Over the past several years the nation has finally begun a conversation about how much the government should transfer wealth from one person to another.
Entitlements programs like Medicaid are designed to transfer wealth from wealthier Americans to poorer ones. President Obama’s new health care law is framed in a way that forces younger people to subsidize older ones. And then there’s the tax code, which does everything from shift money from renters to homeowners (the home mortgage interest deduction) to diverting tax dollars from childless adults to parents (child tax credit).
The relative merit of each of these things (and many more similar transfers) is up for debate, but the most important thing, at least for now, is that there is a some level of discussion. Unfortunately, many college students may be completely unaware of one of the biggest subsidization schemes that impacts them. Douglas Belkin reports for The Wall Street Journal:
But as states grapple with the rising cost of higher education, middle-income students at public colleges in a dozen states now pay a growing share of their tuition to aid those lower on the economic ladder.
The student subsidies, which are distributed based on need, don’t show up on most tuition bills. But in eight years they have climbed 174% in real dollars at a dozen flagship state universities surveyed by The Wall Street Journal.
During the 2012-13 academic year, students at these schools transferred $512,401,435 to less well-off classmates, up from $186,960,962, in inflation-adjusted figures, in the 2005-06 school year.
Half a billion dollars is a lot of money to be redistributing without letting college students be engaged in, or at least know, of the process. Unfortunately, as the Journal later goes on to report, “opaque college financing generally keeps this accounting hidden from public view . . . largely to keep a lid on complaints from parents.”
Take the University of Wisconsin as an example. According to the Journal’s survey, full-time students paying in-state tuition contributed about $2,200 per year in subsidies, a 400 percent increase since 2006. That adds up to around $10,000 over a four-year period, more when interest is taken into account. Set that number against the fact that University of Wisconsin students graduate with an average debt load of $26,625, a figure that has risen steeply in recent years, but is still well below the national average of $32,500.
Should UW alums graduate with $10,000 more debt than they may otherwise have to? It’s a question that deserves public debate, especially given the tough economic realities facing many young graduates.
The total student loan tab is now more than $1.2 trillion, an enormous sum of money that will serve as a weight around the necks of an entire generation. Money that should be flowing into the economy—purchasing houses, starting businesses, and buying any manner of things—will instead be used to pay back debt.
And that assumes they can find jobs. But the double-digit unemployment rate and widespread underemployment rate could make it hard for many to even pay back their student loans. According to the most recent figures the default rate on student loans is quickly rising, up to nearly 15 percent in the latest three-year rate.
Given these stark realities, the debate over whether upper- and middle-class students should be forced to subsidize others becomes all the more important. Maybe the discussion would even lead to attempts to solve the bigger problem – ever-rising college costs and the impacts of government subsidies. But regardless of the answers that come out of the discussion, it’s a debate that should at least be done beyond the closed doors of university administrators.