Obama Free Tuition: Subsidize College Administration by Taxing College Savings Accounts

[XLFD]

Back when we were covering the 2014 foibles of West Shore Community College (WSCC), namely the drunken driving by its former president, Chuck Dillon, and the termination/resignation of another administrator, Julie Van Dyke it was found out that the college receives only a little over 10% of its budget from tuition and fees imposed on the students.  The rest came from federal and state subsidization. 

President Barack Obama announced that he wants to make community colleges more affordable by cutting off the tuition and fees from the people utilizing the colleges.  But is this a good idea?  At first glance it might seem nice but there are a lot of potential drawbacks that make it a plan that has a lot of weaknesses.  A recent post in Reason by Scott Shackford covers many of those inherent problems about what we know of this plan.  One of the ways to fund this free giveaway is to punish those who have saved for college for years, read on, and learn.

President Barack Obama's State of the Union Address proposes $320 billion in taxes over the next 10 years. Pretty much every new story is presenting it as "increasing taxes on the wealthiest" to pay for programs to help the middle class. That's bad enough.

Obama's "America's College Promise" proposal, introduced this week, would provide "free"—as in subsidized by federal and state governments—community college educations. Here's how the White House says it will work:

Enhancing Student Responsibility and Cutting the Cost of College for All Americans: Students who attend at least half-time, maintain a 2.5 GPA while in college, and make steady progress toward completing their program will have their tuition eliminated. These students will be able to earn half of the academic credit they need for a four-year degree or earn a certificate or two-year degree to prepare them for a good job.

Building High-Quality Community Colleges: Community colleges will be expected to offer programs that either (1) are academic programs that fully transfer to local public four-year colleges and universities, giving students a chance to earn half of the credit they need for a four-year degree, or (2) are occupational training programs with high graduation rates and that lead to degrees and certificates that are in demand among employers.  Other types of programs will not be eligible for free tuition.  Colleges must also adopt promising and evidence-based institutional reforms to improve student outcomes, such as the effective Accelerated Study in Associate Programs (ASAP) programs at the City University of New York which waive tuition, help students pay for books and transit costs, and provide academic advising and supportive scheduling programs to better meet the needs of participating students, resulting in greater gains in college persistence and degree completion.

Ensuring Shared Responsibility with States: Federal funding will cover three-quarters of the average cost of community college. States that choose to participate will be expected to contribute the remaining funds necessary to eliminate community college tuition for eligible students. States that already invest more and charge students less can make smaller contributions, though all participating states will be required to put up some matching funds. States must also commit to continue existing investments in higher education; coordinate high schools, community colleges, and four-year institutions to reduce the need for remediation and repeated courses; and allocate a significant portion of funding based on performance, not enrollment alone. States will have flexibility to use some resources to expand quality community college offerings, improve affordability at four-year public universities, and improve college readiness, through outreach and early intervention.

There obviously is a huge incentive for further grade inflation for community colleges to get those 2.5 GPAs. It's important to remember the free money getting tossed around is going to college faculty and administrators, not to students. It's not the students being subsidized, it's the college.

So they're going to do everything in their power to keep these students attending, even if it results in students leaving college with associate's degrees they can barely read, which will subsequently devalue the degrees in the eyes of employers.

All community colleges also have terrible completion rates for students seeking two-year degrees. The Chronicle of Higher Education offers a handy map showing completion rates less than 15 percent in Michigan (with states like Indiana and Rhode Island under 10%) after three years of attendance.  But to be clear, having a low completion rate over three years shouldn't necessarily be seen as a criticism of the community college system whose objectives are often different than four year colleges.

The White House's position is that community colleges are already accessible and affordable, so why offer this new program?  What they're offering doesn't appear to be a loan. If a student falls into the extremely high drop-out rate for students, the government (and the taxpayers) don't get the money back. So the White House is promoting a program funded by taxpayers to subsidize—wait, I mean further subsidize—a system that has baked in an extremely high failure rate.

But again, this program is not a subsidy for students. It's a subsidy for faculty and college level administrative bloat. The Weekly Standard notes that the White House declined to detail the cost of the proposal, but the math is easy to calculate. The administration states that 9 million students would "save" $3,800 a year. That puts the cost at $34 billion, split between the federal government and states who participate. Community college presidents across the country are drooling.

Remember, the blame for skyrocketing college costs has been laid squarely at the feet of bloating administrative staff in higher education. One study states from early 2014 states administrative staff led to a 28 percent boom in the higher education workforce, even in the middle of this recession (while faculty salaries remained fairly flat). Community colleges actually lost both part-time and full-time faculty members during the recession, but nevertheless gained an average of three administrative positions per 1,000 students.

It should be obvious now that that calls for "evidence-based institutional reforms" sounds good but is, in actuality, code for "MORE ADMINISTRATORS! WE NEED MORE ADMINISTRATORS DOING STUDIES AND PROVIDING MORE 'STUDENT SERVICES' OVER HERE!"

Ultimately what will happen is that the subsidies will be consumed by this bloat and community colleges will not be able to expand to actually accommodate additional students, so we'll see more students being forced to wait, or tuition costs will quickly rise above the administration's subsidy (which doesn't seem to have a cap, but obviously is going to have to or god help us all) in order to get more money to actually pay for the classes the students need. This is exactly what's happening at four-year colleges already.

 

It's not like Obama is proposing increasing taxes to pay for fundamental government operations. It's just a wealth transfer to cover the "costs" of offering up tax credits to families with two working parents (screw you, stay-at-home moms and dads!). But beyond that, Americans for Tax Reform looked at the package and point out several ways these tax increases are going to potentially come back and hurt others besides the richest among us.

Obama previewed his plan for "free" community college for students seeking associate's degrees a couple of weeks ago. The administration has put a price tag of $60 billion over 10 years for it (which means it's likely to be much higher). Part of how Obama plans to pay for it is to tax the special saving funds, called 529 plans, that people can use to gather money to pay for their children (or themselves) to go to college:

Under current law, 529 plans work like Roth IRAs: you put money in, and the money grows tax-free for college. Distributions are tax-free provided they are to pay for college.

Under the Obama plan, earnings growth in a 529 plan would no longer be tax-free. Instead, earnings would face taxation upon withdrawal, even if the withdrawal is to pay for college. This was the law prior to 2001.

[Willy]

I yeild the floor to Ann Coulter. She expresses my opinion on this much better than I can. Pay attention to the idiots sitting behind Obama. They all resemble bobble head dolls as he speaks.

[XLFD]

I used to avoid getting calls from the two universities I attended and graduated from when they'd call for extra dollars to subsidize the poor students that could not afford the steadily rising tuition.  My favorite tact now is to get the student calling off their script and attempt to educate them as to why the costs of tuition is rising so fast over the last several years while the product only seems to be getting worse.  They are usually pretty ignorant as to how their university's money is spent on.