With its untenable, sky-high costs for students, and innovators offering alternatives in the marketplace, our present higher-education system is on the verge of imploding. Instead of propping up a failing system as President Obama proposes — by conditioning the amount of federal campus-based aid to colleges on tamping down tutition — Congress can aid Americans in saving for college and improving their debt burden, the Heritage Foundation’s Stuart Butler explains.
One way would be
to remove the double taxation of all savings, including savings for college. Another is to give “human capital” investments in college education similar tax benefits to investments in physical capital. Heritage’s Saving the American Dream plan does that. It would end the taxation of savings and it would allow all families to take a tax deduction for higher education costs, capped at the equivalent cost of four years in a state college.
Such measures would provide incentive to families to save for college, rather than assuming more debt. In addition, in moving away from offering campus-based aid, the federal government would also be enabling the higher-education revolution to advance.
If the government subsidizes education more by tax breaks, will not colleges conclude they can (again and still) raise their rates commensurately, as happened with student loans?
Captcha: mumbo jumbo
Reply to this commentLinkReport AbuseEliminating double taxation on savings isn't a subsidy. People have already paid taxes on the money before putting it in the savings account. Why should they have to pay taxes again on the miniscule amount of interest they earn? People complain that Americans don't save enough but between the minicule interest rates paid and then being taxed on that, there isn't much point.
Reply to this commentLinkReport AbuseThe other problem with having families save for college is that those savings often offset financial aid for which the student would otherwise be eligible. If the Smiths manage over an 18-year period to save $40,000 for Johnny's college education, you can bet that a private school will see that money and conclude that they can reduce Johnny's need-based financial aid package by an equivalent amount. In my experience (which admittedly is 20 years ago; perhaps the system has changed), this money counts against the grants that the school would otherwise provide to Johnny Smith, not the loans that he would be expected to take out. Thus, in this case the Smith family would be wasting $40,000 over the course of Johnny's first 18 years.
I realize this might be different where public universities are concerned.
Reply to this commentLinkReport AbuseThe issue is that Colleges have no incentive to keep costs down. You have to change that fact or else any savings that families accumulate will quickly be eaten up by future tuition increases.
Here's an Idea:
1. Eliminate Federally Backed student loans
2. Give every student a voucher for college costs (you could pay for this by eliminating most of the Department of Education and through #1). Fix the amount at a carefully studied amount (probably $10,000 a year or so) increase with inflation
3. Eliminate the mandates that colleges need tons of administrators for just to ensure compliance.
4. Return a portion (maybe half) of any unspent voucher money to the student upon graduation. This would provide an incentive for students to comparison shop, save the government a bit of dough, and perhaps provide a cash-strapped youngster with a small amount of money to start out in life (a deposit on an apartment, moving money, a work wardrobe, etc.).
This would force some price and quality competition into this woefully inefficient sector. The Harvard's of the world could probably continue to charge $40,000 a year, but the Western Michigan State's of the world would be forced to charge students a price that reflects the worth of their education. (No offense to WMU, I just think that putting a kid into six-figure debt for a non-elite school is very harmful and very wrong).
Reply to this commentLinkReport AbuseWhy not put the colleges in the position of issuing the student loan, then the risks of default fall on the college? It would have the added benefit of increasing education quality as the schools will then have an incentive to actually prepare their students for the real world. Out go the questionable majors, the incentive to promote under-achievers, and the taxpayer subsidies for those destructive habits.
Reply to this commentLinkReport AbuseUntil the federal government gets completely out of higher ed, the costs will continue to skyrocket.
In this case, like most others, the government IS THE PROBLEM, NOT THE SOLUTION!
Does Barry have any chance of getting lower tuition rates? NOT A CHANCE! Would the free market get lower tuition rates? Yep, but they will never allow it.
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