How Not to Help the Poor: The Lesson of Soaring College Prices

[xchrom]

http://www.theatlantic.com/business/archive/2013/07/how-not-to-help-the-poor-the-lesson-of-soaring-college-prices/277658/



Whenever policymakers argue over ways to lower the budget deficit, one of the most popular ideas on both sides of the aisle is "means testing" programs like Medicare or Social Security. Instead of cutting everybody's benefits, the idea is to reduce them for the rich and middle classes while leaving them intact for the poor.

In theory, means-tested programs should be more efficient and progressive because they don't spend money on those who can pay their own way. But one concern that dogs these proposals is that the programs will lose support and funding as soon as budgets get tight. As the saying often goes: "Programs for the poor are poor programs."

Over the last several years, we've witnessed a high-profile example of that principle in action. Inadvertently, America's higher education system has become a massive lab experiment, the results of which suggest that means testing social programs can ultimately hurt the very people it is meant to protect.

In the past, almost all public universities were heavily subsidized by state taxpayers, which kept tuition low for everyone. In recent years, however, legislatures have cut support even as the pressure to spend -- often on new buildings and other "amenities" -- has grown and become baked into the system. As a result, universities have ended up strapped for cash.

[Arugula Latte]

1. This country gets more and more depraved every year.

Our priorities are so amazingly f@#$ed up. Every good quality this country used to have has been hacked down to almost nothing -- and a great, affordable university system is at the top of that list. The military-industrial complex has succeeded in turning this into a third-rate country that can't educate its kids, house its poor, provide basic healthcare, or even keep its bridges from collapsing. I'm just thoroughly disgusted.

[liberal_at_heart]

2. the government has defunded our public education, k-12 and universities.

[dimbear]

3. Not only do we need more funding, but we need to streamline and

modernize education into the 21st century. It's a scandal what textbooks cost, for instance.

[Igel]

4. When last I was a full time student,

which means 1999, the school I attended was in year 4 of their revised student aid paradigm.

High-fee/high-financial aid. The idea was that instead of charging $5k, the amount they needed for their operations, they'd charge $10k. Wealthier parents would pay the higher amount, and the school would funnel the "overage" into financial aid for the poorer kids. The income distribution of the kids' families was bimodal--bumps for poor and for upper-middle and upper class families, a dip for lower-middle and middle-middle-class kids. When the subject of fairness for the middle-class kids came up, we were all assured that the cut-off for subsidies would be at a fairly high family income. Middle-class kids would still get help to pay for the increased fees. Means tested.

It worked fine for the first year but worked less well by year 4. When that school's fees increased, while it was a great school it was also less competitive with other schools. Some wealthier kids went elsewhere. Moreover, the amount of aid needed didn't just hold steady, it had to increase. When the wealthier kids' slots were open, the students who were attending were more likely to be eligible for aid. The school couldn't lower its fees. So they just lowered the cut-off for subsidies.

More middle-class kids had much larger student loans as a result. The promise had been that there'd be money for them. There wasn't. Even lower-middle-class kids had to fund their own education. The administration had been so gung-ho to help poorer kids attend that they had overlooked uncertainty. They had awesome quantities of faith in themselves. Basically, they said, "Trust us! We certainly do!" In other words, they sucked.

In fact, even the wealthier kids had loans. They may have had wealthier families, but a lot of the wealth was tied up in IRAs or in housing. When the tech/stock bubble broke in 1999 and 2000, the kids were stuck with the loans.

The press managed to miss all of this. The school had received a large amount of money from the state and each year, pretty much, the amount was reduced. *This* could be reduced to a 25-second sound bite to trigger outrage, but trying to explain having high fees on the wealthy to subsidize the poor kids was a bit of a reach. (It's precisely how mandatory health insurance is supposed to work.)