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Research & Commentary: Cuomo’s ‘Free’ Tuition Plan Won’t Help Poor Students or Reduce College Costs

January 6, 2017

Plan Amounts To Nothing More Than A Welfare Program For Upper-Middle-Income Households

Gov. Andrew Cuomo (D) has introduced a plan to provide “free” tuition at all Empire State public colleges and universities for students whose families are earning up to $125,000 a year.  Cuomo says the plan will cost $163 million annually, although according the New York Times it is “unclear how much the program would [truly] cost” and “not immediately clear how the program would be paid for.”

Most of the students who will be helped by this bill are not poor; they will be from middle- and upper-middle-income households. Some would even be relatively affluent. New York’s median household income is just under $61,000, meaning students whose parents earn greater than twice the state median will be eligible under Cuomo’s plan. New York’s lower- and middle-income families will be paying taxes to subsidize the higher education of children belonging to their affluent and upper-middle-income neighbors.

Matthew M. Chingos of the Urban Institute, a liberal think tank, argues the proposal would do “nothing” to benefit poor students, “for whom existing grant aid already covers” New York’s four-year average tuition at a state school.

“Cuomo has proposed only covering the difference between tuition and students’ existing aid, meaning that those who get the most aid benefit the least from the proposal,” Chingos wrote. “Consider [SUNY] Albany, where tuition is currently $6,470 per year for in-state students. SUNY Albany students from families making less than $30,000 receive more than $11,000 in grant aid, mostly from Pell and a state-specific program. As a result, tuition is already free for them and they receive no additional benefits under Cuomo’s plan.” Meanwhile at SUNY Albany, “students from families making between $75,000 and $110,000 currently receive less than $700 in grant aid, on average. That means they face a bit under $6,000 in tuition payments each year, which the Cuomo plan would cover for them.”

“It is incredibly hard, and getting harder, to get a college education today,” said Cuomo. “It is incredibly expensive, and the debt is so high it’s like starting a race with an anchor tied to your leg.”

All of Cuomo’s arguments in the quote above are true, but a major reason for why it is so difficult for many students is because of the effects caused by aid programs such as the one proposed by Cuomo. They are rapidly increasing tuition rates by manipulating natural market forces. If colleges know federal and state governments are going to be providing massive amounts of tuition assistance, they also know they can continually increase tuition rates without any repercussions. The spigot will always be open.  

The Federal Reserve Bank of New York released a report in 2015 showing federal student aid programs are a major contributor to rising tuition costs. For each dollar a student receives in Pell Grants, tuition increases by 55 cents. For each dollar of Direct Subsidized Loans, tuition increases by 65 cents. Since 2000, in places in which Pell Grant spending has tripled and spending on education tax credits has quadrupled, out-of-pocket tuition costs have risen by 6 percent per year, on average. To put that in perspective, medical care costs have risen by only 3.8 percent per year over that period.

At 12.7 percent, New York already has the largest state/local tax burden of any state in the country. This is a major reason why the Empire State’s population dropped in 2016 for the first time in a decade. New York also ranked just behind New Jersey and Illinois as the state most moved from in 2016, according to United Van Lines’ 40th annual National Movers Study, which tracks “state-to-state migration patterns.” Sixty-three percent of moves in New York State are outbound, with over 85 percent of those leaving the state answering they did so for job, lifestyle, family reasons, or a combination of the three.    

Instead of instituting what would amount to a welfare program for upper-middle-income households, New York would be better off directing this money to school choice programs for low-income K–12 students stuck in poorly performing neighborhood public schools. Tax credit scholarships and education savings accounts are just two choice programs that would benefit poor students much more than another government spending program.

The following provides more information on tuition funding as well as on education choice options.

Credit Supply and the Rise in College Tuition: Evidence from the Expansion in Federal Student Aid Programs
https://www.heartland.org/publications-resources/publications/credit-supply-and-the-rise-in-college-tuition-evidence-from-the-expansion-in-federal-student-aid-programs-federal-reserve-bank-of-new-york-staff-report-no-733?source=policybot
This July 2015 report from the Federal Reserve Bank of New York argues the sharp increase in funding federal student aid programs have received since 2000 are primarily to blame for the skyrocketing tuition rates imposed by many public and private college institutions across the country.

Accounting for the Rise in College Tuition
https://www.heartland.org/publications-resources/publications/accounting-for-the-rise-in-college-tuition
This study by Grey Gordon of Indiana University and Aaron Hedlund of the University of Missouri argues funding increases for federal student loan programs “account for the lion’s share of the higher tuition” rates occurring between 1987 and 2010. Further, “[T]he tuition response completely crowds out any additional enrollment that the financial aid expansion would otherwise induce, resulting instead in an enrollment decline from 33% to 27% in the new equilibrium with only demand shocks.”

Issues 2016: Only One-Third of College Enrollees End Up in Jobs Requiring College Degrees
https://www.manhattan-institute.org/sites/default/files/IB-PC-0216.pdf
This Issue Brief from Preston Cooper of the Manhattan Institute notes only 52 percent of U.S. students who enroll in college graduate within six years. Cooper also found 44 percent of those who graduate are underemployed, and only 33 percent of enrollees emerge from college with a bachelor’s degree and a job that requires one.

A Win-Win Solution: The Empirical Evidence on School Choice (Fourth Edition)
https://www.heartland.org/publications-resources/publications/a-win-win-solution-the-empirical-evidence-on-school-choice-fourth-edition?source=policybot
This paper by the Friedman Foundation for Educational Choice details how a vast body of research shows educational choice programs improve academic outcomes for students and schools, saves taxpayers money, reduces segregation in schools, and improves students’ civic values. This edition brings together a total of 100 empirical studies examining these essential questions in one comprehensive report.

Competition: For the Children
https://www.heartland.org/publications-resources/publications/competition-for-the-children
This study from the Texas Public Policy Foundation claims universal school choice results in higher test scores for students remaining in traditional public schools and improved high school graduation rates.

Recalibrating Accountability: Education Savings Accounts as Vehicles of Choice and Innovation
https://www.heartland.org/publications-resources/publications/recalibrating-accountability-education-savings-accounts-as-vehicles-of-choice-and-innovation?source=policybot
This Special Report from The Heritage Foundation and the Texas Public Policy Foundation explores how education savings accounts expand educational opportunities and hold education providers directly accountable to parents. The report also identifies several common types of regulations that can undermine the effectiveness of the program and how they can be avoided.

The Tax-Credit Scholarship Audit: Do Publicly Funded Private School Choice Programs Save Money?
https://www.heartland.org/publications-resources/publications/the-tax-credit-scholarship-audit-do-publicly-funded-private-school-choice-programs-save-money
In this study, EdChoice Director of Fiscal Policy and Analysis Martin Lueken updates previous work examining the fiscal effects of private school choice programs on state governments, state and local taxpayers, and school districts. This report analyzes savings from tax-credit scholarship programs, which allow individuals and businesses to reduce their state tax liability by making a private donation to a nonprofit organization that provides scholarships for children to attend private schools of their choice. This audit examines 10 tax-credit scholarship programs operating in seven states between 1997 and 2014, which serve 93 percent of all students participating in tax-credit scholarship programs nationwide.

The Fiscal Effects of School Choice Programs on Public School Districts
https://www.heartland.org/publications-resources/publications/the-fiscal-effects-of-school-choice-programs-on-public-school-districts?source=policybot
In the first-ever study of public school districts’ fixed costs in every state and Washington, DC, Benjamin Scafidi concludes approximately 36 percent of school district spending cannot be quickly reduced when students leave. The remaining 64 percent, or approximately $8,000 per student on average, are variable costs, changing directly with student enrollment. This means a school choice program attaching less than $8,000 to each child who leaves a public school for a private school actually leaves the district with more money to spend on each remaining child. In the long run, Scafidi notes, all local district spending is variable, meaning all funds could be attached to individual children over time without creating fiscal problems for government schools.

How School Choice Programs Can Save Money
http://www.heritage.org/Research/Education/wm727.cfm 
This Heritage Foundation study of the fiscal impact of voucher programs notes Washington, DC vouchers cost only 60 percent of what the city spends per pupil in government schools. The study estimates if the states with the top eight education expenditures per pupil adopted voucher programs similar to the Washington, DC program, they could save a combined $2.6 billion per year.

How School Choice Can Create Jobs
https://www.heartland.org/publications-resources/publications/how-school-choice-can-create-jobs?source=policybot
Examining five South Carolina counties, Sven R. Larson found school choice programs were associated with gains of up to 25 percent in youth self-employment. Larson writes, “School Choice raises academic achievement and reduces the problems and costs associated with high school dropouts. But it also has a decisively positive impact on youth entrepreneurship and could provide a critical boost for the economies of poor, rural counties.”

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit School Reform News at https://www.heartland.org/publications-resources/newsletters/school-reform-news, The Heartland Institute’s website at http://heartland.org, and PolicyBot, Heartland’s free online research database, at https://www.heartland.org/policybot/index.html.

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Author
Tim Benson joined The Heartland Institute in September 2015 as a policy analyst in the Government Relations Department.
TBenson@heartland.org @BenceAthwart