What is the proper way to finance higher education?

In my prior post, I do some back-of-the-envelope math to conclude that free higher education would direct as much as 40 times more money to rich kids than to poor kids. The point of the post is to insist — as has been my basic beat from the beginning — that there are serious distributive distortions involved in higher education that the left should take note of.

To arrive at my estimate, I used specific data that detailed the what percentage of kids at the top 150 colleges are from the top quarter of households, and what percentage of kids are from the bottom quarter. Mike Konczal left a comment on the post where he raises the issue that there are actually almost 5000 degree-granting institutions. So I went searching for more overarching data that would allow me to use the same method to arrive at an estimate. I found this dataset from Dynarski-Bailey.

According to Dynarski-Bailey, 54 percent of kids from the richest quarter complete college and 9 percent of kids from the poorest quarter do so. If we used those numbers, the rich-to-poor ratio would be 6:1. According to the same researchers, 80 percent of kids from the richest quarter enter into college and 29 percent of kids from the poorest quarter. The rich-to-poor ratio there is 2.76:1. These two numbers represent the most conservative possible estimate of how lopsided free college would be. Using enrollment and completion differential alone, for every dollar free college would direct to a poor kid, it wold direct $2.76-$6.00 to a rich kid.

But this most conservative estimate is impossibly low. We know from the data on the top 150 colleges that the rich kids are concentrated higher on the education ladder, and higher also means more expensive schools (excepting for-profits). From the College Board data mentioned in the prior post, we also know that the rich pay more than the poor at any given college. So the actual ratio of dollars going to rich and dollars going to poor is almost certainly much higher than the conservative estimates in the last paragraph. How much higher, I can’t say, but I am also not sure it particularly matters.

With that said, Konczal brings up a question that is worth pursuing: what should the policy be going forward? I think to answer this question we need to start actually formulating a more coherent set of basic principles that should guide our decisions on the proper way to finance higher education. I have seen very little of this so far on the left, and I really would like to see it. Those who write about this and talk about this a lot need to say something more than corporations make a lot of money, the rich are rich, and that tuition-based college alienates people from their species-being.

Here is my contribution of basic principles that I think matter when formulating higher education finance policy:

  1. It should be distributively fair when considering both those who attend college and those who do not.
  2. It should not subject students to serious downside risks, i.e. total ruination from debt.
  3. It should aim to control unit costs as much as possible.

So, reader, what are your thoughts on what the basic animating principles of higher education finance should be? And I don’t mean policy conclusions like “it should be tuition-free.” I am talking about what principles motivate us to reach these policy conclusions.