Clinton Issues a Promising Proposal for Tuition Reform

August 10, 2015

There is much to like about Hillary Clinton’s "New College Compact" — both for students and for those who work in higher education. Clinton’s vision of broad reforms aimed primarily at the issue of affordability has elements that will placate those on both sides of the political spectrum. While I worry that the price tag of $350 billion over 10 years understates the true cost of the plan, and there are certainly details I would change, the broad strokes represent the best and most ambitious framework for tuition reform that has been advanced by any of the 2016 presidential contenders.

A central element of the proposal is a joint federal-state partnership that would provide incentives to states (and thus public colleges within those states) to provide paths for completing a four-year degree that would enable students to graduate without debt. One suggested avenue to finance such a path is via Federal Work-Study, not to exceed more than 10 hours per week, which has been shown to improve academic results. (For an excellent example of how this might work in practice, see Temple University’s pilot program Fly in 4.)

The Clinton proposal is different from other liberal proposals in that it does not aspire to a goal of free college tuition for all. This is a good thing. Countless studies have shown that higher education leads to substantially higher lifetime earnings for the vast majority of individuals. For this reason, a college education should not be costless, regardless of one’s political views (for those on the left, consider that the additional money spent making college free for all could instead be spent on social programs that better help the neediest individuals). However, creating the opportunity for students to graduate with little or no debt is both more attainable and reasonable.

Higher education is a textbook example of what economists call a "positive externality," providing many benefits even to those who do not get a college degree (for example, a more educated society has lower crime rates and a higher tax base), so public investment in the system is often desirable. Furthermore, research has shown that students who graduate with low levels of debt are far more likely to work in occupations that are beneficial to society as a whole (additional public service is also explicitly targeted in the compact through a near quadrupling of Americorps to 250,000 members). There are thus good arguments to be made that the reforms laid out in Clinton’s proposal are beneficial to the economy as a whole.

In addition to encouraging colleges to offer lower-cost paths to a degree, the plan aims to stem the tide of rising tuition rates by discouraging states from reducing appropriations to higher education, which has accounted for a large portion of the increase in tuition at public universities over the last several decades. Successfully combating this trend will both attenuate tuition increases and make it far easier for college administrators to budget for the future.

Clinton’s plan also contains a number of provisions that are considered to be more moderate or right-leaning. These include risk-sharing, a system that would encourage investment in students’ postcollege financial circumstances by penalizing institutions whose students perform poorly. Additionally, the compact calls for serious accreditation reform and large-scale improvements in the information available to potential students about the outcomes (e.g. salary, debt repayment) of a college’s recent graduates. Many of these reforms have received bipartisan, but not unanimous, support, with prominent cosponsors in the Senate including Clinton’s potential 2016 opponent, Marco Rubio.

I view these reforms as important both politically (their inclusion will certainly help the overall package pass) and practically. They will go a long way toward making our higher-education system run more efficiently, and better aligning the incentives of institutions with the parents and students they serve. (Full disclosure, I testified before the Senate Health, Education, Labor, and Pensions Committee this past spring in favor of risk-sharing based on my own research.

Details are still emerging, but there are certainly aspects of the proposal that need tweaking. First, it calls for significant cuts to interest rates and the ability to refinance older student loans at current, low rates. Although this is a nice idea in principle (albeit it does little to increase college completion), the same goal of protecting the lowest-earning individuals can be achieved more efficiently through the growing Income Based Repayment program.

Second, the compact takes a hard line against for-profit colleges in terms of imposing accountability measures. While the for-profit sector has become a convenient punching bag (often but not always justifiably), there are problematic programs in every sector. I see no reason that there should be different, more lenient, regulations governing nonprofits than those applied to for-profit schools.

Third, a great deal of focus is on posted tuition and fees, and their recent rise, in the currently available details of Clinton’s proposal. However, as many in the education finance community know well, the growth in net tuition (what students actually pay) has grown far less rapidly than posted tuition prices. Given that what we should actually care about from a public-policy standpoint is net tuition, I worry that policies calibrated using posted tuition will be inefficient or will possibly open loopholes for colleges to violate the spirit of the new regulations while still complying with the letter of the law.

Finally, as the education-policy expert Professor Robert Kelchen of Seton Hall University points out in a recent blog post, since massive new programs are often phased in over time, using a 10-year budget projection, as this proposal does, can obscure the true cost of legislation (i.e. the cost in the 11th year is probably much greater than the average over the first 10 years). Since every dollar spent on higher education is a dollar that cannot be spent somewhere else, this distinction is very important. So while I am generally pleased with many aspects of Clinton’s proposal, more detail on the actual cost is needed before we can truly evaluate its merit.

Douglas Webber is an assistant professor of economics at Temple University.