Roosevelt Institute | Cornell University

The Negative Effects of Clinton's "New College Compact" on Private Colleges

By Toni-Anne Richards Published January 1, 2017

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Hillary Clinton's plan to improve college affordability was definitely influenced by Sanders' plan and campaign message, but the political feasibility and reality of her ideas is lacking because of the adverse effects it could have on private colleges.
By Toni-Anne Richards 

Hillary Clinton's "New College Compact" is an ambitious attempt to improve college affordability and allow students to earn degrees without taking loans by closing tax loopholes that benefit the most wealthy. When implemented, her proposal, expected to cost $500 billion over 10 years, would ensure that students wouldn't have to borrow to attend 4-year in-state public colleges and universities by giving giving grants to states. The downside of this proposal is that the large subsidies to public universities will cause enrollment in private institutions to decrease by as much as 15% and increase to as much as 22% in public universities in some estimates. As demand increases, more flagship state schools will have to become more selective to deal with rising demand and private schools without larger endowments to weather the funding shift would have to actively attract wealthier students who could pay full tuition. Upper-middle and higher income families would stand to benefit the most from switching to public universities in the face of relatively higher tuitions at private institutions.
There is also the issue of providing aid to students who are already well-off as opposed to low-income students who still struggle to pay for living expenses.The guidelines for affordability laid out in the plan demand that students and their families cover some of the expense of attendance out of current income or savings and do not cover expenses beyond tuition. Students would also be expected to use some of their own earnings to cover some costs. However, her proposal would initially offer loan-free in-state tuition to families making $85,000 for the first year of the program and gradually increase the threshold to $125,000. Under this plan about 80% of American families would qualify. It would be difficult to judge whether government grants are being given to enough students from families who are low-income.
     Federal government has already significantly expanded tuition subsidies, but the cost of college continues to rise. A 2015 study by the Federal Reserve Bank of New York noted that colleges pocket up to 60 cents from every $1 increase in subsidies by increasing tuition, at the expense of taxpayers, or cutting their aid packages. The idea is know as the Bennett hypothesis, an idea formed after William Bennett, the secretary of education in 1987, wrote an opinion piece in the New York Times stating that colleges were raising prices partly because they were confident the federal government would give more aid. Smaller liberal arts colleges without large endowments use a combination of scholarships and subsidies to ensure that low-income students can afford tuition. Outside of the most prestigious private colleges, other private institutions would have to become even more exclusive and less diverse as the dependence on students who can pay full tuition increases.
    In comparison, Sanders' College for All proposal would have made public college and universities tuition-free and substantially reduce student debt by taxing Wall Street speculators. Using the estimated $300 billion in revenue, he estimated that his plan would cost $75 billion per year, $25 billion less than Clinton's plan would. The issue with Sanders' plan, as with Clinton's, is that colleges and universities spend more each year on expenses like research centers and new buildings to attract students while knowing they can raise tuition to pay for these expenses because incoming students have money available to them in the forms of grants, loans and scholarships to pay for it. This also encourages states to spend (and charge) more on their public universities since his plan essentially replaces the one control against runaway costs (tuition) with federal subsidies that match state spending 2 to 1. Comparatively, Clinton's plan focuses on the absence of debt in a future student's plan for college. To control for potential tuition increases, Clinton's plan holds colleges and universities accountable to improve their outcomes and control costs while holding states accountable to their obligation of maintaining current levels of higher education through funding and reinvesting over time. Students would also be expected to work 10 hours a week to ease the full cost of attendance.
Under Clinton's plan, neither student nor colleges would feel the effects of the tuition increases as much because the burden of cost control is put on the government. If she is elected president, a proposal of this magnitude may be difficult to get through Congress even if it asks for more contribution from families and higher education institutions because its financing still relies on raising taxes on the wealthiest Americans. On the other hand, this ambitious plan to reduce debt in higher education puts pressure on those opposed to the idea because it is an issue that resonates across classes and party lines. From an economic standpoint, the plan is an investment with obscene costs and returns. Federal wage data shows that the value of a college education is higher than it's ever been. The focus on keeping state and colleges accountable for their spending would be important to having a proposal of this kind get through Congress. Overall, federal support should be weighted towards low-income students, for whom many of these institutions are out of reach in order to prevent them from being left behind.