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The Presidential Candidates Are Spinning Their Wheels on College Costs

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Debt-free college. Tuition-free college. These concepts are garnering a lot of attention on the presidential campaign trail.

Former Secretary of State Hillary Clinton’s plan proposes to make debt-free college a reality with targeted tax increases, limits on institutional spending and devising controls to prevent the schools from gaming whatever system ends up being put into place.

Former Governor Martin O’Malley’s plan calls for freezing tuition rates at the nation’s state-run schools while at the same time reversing the trend of declining federal and state support for these. And Senator Bernie Sanders has upped the ante by championing taxpayer-supported, tuition-free education altogether, similar to what Germany has accomplished.

Not to be outdone, most of the Republican candidates have articulated their own ideas about improving higher education affordability.

Former Governor Jeb Bush continues to beat the drum for a “market-oriented approach” that includes enhanced online learning, which he, Governor John Kasich and others believe is less costly. He’s also a proponent of increased involvement by the private sector (presumably in the form of more participation on the part of for-profit colleges), as Senator Marco Rubio also advocates.

And then there is the matter of paying for all that.

With regard to existing student loan debts, businessman Donald Trump, Governor Chris Christie, Senator Lindsey Graham and former Governor Mike Huckabee have indicated their support for refinancing these with public money, in advance of the affluence that will result from the heightened level of job creation they predict will follow Republican electoral success. Meanwhile, the Democratic candidates continue to call for lower interest rates even though that by itself is proven to be insufficient.

Going forward, Senator Rubio has talked about so-called student investment plans (also known as human capital contracts) in which funding for higher education would come from private equity firms and venture capitalists that make lending decisions based upon school rankings and major areas of study, and the impact that can have on a borrower’s future earnings. Dr. Ben Carson favors charging the schools for the interest on the loans that their students undertake to pay the bills.

Perhaps I’m missing something, but it seems as if a lot of these stances have more to do with figuring out how to pay a bill without checking the math.

I say that because I can’t quite figure how we’ve come to accept average public- and private-school tuition prices that respectively consume 16% and 58% of average annual household income as a baseline. Wouldn’t it make more sense to first settle on what constitutes a fair price for that?

For the sake of argument, let’s suppose that we establish $9,200 as the national standard for the price of tuition; a value that’s roughly equal to the average annual price that in-state residents paid for publicly sponsored higher education for the 2014-2015 school year. Let’s also suppose that the government agrees to fund that value by reapportioning the $164 billion it now spends on aid, grants and loan-program administration for the benefit of the roughly 18 million undergraduates who are currently enrolled in the nation’s colleges and universities. If so, here’s what’s likely to follow.

State schools would experience an average revenue shortfall of approximately $4,100 per student, after taking into account the higher tuition prices paid by the average 30% of out-of-state attendees. Private schools would have an even bigger gap to bridge, given tuition prices that averaged around $31,200 per student.

Yet consider the good that could come from standardizing the price of tuition, much like health care insurance companies do with the payments to medical providers. The schools would have no choice but to purge the excesses from the system. Some may choose to divest non-education-related enterprises (such as those that involve housing and food services) so they can reinvest the resulting capital into core education-related activities. Others might seek mergers with like-minded institutions to eliminate the operational and infrastructural redundancies that exist among them as independent units.

Changes to tax policy can also help these changes occur, particularly with regard to those institutions that have amassed significant endowments — thanks to their tax-exempt status — when relatively modest portions are being used to offset tuition prices.

The point is this: Much of what is being bandied about in the run-up to the 2016 presidential election is focused more on effect than it is on cause. Unless the rising cost of higher education is arrested and its trend reversed, the candidates are all chasing the same runaway train with a fleet of tricycles.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

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