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Two Presidential Candidates, Two Higher-Education Proposals

Two Presidential Candidates, Two Higher-Education Proposals

With Election Day a week away, it’s likely that at least some of your focus is on the two candidates and their very different policy positions. A lot of attention has been devoted to the candidates’ stances on hot-button issues like immigration, healthcare, and foreign policy. Higher education reform, on the other hand, has not gotten a lot of headlines, despite the fact that the two candidates are proposing very different policies. What are Clinton’s and Trump’s respective proposals for dealing with the over $1 trillion student debt crisis, rising tuition prices, and a persistent education gap?

                                                      Student image

NOTE: The illustrations, created by John Cadenhead and Azekeal McNees, are meant to give a general understanding of Trump’s and Clinton’s higher education reform proposals. As can be expected, there are many working parts not included in the illustrations. For more detailed specifics, consult the respective positions for Trump’s model and Clinton’s.

Trump:

Trump plan

Republicans have put forward a draft bill that would require universities with a certain endowment (currently $1 billion or more) to devote 25 percent of those endowments’ annual returns to student financial aid. Failure to do so would result in the loss of the universities’ tax-exempt status. Institutions affected by the proposed bill include Harvard ($32.7B), Yale ($20.8B), and the University of Texas system ($20.8B). Smaller colleges whose endowments also exceed the $1B threshold include Vassar College, Claremont McKenna College, and Davidson College. A list of other $1 billion plus endowments can be found here.

The concept seems easy enough. What exactly do colleges and universities do with their enormous endowments? Surely they could be made to part with some of the profits to support their own students, right? Scratch the surface of this plan, though, and a number of tricky questions surface, as exemplified by three institutions.

This past year, Yale saw a 3.4% return on its endowment from $24.6 billion, or $835 million. One quarter of that return would be around $209 million, which could cover the tuition of around 3,000 students (at the 2016-17 estimated COA of $68,230), or more than half of the 5,453 currently enrolled undergraduate students. It would seem that Republicans envision this sort of scenario: a massively wealthy school able to provide significant scholarship for the neediest of its students.

Ignoring the other purposes Yale had intended for its $200 million return, the model would work in this case for two reasons. First, Yale has a small student population, reducing the number of recipients for financial aid. Second, Yale was one of the few institutions whose endowment earned positive returns in 2015. The Republican bill has not yet addressed what happens if an institution posts negative returns.

Harvard saw a 2% decline on its endowment this year. Twenty-five percent of $0 is zero. According to this Republican bill (at least, what little we know so far), Harvard would have no responsibility to provide college aid to its students. A student who might have received financial aid to cover the previous year (if the institution reaped returns on its investment) would receive no financial aid from this program for the current academic year. The result is a potentially nerve-wracking semester for full-ride students as they eye the S&P 500, wondering if the latest dip in the stock market will signal that their financial aid might dry up.

And what about students at large universities that have substantial endowments, but much larger undergraduate enrollment?

The University of Georgia just makes it into the $1 B club, with $1.007 billion in its endowment. A 3% return would be around $30 million, 25% of which is approximately $7.5 million. With an undergraduate population of 27,547 students, the university would be able to distribute around $272 to each student. Yikes! That’s hardly a dent in the required books for the year, let alone tuition, room, and board ($26,208). Even a school like Davidson College, with a similar endowment and a fraction of the students (1,770), could only give around $4,200 to each student, whereas the school’s tuition for 2016 was $48,376.

We can only imagine the hard work that institutions would do to escape this endowment requirement. Imagine that you are the president of a college that has a $1.01 billion endowment. You might be motivated to gift a few million dollars to stay below the required threshold. I could also imagine a college manufacturing a split in order to maintain two separate campuses, each with endowments below $1 billion. I’m sure there are many more creative options for avoiding this funding tax.

The Republican bill has many other questions to answer before it can be considered on the House and Senate floors. The potential unintended consequences warrant further exploration. We expect institutions of all stripes to work very hard against this 25% rule. Additionally, the bill does not address higher education institutions whose endowments are less than $1 billion. This policy would have a minimal effect on students who are not attending a billion-dollar-endowment school.   

Clinton:

Clinton plan

Clinton’s plan is a bit more detailed than Trump’s. By “limiting certain tax expenditures for high-income taxpayers,” students from families earning $85,000 or less will be able to attend in-state four-year public colleges or universities without having to pay for tuition. By 2021, students from families earning less than $125,000 will be included. Community colleges will offer free tuition; HBCUs (historically black colleges and universities), Hispanic- and minority-serving institutions will also receive funding.

Clinton also pledges to take steps to deal with student debt: issue a 3-month moratorium on current student loan payments, cut interest rates, allow students to refinance loans, and provide assistance to delinquent and default borrowers.

Understandably, this plan has the private education sector concerned. A student offered the choice of a free diploma from a four-year public university or a $100,000 diploma from a private college would have significant incentive to go with the former. Also, there are concerns that the plan that rewards public colleges/universities and punishes private institutions would fail to notice the nuances. Not every private institution caters to the wealthy, nor is every public institution positioned best to serve the neediest. The New York Times highlights the tension between a small private Catholic school that serves low-income families and a better-off state school nearby. Clinton’s plan would make it very difficult for the smaller, less-funded school to continue its work.

One would expect public institutions to increase dramatically in applicants, as significantly more students would respond to the invitation of staying in-state for free tuition. With increased applicants would come increased competition, and decreased opportunity for lower-performing students. The education reform intended to serve the neediest of students may unintentionally push them out of flagship public institutions and into state colleges with higher dropout rates. Slate’s The Gist features an interesting episode considering the price-to-cost benefits that students already enjoy at a public institution, even with the accompanying student debt. Do middle- and upper-class families really need an even more bargain price for a college degree?

What can we expect?

In a Trump presidency, higher education reform would impact the relatively small number of students attending elite institutions, though the impact would differ significantly depending on the size of the student population and the yearly endowment returns. The proposed plan would have no impact on institutions with endowments under $1 billion.

In a Clinton presidency, higher education reform could bring positive and negative consequences, the effects of which would not be fully felt until the plan had been pushed out to states. Would it have the effect of increasing college graduation rates among low-income or underrepresented minorities? Would it see community colleges and HBCUs flourish? Or would it see a torrent of students fleeing high-cost private institutions in favor of free public institution, raising competitiveness and making it more difficult than it is now for struggling students to attend public institutions?

Unless the Democratic party wins big in the Senate and House this November, it is unlikely that a massive push by Clinton would have much effect, at least until midterm elections. We could expect her to issue some executive orders, say, in the realm of student debt, but the massive reform she is suggesting would require buy-in from both sides of the aisle. If the Democratic Party can win significant seats in the Senate and House in the next two election cycles, then maybe Clinton’s higher-education reform stands a stronger chance.


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