A broken system.

Tuition fees in the United States have skyrocketed in recent decades, accompanied by an equally precipitous growth in student debt. Higher tuition fees make it more difficult for the poor to attend university. The large debt pile they incur puts them at a disadvantage with respect to children with richer parents, who can graduate debt-free, fostering inequality.

Not all things broken are useless.

This is all true, and the system as a whole is broken and needs fixing. But a system that involves high tuition fees, when accompanied by need-based aid and need-blind admissions, can also act as a redistributive mechanism, a sort of progressive taxation, reducing inequality.

There are likely multiple examples of such a policy, but I will use the one that I and most of you are most familiar with, Princeton. Princeton has need-blind admissions, need-based financial aid, and a no-loan policy. Additionally, it relies on alumni donations for a significant proportion of its funding.

Pay what you can.

The cumulative effect of this is that the rich subsidize the poor, but in a way that is far more efficient and less burdensome than through progressive taxation. Those who are able to pay the full tuition fee do so, and receive an excellent education for it. Conversely, those who are admitted but are not able to pay the full tuition fee pay as much as they are reasonably able to pay (Princeton’s general guideline is 10% of parents’ income, more or less depending on assets). All receive the same education.

The cost of educating a student is roughly the same for everyone. For simplicity, let us assume that the cost per student is equal to the average tuition fee paid (temporarily discounting alumni donations). This means that, in effect, all of the tuition paid by students with richer parents over the average tuition is directly subsidizing those who are paying less than the average tuition. In other words, the rich are subsidizing the education of the poor.

Redistribution and social mobility without bureaucracy.

This system is far more redistributive and efficient at promoting social mobility than other university systems, such as the German one, that are generally considered more egalitarian. In Germany, universities are free, fully subsidized by the state. However, well-off children also benefit from this, and the poor also pay taxes, albeit far less than the rich. The system is thus less efficient at redistribution than the one embodied by Princeton, in which the poor do not have to pay anything, and the rich do not receive any subsidy.

Because it is more direct, there is also less bureaucracy, further increasing efficiency. There is less scope for corruption, since the movement of money is clear and the path it follows is short and independent of government. And finally, the rich who pay full tuition are receiving a tangible benefit, which they would not otherwise receive. If you manage to dodge taxes by moving money abroad, you are not banned from the roads; if you refuse to pay tuition, your child does not receive the education you desire. There is thus less incentive, and less possibility, for tax-dodging (or in this case, tuition-dodging).

Incentives.

One final important benefit of such a direct redistributive system is that it provides additional incentives for improving performance to universities. If a university receives its funding from the state, it has little incentive to woe students, since they are not responsible for its funding. Even if the funding is conditional, the link between student and university funding is not direct. A university funded at least partially through tuition, on the other hand, has a clear financial incentive to attract students and improve itself.

The Problems

If the rich pay…the rich decide.

However, because the rich pay most of the tuition, this incentive is distorted: the university has a strong financial incentive to cater to their interests and ignore those who are on financial aid.

In my personal opinion, I think this can be at least partially mitigated by government involvement. If universities rely on state funding for some of their financial needs, and if that funding is tied to conditions regarding the equal treatment of all students, this could provide a counter-balance to the distorted financial incentives of graduated tuition fees. Regulation may also help. However, that is just my opinion, and it is very well possible that there may be other systems, public or private, which could also correct this misalignment of incentives.

Princeton’s model is not replicable.

Furthermore, Princeton’s model cannot be replicated across an entire country. Princeton receives a significant amount of funding through alumni donations, which although also a form of subsidy, cannot easily be institutionalized into a university system. Furthermore, it has a large endowment. It is thus unrealistic to think that the Princeton model could be emulated on a country-wide scale.

Conclusion: The Value of High Baseline Tuition Fees

The basic concept: graduated tuition fees.

Although Princeton’s entire model is not replicable, and there is the problem of misaligned incentives, the basic concept is sound, and easily replicable: graduated tuition fees, determined by ability to pay, tied with need-blind admissions.

It is important to note that this would be merely one component of a comprehensive university system. It is unlikely to work on its own; as mentioned, at Princeton it is combined with lavish alumni donations and a large endowment. I do not have the answer for how the perfect university system would look; but I do think that such a system would include, in at least some form, the graduated tuition fees system I have described.

The main take-away: high baseline tuition fees are not necessarily bad.

The main message I want to impart on you is that a high baseline tuition fee is not necessarily bad, nor does it necessarily foster inequality, if it is tied with need-blind admissions and a graduated system of fees based on ability to pay. In fact, it can have the opposite effect, and act as a highly progressive and effective tax.

In today’s environment, in which high tuition fees are almost universally decried, I think that’s a very important point to keep in mind.