. This situation must change if we are to make college more affordable to our qualified students and increase accessibility for a wider range of students.

Bernie Sanders and Hillary Clinton propose making community colleges and states' universities either tuition-free or "debt-free" through increased federal grants to states. [See my take on these proposals here]. Both support the refinancing of student loans at a lower interest rate. Clinton, in addition, proposes an income-based loan repayment plan that would limit debt repayments to a percentage of income.

John Kasich also advocates an increase in state funding for higher education though it is not clear what role the federal government, if any, would play in that. His affordability plan mostly rests on supporting programs that increase efficiency and decrease the cost of college: such as high school students earning college credits or students starting at community college transferring after two years to a university.

Without going into specifics, Trump talked about making higher education affordable by creating more jobs which will help students repay their student debt. He also spoke against the government making money off the student loans program. Marco Rubio plans to make college more affordable by promoting income-share agreements (ISA), which would shift risk away from students onto the private sector. He would also expand on cheaper non-traditional alternatives to college. Cruz would roll back the power of the Department of Education (DOE) (or even end it), though he seems to favor federal block grants to the states for student financial aid.

With the exception of an aspect of the Clinton plan which calls for an institutional risk-sharing, all of these approaches have the same fatal flaw: there is just no incentive for colleges to lower their prices as long as the federal government subsidizes either the states or the colleges with more and more student loan money!

Colleges are in a no-risk situation. They have no skin in the game when it comes to lowering tuition. Without the proper incentives, colleges will always try to absorb all the money that is provided to students or to the states.

Since the government issues substantial loans to pay for tuition, there is nothing to stop colleges from charging whatever they want to access more of that money. The easy availability of loans enables students to borrow money mindlessly. In addition, the new generous repayment plan options only help to further ease students' worries to a point of introducing moral hazard.

This is no solution. Actually, another negative by-product of this system is that it creates a perverse incentive for states to decrease their own funding to higher education. States are well aware that there is easy federal money available for students to pay for the tuition increases.

How does below contain tuition?

Recently, the New America Foundation issued a report asking for the complete overhaul of the federal aid system. Their plan seems to address these perverse incentives. It would eliminate the federal Title IV student aid programs. In their place, the DOE would provide a federal formula grant to states factoring in the number of low-income students enrolled at participating institutions that would be large enough to encourage states to participate. Both public and private institutions could opt to participate or not. Those who did not would receive no federal aid.

This plan is real surgery. It is not without flaws but it proposes closing the federal loan spigot while still providing federal funding to support both public and private colleges. It would both lower costs and make college both more accessible to low- and moderate-income students. It would also increase the colleges' skin in the game to do what they can to ensure, to the extent possible, students' success.

I will be interested in seeing how many of the candidates react to the New America proposal. My gut tells me that not many will but unless we get to the root causes of the affordability problem and provide real incentives for radical change, the situation will get no better.