Want to help students? Let’s change how we subsidize education

Conventional political wisdom holds that Democrats try to give a hand up to the poor and Republicans try to give a hand out to the well off. Whatever the merits of these stereotypes on issues like taxes and entitlements, the House Republicans PROSPER Act shows that at least on higher education, the exact opposite is true.

Understanding why takes a bit of economic education. Democrats have become the party of “free college.” That sounds like a great deal for the poor — what could be more affordable than free?

But the evidence from around the world is mounting that free college is a raw deal for the poor. When Scotland shifted toward free college, researchers found that aid was redistributed from low-income to high-income students. When Chile shifted toward free college, it increased demand for selective public universities, pushing out low-income students. When England allowed colleges to charge higher tuition, net funding for higher education increased, overall enrollment expanded, and the enrollment gap between high- and low-income students decreased.

{mosads}This may seem counter-intuitive, but it shouldn’t be surprising. If the government pays for everyone, it will pay for students who could have paid themselves. Letting only the government pay limits higher education financing. Students from higher income backgrounds are more likely to land in the limited number of seats, crowding out low-income students. Properly speaking, the most “progressive” way to finance higher education is to let people who can afford it pay for it, and then support those who can’t. That’s what the Republican PROSPER Act does.

Consider the fate of the Public Service Loan Forgiveness program. PSLF provides total loan forgiveness to students who work in government or non-profits after 10 years on an income-based repayment program. The cost has exploded to almost an order of magnitude higher than initial estimates. Much of this taxpayer money is flowing to students with expensive graduate degrees, who command a position near the top of the economic ladder. It’s hard to get more regressive than this mass handout to the economically advantaged.

So, the PROSPER Act eliminates PSLF. And it uses part of the savings to expand the number of low-income students receiving Pell grants by a projected 1.1 million. This is taking taxpayer money from the rich at the top of the ladder, and giving it to the poor who are trying to get a foothold.

It also expands the potential uses of Pell, to try to foster a more dynamic and workforce-oriented higher education system. Most of the thinking in elite circles has been centered on the question of how to get more people bachelor’s degrees. Under the PROSPER Act, students could certainly still use Pell for traditional four-year universities. But they could also use them toward a wider range of shorter-term, workforce-tailored programs. Whether the PROSPER Act contains sufficient accountability mechanisms to make this work is an open question, but it’s certainly a move in the right direction.

When it comes to student loans, the PROSPER Act represents a strong step forward for congressional Republicans. For decades, the Republican position on higher education could be summarized as “What the Democrats want, except maybe a bit less or more, depending on who is in power.” But now, Republicans have a clear moral message, “Less help to those who don’t need it, more help to those who do.”

Still, the PROSPER Act could use a lot more work. There are other issues around accountability and accreditation that could use refinement. AEI’s Jason Delisle and Preston Cooper note that, contrary to how it’s billed, PROSPER substantially increases overall federal spending. And while the bill takes a step forward in data transparency, there should be a bipartisan appetite for more.

On the student loan issue, the government ought to get out of the business of subsidizing graduate school altogether. There is no “market failure” rationale for government involvement, and the private sector could do it more efficiently. The money saved could go into an even larger expansion of the Pell program. This is something that, in theory, both conservatives and liberals could push for. But only if conservatives decide to come to the table on higher education, and if liberals can get over their “free college” fixation and focus on more legitimately progressive policymaking.

While far from perfect, the PROSPER act represents a rare bright spot for congressional Republican lawmaking. The key critique of American government articulated in the 2016 election was that the establishment had become fundamentally self-interested, self-serving, and had forgotten about the common man. By cutting handouts to the elite and extending a hand up to low-income and working-class students, PROSPER follows through with a proper policy prescription for part of what ails American education.

Max Eden is a senior fellow at the Manhattan Institute, a nonprofit group aimed at supporting limited government.