Is in-state college tuition a “handout to the rich”?

by Grace

Affluent families benefit the most from taxpayer subsidies that lower tuition for in-state residents.

States across the country subsidize higher education for their residents by paying the difference between in-state tuition rates and what a college education really costs. This is so much a part of the American fabric that few stop to think about its regressive aspect.

“We are subsidizing affluent people,” says Sandy Baum, an expert on higher education finance and a senior fellow at the nonprofit Urban Institute. “Young people from affluent families are much more likely to go to college, and more likely to go to four-year colleges, and more likely to go to the flagship colleges.”

In Maryland, “the state appropriates $19,000 for each Maryland student to help pay for their education”.  Wallace Loh, president of the University of Maryland at College Park, questions the fairness of this policy.

“… We have a model of low tuition and low aid. So the state is subsidizing those who can easily pay higher.”…

“Should we do a little more redistribution in order to make this opportunity available to all people, which is the great equalizer in a democracy?” he asked.

This perspective is unusual, and it’s doubtful that any attempts to redistribute funds away from high-income taxpayers paying college tuition will gain much traction.  Many probably believe they subsidize other residents too much as it is.  But this generous subsidy should be understood for what it is, and could be considered in the same light as other tax benefits that disproportionately benefit wealthy individuals.

The subsidy for the rich hidden within in-state tuition mirrors other entitlements that are defended by both parties as lifelines for the struggling middle class. Billions of dollars in tax deductions for mortgages, charitable giving and state and local taxes, for example, go to the wealthy, and people from President Obama to conservative economist Martin Feldstein have proposed targeting those more sensibly. Congress hasn’t wanted to touch them, either.

Could it be that Congress doesn’t want to touch them because it would mean losing the currency politicians use to stay in power?

By the way, it should be noted that some tax deductions for the rich have been targeted by Congress.  For example, the Alternative Minimum Tax and the “Pease Limitation” significantly reduce mortgage tax deductions for high-income taxpayers.

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Fred Hiatt,  “In-state college tuition: A handout to the rich”, Washington Post, November 2, 2014.

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