Hillary Clinton’s Debt-Free College Plan May Actually Drive Tuition Prices Higher

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Democratic presidential nominee Hillary Clinton recently unveiled a college tuition plan that would eliminate tuition for lower income students attending a public university. This tenet of her New College Compact was apparently the influence of her former primary opponent Bernie Sanders, who praised the plan as helping many students avoid “crippling student loan debt.”

Now the New York Times is reporting that this plan could have the opposite effect instead. The article predicts that by letting students whose families make under $125,000 a year go to college for free, universities would raise their tuition as a result. This is similar to colleges raising their prices with the expectation that the federal government would offer more financial aid to make up for the higher cost. A 2015 study from the Federal Reserve Bank of New York showed that for every $1 increase in federal subsidies that a college got, it would pocket 60 cents of that due to tuition increases or aid cuts by the college itself.

This kind of relationship between government subsidies and college tuition has been debated since 1987 with studies proving this hypothesis to varying degrees of success:

The logic is straightforward. Imagine if the government started handing out gift cards that could only be used to buy Broadway theater tickets. As there are only so many seats available, the price of tickets would probably begin to climb.

But efforts to measure the effect on tuition costs have ranged widely. Some studies have found little evidence of a significant impact. The New York Fed study, however, looked at three different increases in federal subsidies in recent years and found that each had produced a significant increase in college tuition.

Still, experts praise Clinton’s plan in addressing the debt that many students amass just to attend college. Under her plan, lower and middle-income students wouldn’t bear the increased cost anyway, while higher income families would likely pay to send their children to college anyway. As for increases in cost to the federal government, the returns on educating Americans at a higher level could end up making for that.

(via New York Times)