College Self-Financing

Assist College Students with a Small, Simple, Standard, Grant

Replace existing federal tax subsidies, grants, and loans for higher education with a single federal grant worth 50% of the in-state tuition at the median state’s four-year public university. Establish a loan facility to support colleges and universities as they transition to self-financing their product.

America’s “college-for-all” model has produced a perverse financing system for higher education. Policymakers see a college education as the key to opportunity, subsidizing student attendance with loans—no matter the cost. Colleges and universities receive their money up front, regardless of how students perform or whether the education prepares them for success. Most enrollees fail to graduate or else land in jobs that do not require their college degrees, yet tuition continues rising. This model has resulted in student debt becoming the nation’s largest form of non-mortgage debt, growing from $260 billion in 2004 to $1.53 trillion in 2020. The public has a legitimate interest in supporting affordable college education for those who will benefit from it. But loaning large amounts of taxpayer money to teenagers with uncertain prospects and no collateral, to purchase an education whose provider has no accountability for results, was never a wise approach.

Colleges and universities should thrive only by ensuring that the students they admit have strong prospects of success, that the students who attend graduate on-time with a useful education, and that graduates carry minimal debt and find jobs in which they can pay off whatever loans they do have. The best way to establish the right incentives and place risks where they belong is to require these institutions to self-finance. Colleges financially dependent on their alumni’s future earnings to fund their ongoing operations would very quickly find lower costs and better outcomes central to their existence.

The United States should move its higher education system in this direction by eliminating existing tax subsidies, grants, and loans, and instead creating a single federal grant worth 50% of the in-state tuition at the median state’s four-year public university. Such a grant would make a high-quality, public university education available to all Americans, provide public support for its pursuit, and create incentives for states to hold the costs of their own systems in check. Those reforms would leave colleges with no option but to self-finance the remaining costs for the vast majority of students unable and unwilling to pay the entire tuition upfront. Public universities, and many well-capitalized private ones, are in a position to do so already. But Congress should also create a loan facility to support those who require assistance with funding their operations as they transition to self-financing.