This commentary originally appeared in Forbes on September 2, 2014.
Of late, higher education is abuzz with the question, “Will Oregon Be the First State with a College Trust Fund?” For those who care about college affordability in the long term, there are plenty of reasons to hope not.
A recent piece on the topic begins by noting that major universities work to build large endowments in part to fund scholarships for worthy applicants with financial need. It asks, “Should states do the same?” This fall, Oregon will decide. The “Opportunity Initiative” has been proposed for the state’s November ballot. It would set up an “ongoing investment trust fund for higher education,” authorizing Oregon to issue bonds in order to begin the fund, the proceeds from which would be devoted entirely to funding state scholarships.
The idea is being championed by Oregon State Treasurer, Ted Wheeler, rumored to be considering a run for governor in 2018. The advantage Wheeler sees to the initiative is its effect at protecting financial support for higher education, including vocational training, from competition with other claimants for funding. “There are always more pressing immediate financial needs, says Wheeler. “So it’s really easy to put off investments that won’t show results for another 20 years.” The proposal calls for paying back the bonds issued to launch the endowment from the state’s general revenue funds (paid for by taxpayers), rather than from the endowment’s returns.
Wheeler touts the initiative further, arguing that it would bolster workforce development through targeting needy students majoring in STEM (Science, Technology, Engineering, and Mathematics) fields as well as vocational training. Moreover, it would not require students to reapply for their grants every school year, as is the case under the current regime. For Wheeler, this more-certain funding arrangement “will allow students to focus on graduating on time and putting their degree to work.”
Who could be against supporting worthy, needy students to achieve on-time graduation and degrees that promise rewarding work? Unfortunately, the goodness of the ends sought is mismatched to the means proposed by the Opportunity Initiative. What Oregon is considering is but a state-level variation of what is sought by federally financed student loans, which, as far back as the “Bennett Hypothesis,” have been criticized for increasing college tuitions at a level far exceeding increases in general inflation. In 1987, then-Secretary of Education William Bennett observed, “If anything, increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase.” Bennett went on in his New York Times opinion piece (titled, “Our Greedy Colleges”) to state, “Federal student aid policies do not cause college price inflation, but there is little doubt that they help make it possible.”
Various studies of Bennett’s hypothesis have failed to find a direct, dollar-for-dollar correlation between increases in federal financial aid and subsequent tuition increases. But the logic of his argument cannot be dismissed. As a matter of course, universities pursue improvements in their offerings—curriculum, faculty, facilities, etc., — in order to raise their ranking in U.S. News. Such enhancements cost money. Are universities willing to wrest these additional funds from whomever might provide them? Former Harvard president, Derek Bok answers, “Universities share one characteristic with compulsive gamblers and exiled royalty: There is never enough money to satisfy their desires.” (Bok is not engaging in university-bashing with his observation, which, Aristotle argues, applies to human nature generally. Aristotle writes inThe Politics, “The nature of desire is without limit, and it is with a view to satisfying this that the many live.”)
From where, then, will come the additional dollars universities desire? Largely, from tuition. How will students be able to afford the ever-escalating price of tuition (in the past quarter-century, average tuitions nationwide have risen faster than general inflation and even health-care costs over the same period)? For many, the only apparent recourse is to federally subsidized student loans.
Not surprisingly, student-loan debt today stands at $1.2 trillion, which, for the first time in history exceeds even total national credit-card debt. Worse, a recent study finds that, “after adjusting for inflation, the average recipient of federal student loan funds owed 28 percent more in 2013 than in 2007.” No surprise, the same report finds that “more than half of Direct Loans, the most common type of federal student loan, aren’t being repaid on time or as expected, according to figures from the U.S. Department of Education.”
Applying these observations to Oregon’s proposed Opportunity Initiative gives cause for concern. Aside from the questionable justice of burdening Oregon’s taxpayers further to pay for ever-escalating tuitions, what will be the likely effect of this proposal, if passed? On the Bennett Hypothesis, Oregon’s universities, mindful of the new money that would become available, would be hard-pressed not to hike tuitions further in order to fund the enhancement they—and all universities according to Bok—seek. Adding this state-level subsidy to federally subsidized student loans runs the risk of only exacerbating the unsustainable increases in both tuitions and student-loan debt.
Why opt for the Texas Model? In the past decade of economic malaise, individuals, families, and businesses have been forced to do more with less. Isn’t it time for universities to do the same?