How Trump Could Spark a Renaissance in Higher Education

November 16, 2016

Imagine a world where tuition at an Ivy League college is $4,500, with room, board, and books another $5,700, for an annual bill of just over $10,000. Given what students can earn throughout the year, they could work their way through a good college without taking out loans. This world existed once. In 1900, these amounts, adjusted for inflation, were what it cost to attend the University of Pennsylvania.

President-elect and Penn grad Donald J. Trump’s campaign signature, "Make America Great Again," has raised hackles among the cognoscenti. How can America have ever been great in the first place, given slavery, conquest, and inequalities in the nation’s past? There is one aspect of America’s history, however, that we really should agree was better. Before the last generation or so, college was affordable. Prices were vastly lower than today. And there was no such thing as student debt, even among students from impecunious circumstances.

A tremendous irony of the era of the "democratization" of higher education, when over the last 50 years the proportion of Americans attending college rose markedly, is that the cost of college, which had never much budged, shot up stratospherically. Today the price tag at Penn (which is representative) is five and a half times that of 1900, adjusted for inflation.

Two aspects of the Trump domestic program can go a long way in addressing the college affordability problem at its roots. The first is tax reform. During the campaign, Trump proposed clearing out loopholes in the tax code in exchange for a top income-tax rate of 25 percent and a top corporate rate of 15 percent. These compare with current rates of 39.6 percent and just over 35 percent, respectively.

The opportunity presented by tax reform to colleges and universities is significant, even revolutionary. The lower the rate of tax on high earners, the more fortunes can be gained by a large number of people. This is the predicate of a return to the original, successful fiscal model of the university: endowments that finance virtually all operations, with tuition topping off cash flow and making students have skin in the game.

The second favorable aspect in the Trump program is his insistence that climate change is a hoax. Climate science is big money in universities today, with grants from the federal government totaling in the hundreds of millions per year. There is a cui bono problem with the research establishment’s position that vigorously addressing climate change is an urgent matter.

The Trump tax-reform and climate-change positions present an avenue for a grand bargain. Colleges can free themselves from concern that Trump and the Republican Congress will cut off funding, for climate science or whatever purpose, by taking advantage of the tax reform and raising money from the pool of philanthropic dollars sure to be enhanced by it. Given that a large class of potential donors necessarily includes variegated political opinions, colleges would be able to finance research they found valuable, including on climate change, as they saw fit.

The risk of the "single payer" federal-funding model — as the public-choice school of theory has long shown — is that the government may have poor views. This risk can be overcome by democratizing funding such that the private sources of endowment growth are many and deep — precisely the effect of a tax-rate cut in the largest economy in the world.

Last year, while I was a visiting scholar in conservative thought and policy at the University of Colorado at Boulder, I spoke often with the institution’s executives about such a grand bargain. In a successful metropolitan area like Denver, a popular university like CU should, given good economic growth and low tax rates, be able to raise a considerable endowment — perhaps $10 billion in a decade’s time. CU could then forgo the roughly $500 million in federal research support it currently grosses, while shedding compliance costs.

As for the argument that lowering tax rates decreases the write-off value of philanthropic giving, the marginal dollar earned by a rich person is that most likely to be dedicated to philanthropy. A tax-rate cut at the top frees up money to flow to endowments.

The government should own up to the inevitable conclusion that it created the college-cost problem. Its compliance mandates, its tuition tax breaks, and above all its invention and flogging of student loans — these added expenses and jacked up the average student’s short-term ability to pay, which became reflected in prices. The rich were off the hook for picking up the tab because of high tax rates. The incoming president offers a path to making America’s higher education great — as in affordable, mission-oriented, and paid for by those with the most means — again.

Brian Domitrovic is chair of the history department at Sam Houston State University and the author, with Lawrence Kudlow, of JFK and the Reagan Revolution: A Secret History of American Prosperity (Portfolio, 2016).