For Public Colleges, the Best Tuition Is No Tuition

Michael Morgenstern for The Chronicle

August 05, 2013

In the 1960s, only a small percentage of Finnish students completed high school, and Finland ranked in the middle of developed countries on test scores. Forty years later, Finland had one of the highest percentages of high-school graduates in the world, and its students had the highest test scores in math and science. Many people have asked how Finland achieved this transformation, and how we can apply this model to other systems of education.

According to Pasi Sahlberg's Finnish Lessons, there were five major components to Finland's success: (1) all education became public and free; (2) teachers became well compensated and highly trained; (3) education became interactive and experienced-based; (4) students at an early age received individual attention; and (5) in high school, students were able to choose a vocational track or an academic track. It is my contention that we can apply to higher education in America many of the same educational reforms that were used in elementary and secondary education in Finland.

The first step is to calculate how much it would cost to make all public higher education free in the United States. In 2008-9, there were 6.5 million full-time-equivalent undergraduate students enrolled in public four-year universities and 4.3 million enrolled in community colleges. In 2009-10, the average cost of tuition, room, and board for undergraduates at public four-year institutions was $15,014; at two-year public colleges, it was $7,703. If we multiply the number of students in each segment of public higher education by the average total cost, we discover that the cost of making all public universities free would have been $97-billion in 2009-10, with an annual cost of $33-billion for all community colleges—or a total of $130-billion.

While $130-billion seems like a large figure, we need to remember that in 2010, the federal government spent more than $30-billion on Pell Grants and $104-billion on student loans, and the states spent at least $10-billion on financial aid for universities and colleges and an additional $76-billion for direct support of higher education. Furthermore, looking at various state and federal tax breaks and deductions for tuition, it might be possible to make all public higher education free by just using current resources in a more effective manner.

It is important to stress that the current tuition rates are inflated because colleges increase their sticker prices in order to subsidize institutional financial aid for low-income students and to provide merit aid for wealthy, high-scoring students. If we eliminated the current aid system, and each college instead received a set amount of money for each student from the state and federal governments, we could significantly reduce the cost of making public higher education free in America. Also, by eliminating the need for student loans, the government would save billions of dollars by avoiding the cost of nonpayment of loans, servicing and subsidizing them, and borrowers' defaults.

Rather than directly paying for public higher-education institutions, state and federal governments have often relied on tax deductions and credits to support individual students. But what this system has achieved is a tremendous subsidy for upper-middle-class and wealthy families, while lower-income students are forced to take out huge loans to pay for their education.

According to a recent report by Education Sector, "From 1999 to 2009, the government spent $70-billion on tax breaks aimed at subsidizing higher education for families. ... About 13 percent, or $9.4-billion, of that total went to families making more than $100,000 a year." At the same time, only 11 percent went to those making less than $25,000. The report indicates that more of the funds now goes to the wealthiest Americans: "In the last three tax years alone, families making between $100,000 and $180,000 received nearly a quarter of the benefits. The share going to middle-income families sharply declined." This tax system for higher education is a great example of how so many of our governmental policies end up subsidizing the wealthy, while poor and middle-class citizens pay more and get less.

If we made all public higher education free, not only could we do away with this unjust tax system, but we could also stop the movement of public funds to expensive private and for-profit colleges. What most people do not realize is that the use of financial aid and tax subsidies for individual students has resulted in a system in which much of the government support for higher education ends up going to private institutions that cater to the super-rich, or to low-achieving, for-profit colleges. Up to a quarter of all federal Pell Grant money is now going to these corporate institutions, which charge a high tuition and graduate very few students.

One of the great secrets in higher-education finance is the role played by Section 529 college-savings plans: "In 2000 a total of $2.6-billion was invested in 529 plans. This grew to $14-billion in 2001 and more than $92-billion in mid-2006. The student-aid resource projects that total investment in 529 plans will reach $175-billion to $250-billion by 2010, with a total of 10 million to 15 million accounts opened." Not only do state governments lose billions of dollars in tax revenue each year because of these 529 plans, but the wealthy have figured out how to use them as all-purpose tax shelters.

For example, if a couple puts $26,000 a year for each child into an account and decides later to use the money to buy a yacht instead, only the investment gains will be assessed a 10-percent penalty and taxed as income. Also, contributions made to a 529 are removed from a family's estate, and 529-plan owners can name a successor to the account when they die, which enables the plans to shelter money for multiple generations.

One side effect of this system is that private universities are able to charge higher tuition because they know that the parents of many of the incoming students will pay only a fraction of the full price thanks to merit aid, institutional aid, and tax breaks. Furthermore, once the private universities increase their tuition, they raise the bar for everyone else, making tuition increases at public universities appear more tolerable. And since the top public universities compete with the top private universities for star faculty and administrators, the more the private institutions are able to increase their tuition, the more the public ones have to pay their star faculty.

Replacing the current mix of financial aid, institutional aid, tax subsidies, and grants with direct support for public institutions would give the government a way to control costs at both public and private universities and colleges. The federal government could also require states to maintain their support for public institutions in return for increased federal support. And once we stabilize financial support and make higher education free, there will be no need for so many students and institutions to go into debt.

But the central reason we should make higher education free is that this system plays a key role in allowing us to have an effective democracy. Thomas Jefferson argued for a free public university because he knew that in order to have a real democracy, you need to have highly educated citizens. He proclaimed that "it is safer to have the whole people respectably enlightened than a few in a high state of science and the many in ignorance."

Jefferson wanted the United States to avoid the aristocracy and tyranny he saw in Europe, and in his 1818 report to the commissioners of the University of Virginia, he said public universities were necessary "to develop the reasoning faculties of our youth, enlarge their minds, cultivate their morals, and instill into them the precepts of virtue and order; to enlighten them with mathematical and physical sciences, which advance the arts and administer to the health, the subsistence and comforts of human life; and, generally, to form them to habits of reflection and correct action, rendering them examples of virtue to others and of happiness within themselves."

It is interesting to note that Jefferson did not say that the main goal of higher education was to prepare students for jobs; rather, he rightly believed that universities need to cater to the whole person by helping students develop better reasoning skills, form moral attitudes, and become happier. These broad goals for higher education are being undermined by the high cost of tuition and related expenses, which drive students to go into debt and force them to focus on pursuing high-paying jobs to pay off their high student loans.

Universities themselves are now stressing that the major advantage of going to college is that people will earn more. The unintended effect of this argument is that higher education is seen as a private good purchased by an individual student. This leads states to conclude that they can cut their support for universities, letting the responsibility for paying the increased costs fall on the individual student—who is seen as making a down payment on a future job.

The current system has also increased wealth inequality in the country, by motivating public universities and colleges to accept students who can pay the full bill or who get large aid packages because of their high SAT scores. As we have seen, one result is that the best public universities are reducing their number of low-income and minority students in order to chase after wealthy American and foreign students, who pay full tuition without financial aid. If we leave this system unchecked, we will only increase the growing inequality in American society.

Recent research has shown that unequal educational attainment goes hand in hand with income inequality, as well as with higher rates of crime and lower health standards. In other words, the more public higher education becomes privatized, the more it becomes unequal—and the more society in general suffers.

Robert Samuels is president of the University Council-American Federation of Teachers. This essay is adapted from his new book, Why Public Higher Education Should Be Free(Rutgers University Press, 2013).