There’s been plenty of coverage of the First Amendment implications of President Trump’s proposed “Compact for Academic Excellence in Higher Education” that was offered to nine universities in exchange for supposedly gaining preferential access to federal grants. But the proposal also has a pair of tuition regulation requirements that have not gotten so much attention, but are in some ways equally troubling.
The “deal” being offered would require, among other things, that university signatories agree to freeze tuition for U.S. students for five years and, if endowments exceed $2 million per undergraduate, grant free tuition for students pursuing “hard science” programs.
This sort of federal price regulation is, as far as I’m aware, completely unprecedented. It’s also completely half-baked policy thinking. The impulse to control the cost of higher education is commendable, but the President’s proposal shows a complete lack of understanding of higher education economics and of the science education in particular. Instead, what he has proposed are faux cost controls and a bizarro nerd subsidy that would apply to almost no schools. In other words, rather than serious policy proposals to deal with costs of higher education and to encourage the study of the sciences, the administration has put forth a set of meaningless headline grabbing proposals that would only make things worse.
Universities Are Already In Financial Turmoil
Universities are already facing a very uncertain economic future for a variety of reasons. It’s hard to imagine any university wanting to tie its hands financially in any way at the moment.
Universities can be substantial financial operations. They are generally non-profits, but that hardly means that they are not complex. They tend to have very long-term financial plans, in part because they need to raise money for capital projects. My own school is in the midst of developing a whole second 100 acre campus in downtown DC. That’s the sort of thing that takes years of fundraising and acquisition and construction. (Heck, my university has even issued a “century” bond with a 100 year maturity to finance some capital projects.)
Right now, however, there are real headwinds for the entire academic sector. In the first instance, birth rates mean that the size of the US high school graduating class peaked last year following two decades of increase. There’s a projected 10% decline or so over the next decade. That will put pressure particularly on the “bottom” of the academic world.
Second, foreign enrollment no longer seems as viable of an option to offset a decline in domestic enrollment. The Trump administration’s visa policies are likely to seriously chill foreign interest in American education: who wants to enroll and pay tuition only to risk deportation? A decline in foreign enrollment is particularly costly as foreign students tend to pay full freight tuition, whereas domestic students often receive large discounts.
And third, particularly at the “top” schools are heavily reliant on federal grant funding, particularly for the sciences. The termination of USAID grants was devastating for Johns Hopkins, and if the NIH’s reduction in allowed overhead expenses stands, it will be a hard blow for many other schools as well.
Many schools, including my own, have salary and hiring freezes in place currently, and even some top schools are looking at serious program cuts. This is not a moment when academic is really prepared to handle additional changes to its economic model.
Tuition Freezes for Show Will Actually Harm Students and Their Families
If a school were to take the “deal,” it’s hardly clear that students benefit from lower costs. The freeze applies only to tuition–that means the sticker price of tuition. But many students don’t pay the sticker price. In fact private universities offer an average discount of over 50% from sticker. So a university can freeze its sticker price and still raise prices simply by reducing the average tuition discount. That’s not a policy that actually benefits students, and in fact it might be quite regressive because the tuition discount is to some degree need-correlated, so poorer students are likely to be the ones paying more, meaning that the cross-subsidy from full-freight payers to scholarships will be reduced.
Additionally, the freeze only applies to tuition. But tuition is hardly the whole ballgame. Fees and room and board costs are significant and are largely fungible with tuition. A school that freeze tuition can charge more in fees (activity fee, athletic programs fee, gym fee, library fee, etc.) as well as for meal plans and dormitories. That’s a worse outcome for students, however, because although tuition and fees can be tax deductible, whereas room and board are generally not (although I believe they are for 529 savings plans). Similarly, while some employers have tuition benefits for employees, they do not have room/board benefits, so a shift to room and board further harms students’ families.
What all this means is that if any university were to take the deal, it would likely just shift around price components: lower discounts, more fees, more expensive room and board. In other words the supposed benefit of freezing tuition would be entirely illusory. And after the tuition freeze expires, does anyone really expect market forces to push down the room and board or fees or increase the tuition discounts? The proposed tuition freeze is just an exercise in regressively reshuffling the deck chairs that might come out worse for all students.
Free Tuition for “Hard” Sciences: Mandating a Nerd Subsidy
This requirement would only kick in for schools with an endowment of over $2 million/student. Currently that’s all of five schools (Princeton, Soka, Yale, Stanford, and just barely, MIT). Harvard falls short. Of those five schools, MIT is the only one to have been offered the deal so far.
It’s not even clear to me what the administration is offering because I’m not entirely sure what is a “hard” science. I assume it covers biology, chemistry, and physics. But does computer science fall under that rubric? Math? Statistics? Engineering? Data science? Finance? Economics? Remember that majors are not defined the same way at every school.
Regardless of definition, the idea that government would mandate free tuition for certain majors is astonishing. In the past if the government wanted to encourage students to study in a certain area, it has done so by making grants available, such as for foreign language study or in the sciences. What the Trump administration is doing, however, is attempting to mandate a strange type of cross subsidy on undergraduates, namely a nerd subsidy: students who major in things other than the “hard” sciences will have to subsidize the science kids.
The nerd subsidy puts a strange type of pressure on students to major in fields that they don’t really want to. Now it would presumably increase the number of science graduates. But an increase in undergraduate science majors doesn’t alone have any obvious benefits for the nation; undergraduate major is not determinative of what people do in the future. The real advances in science come from graduate research. Yet the Trump administration is starving graduate science programs through reduced NIH grant overhead, cancellation of USAID grants, visa meshugas, and funding freezes for certain universities. An undergraduate tuition freeze only further complicates things to the extent undergraduate education subsidizes graduate education.
It’s also hard to square a prioritization of undergraduate science education with the administration’s rampant disregard of accepted science on vaccines and acetomenophine is hardly an endorsement of science education: why study science if any yahoo with a TikTok can claim to be more expert and actually be listened to by policymakers?
Ultimately, if there were some real benefit from the nerd subsidy, why on earth should it be limited to a handful of schools? If this is good policy, shouldn’t it apply more broadly?
There’s No Cure for Baumol’s Cost Disease
All in all the President’s proposal is a bunch of poorly thought-through, half-baked education policy ideas. The United States should do more to support science education on every level. There are real problems with the increasing costs of higher education. Yet there is no known cure for “Baumol’s cost disease“—the phenomenon in which services with no growth in labor productivity see prices rise faster than inflation. Education is, after the arts, perhaps the leading example of Baumol’s cost disease: it takes me just as much time to teach a 4 credit class as it did my predecessors a generation ago. Cost disease has no cure, only a potential palliative treatment, namely socializing the costs of those goods and services we find socially valuable. That means subsidizing education and the arts, which is a fraught issue itself because of desire for content control (no one wants to subsidize things they find offensive) and for distributional reasons. In other words, it’s complicated. But a bullying amateur hour isn’t the way to make good education policy.