Higher Education Subsidies Research Articles

Tapping into Talent: Coupling Education and Innovation Policies for Economic Growth

Abstract How do innovation and education policy affect individual career choices and aggregate productivity? This paper analyses the effect of R&D subsidies and higher education policy on productivity growth through the supply of innovative talent. We put scarce talent, higher education attainment, and career choice at the centre of a new endogenous growth framework with individual-level heterogeneity in talent, financial resources, and preferences. We link the model to micro-level data from Denmark on the backgrounds of who obtains a PhD and becomes an inventor and the outcomes of a set of policy interventions. We find that R&D subsidies can be strengthened when combined with higher education subsidies, which enable talented but poor youth to pursue a career in research. Education and innovation policies not only alleviate different frictions, but also impact innovation at different time horizons. Education policy is more effective in societies with higher income inequality.

Differential Education Subsidy Policy and Wage Inequality Between Skilled, Semi-skilled and Unskilled Labour: A General Equilibrium Approach

The article investigates the effects of secondary (including vocational) and higher-education subsidies on wage inequalities between skilled, semi-skilled and unskilled workers, and unemployment in a small open developing economy in terms of a two-sector Harris–Todaro dynamic general equilibrium framework. The results show that skilled–unskilled and skilled–semi-skilled wage inequalities depend on factor intensity conditions, while semi-skilled–unskilled wage inequality is determined by the level of skill formation in the economy. There is a trade-off between the wage inequalities of skilled–semi-skilled and semi-skilled–unskilled workers due to secondary education subsidy; the trade-off also exists with respect to higher-education subsidy if the manufacturing sector is more skilled labour intensive. However, if the manufacturing sector is capital intensive, higher-education subsidy is detrimental for both types of wage inequalities in the initial years of skill formation but might have favourable effects when the skill endowment is high. Both types of subsidies reduce unemployment in the initial periods, but higher-education subsidy accentuates it when skilled labour supply expands in the economy.

Tuition, Targeting, and Tradeoffs: A Conjoint Analysis of Americans’ Preferences over the Design of Higher Education Subsidies

ABSTRACT Over the past three decades, political candidates and elected policymakers have advanced a wide variety of publicly funded tuition-subsidy programs to improve college access and -affordability. These college-aid programs employ different subsidy instruments, target different types of students, draw from different funding sources, and come with different strings attached. This study assesses Americans’ preferences over the multidimensional design of such higher education subsidies using a conjoint survey experiment with randomized policy proposals that vary in their subsidy instruments, target populations, eligibility requirements, and funding arrangements. The results suggest that fiscal tradeoffs loom large in Americans’ support for higher education programs, but elements of subsidy design matter as well: respondents (particularly Republicans) prefer aid packaged as tax credits; strongly means-tested programs receive greater support than broader, income-based aid (an effect driven by Democrats); and subsidies targeted to community college students enjoy substantial, bipartisan support. The study’s results shed light on differences in extant tuition-subsidy programs’ popular support and provide empirical grounding for debates over the prudent design of college aid by estimating tradeoffs that programs confront between efficiently targeting marginal students and securing broad popular support.

Federal Financial Aid and Family Formation: Examining the Social Security Student Benefit Program

A broad empirical literature asks if social policies designed to provide benefits to low-income families also affect family formation patterns. While most of the evidence suggests that family formation effects are small at best, and often nonexistent, recent research argues that policies that alter budget constraints considerably should have greater family formation impacts. We tested this hypothesis by investigating the Social Security Student Benefit Program (SSSBP), a program designed to provide large higher education subsidies for the children of disabled, retired, or deceased parents. Conditions for receipt of SSSBP created strong incentives to delay marriage. Utilizing data from the National Longitudinal Survey of Youth, 1979, and a difference-in-differences model, we found that women potentially qualifying for the SSSBP were much less likely to marry before age 22 and were older when they had children, while the program did not influence the probability of women ever marrying or having children. Impacts on men, however, were negligible.

'Pay it Forward' and Higher Education Subsidies: A Theoretical Model

Since 2013, at least 24 states have considered legislation on Pay It Forward (PIF) models of higher education finance (which enable students to pay the price of college upon departure from an institution, as opposed to paying upfront tuition). This paper proposes a theoretical model of PIF policies within a framework in which voters belonging to different income groups vote over the level of subsidies to higher education. We analyze the impact of two facets of potential PIF policies – a deferred tuition approach and an income share approach – on college access and on voting equilibria over subsidy levels. The results show that college access is enhanced by PIF policies. The equilibrium level of subsidies depends crucially on the pattern of income distribution, in particular on the relationship between mean income and the income of the median income group. We show that the equilibrium level of subsidies to higher education will not necessarily decline under PIF, and may increase in some equilibria due to changes in college access for low income groups. We also present a descriptive cross-country empirical analysis showing that there are higher levels of access to college credentials in countries with deferred tuition systems.

Letter from the Editorial Board

Letter from the Editorial Board Bryan C. Hutchins and Scott A. Morrison The Pew Research Center recently reported that record numbers of young adults are completing high school, attending college, and finishing college. In fact, for the first time ever, one-third of 25- to 29-year-olds in the United States has earned at least a bachelor’s degree (Fry & Parker, 2012). Fry and Parker note that the sluggish economic recovery probably plays a role in the rising rates of high school and college completion, but they also acknowledge that broad public support for college-as-a-means-to-get-ahead contributes to the trend. While many see college as a very important means to achieve “success” in life, others are worried that there are mixed and problematic messages in the discourse that promotes “college for all.” For example, Samuelson (2012) argues that there are unintended and troublesome consequences when college (particularly a 4-year degree) is promoted as the optimal pathway after high school. Samuelson argues that the “college for all” paradigm drives down the quality of higher education by pushing under-qualified students toward college (see Arum & Roksa, 2011), reduces students’ motivation by signaling that their aspirations aside from college are not valued, and stigmatizes those who do not go on to college.1 Others question whether higher education is worth the investment (e.g., McArdle, 2012). Tuition costs are rising faster than the rate of inflation, and both private and public institutions are reducing loans, grants, and subsidies for higher education (College Board Advocacy and Advisory Center, 2012). Finally, Glass and Nygreen (2011) argue that the “college for all” discourse “overstates the need for math and science knowledge and skills” (p. 1), has increased debt burdens for low-income and racially, culturally, and linguistically diverse students, and “maintains and reinforces long-standing class- and race-based structural inequities” (p. 7). At The High School Journal, we are in favor of measures that provide the necessary encouragement, training, and financial aid to make post-secondary education a possibility for all students. However, we also recognize the drawbacks to the “college for all” crusade. In the remainder of this letter, we cite recent studies that inform our position. We conclude by advocating for a more nuanced approach to helping students make decisions about post-secondary education opportunities that are supportive of their diverse ambitions and needs. Parents, teachers, counselors, and other adults often encourage young people to attend college—or to at least make an attempt (Rosenbaum, Stephan, & Rosenbaum, 2010; Schneider & Stevenson, 1999). However, among the class of 2011, approximately one-third did not enroll in any type of postsecondary program (Bureau of Labor Statistics, 2012a). Of those entering a bachelor’s degree program in 2002, only 57% graduated within six years, with lower-performing high school students being the most likely to drop out (Snyder & Dillow, 2011). In fact, over 80% of low-performing high school students that attend college eventually drop out, with half receiving zero college credit while racking up debt for remedial college courses (Rosenbaum, 2001). The College Board has set a goal for raising college completion rates (associates degrees or above) to 55% by 2025. Even if this goal were met, about half of our youth would still not complete post-secondary education. Some students have clear career goals that do not include going to college (Blustein, Chaves, Diemer, Gallager, Marshall, et al., 2002; Bozick & DeLuca, 2011; Burnell, 2003). However, most of these students do not take part in available [End Page 73] high school vocational or career and technical education (CTE) programs (Stone & Aliaga, 2007). This is not to say that all students who forgo college should take part in vocational or CTE programs. But it is surprising that so few work-bound students take part in programs that provide specific training for occupations that provide immediate employment after high school. Unfortunately, these students may be marginalized at school because of their work-oriented ambitions and may find career counseling and school-to-work training opportunities missing in school contexts where a 4-year degree is heavily promoted. A number of recent reports show that even during these uncertain economic times there...

Education, Agglomeration and Fiscal Competition

This paper analyzes fiscal competition to attract mobile students within a federation, taking into account both direct positive effects of tertiary education on local output and indirect effects on the workplace choices of high-skilled graduates. The policy analysis of subsidies for higher education is embedded in a model of labor mobility and Marshallian agglomeration externalities which may give rise to a core-periphery pattern. The main implications of the analysis are: First, the higher the positive impact of student enrollment on aggregate output is, the higher education subsidies are. Second, the stronger agglomeration externalities of high-skilled employment are, the greater the differences between education subsidies across regions.

Tuition Inflation, Prepayment Programs, and the Mispricing of Tuition Prepayment Contracts

Twenty-two states and a consortium of more than 250 private colleges have designed tuition prepayment contracts to help families manage their tuition inflation risk exposure by prepaying the future cost of college. Nine of these states have either suspended enrollments (one temporarily) or terminated their plans, and at least 12 programs are balance-sheet insolvent. This paper analyzes college tuition inflation, describes tuition prepayment contracts, and develops a contingent-claims model to price them. The model allows for the adverse selection risk that program sponsors face, the moral hazard risk that contract purchasers bear, and the large discontinuous jumps that characterize tuition inflation especially in recent years. I find that the contracts in the largest, most popular public (Florida and Michigan) and private (Independent 529 Plan) programs are mispriced. The Florida and Independent 529 Plan contracts are underpriced, and Michigan's contracts are underpriced for the youngest beneficiaries and overpriced for the oldest beneficiaries even after allowing for adverse selection risk. Florida and Michigan have reduced their underpricing in the last three years, which coincide with public universities in many states announcing large jumps in tuition in response to cutbacks in state subsidies for higher education.

Public Subsidies for Higher Education in California: An Exploratory Analysis of Who Pays and Who Benefits

This study examines the racial and ethnic distribution of the costs and benefits of higher education in California. This exploratory work documents the racial and ethnic distribution of these benefits, in the form of enrollments in different sectors and different types of institutions, as well as on the costs, in the form of the share borne by families versus the state. The study builds on the work of Hansen and Weisbrod, who examined the distribution of costs and benefits for higher education in California for students from different income groups. This study utilizes data from a variety of sources, including the California Postsecondary Education Commission, the California Student Aid Commission, EdFund of California, the National Center for Education Statistics, the U.S. Census Bureau, and other agencies and departments in California.

Higher Education Appropriations and Public Universities: Role of Medicaid and the Business Cycle

Higher Education Plays a critical role in supporting macroeconomic growth and, for individual students, represents a gateway to future economic success. Higher education also exerts significant influence on a regional and local basis, in terms of both economic and civic development. For example, the quality of a region's higher education institutions and the proportion of college graduates in the population appear to be important determinants of per capita income growth.1 Research spillovers from universities are also somewhat geographically localized.2 The status of the nation's overall higher education system and local higher education institutions is thus of crucial importance to major urban areas. In the United States, state governments historically have taken the lead in financing higher education. But over the past twenty years, state government support for higher education has gradually waned, and the share of higher education expenditures subsidized by state appropriations has declined. One result of declining state support has been the widely publicized rise in tuition at public [End Page 99] institutions.3 However, there is a second result, which is less well recognized, namely a widening gap in expenditures per student and in average faculty salaries between public and private institutions. The relative decline in spending per student at public universities appears to be exerting an adverse effect on the quality of faculty, students, and education delivered at such institutions. Since roughly three-quarters of college students are enrolled at public institutions, any decline in the relative quality of the nation's public universities could have significant implications. In this paper, we examine interactions between state appropriations for higher education and other state budget items (especially Medicaid) and the business cycle. We document the substantial decline in state support for higher education over the past two decades, explore the business cycle's effects on higher education subsidies, and compare the cyclical patterns in higher education spending with the cyclical patterns in other types of spending. We also examine the relationship between the Medicaid program and state higher education spending. In addition, we look at how declining state appropriations for higher education affect the relative quality of public higher education institutions. State Support for Higher Education The decline in state support for higher education over the past several decades manifests itself in several common measures.4 Figure 1, which shows state appropriations for higher education relative to personal income,5 demonstrates state appropriations have fallen from an average of roughly $8.50 per $1,000 in personal income in 1977, to an average of $6.80 in 2003. Since personal income amounted to $9 trillion in 2003, state appropriations would have been about $15 billion higher in 2003 if appropriations had been maintained at the ratio to personal income that existed in 1977.6 [End Page 100] Click for larger view Figure 1 State Appropriations for Higher Education per $1,000 of Personal Income, 1977–03 On a real per capita basis, state appropriations rose rapidly in the mid- to late 1980s and then fell sharply in the early 1990s.7 Beginning in the mid-1990s, higher education appropriations rebounded, but only sluggishly. In the late 1990s the rise in state appropriations accelerated, so that by 2001 state appropriations returned to approximately their level in the late 1980s. Note, however, that the 1990s recovery appears quite different from the 1980s [End Page 101] recovery. Appropriations were slower to recover during the 1990s and never exceeded their previous peak. Since 2001, appropriations have declined sharply again, repeating the earlier business-cycle patterns. The same basic pattern holds with regard to appropriations per full-time equivalent student (see figure 2). Click for larger view Figure 2 State Appropriations for Higher Education per Capita and Student, 1977–03 State appropriations also declined... collapse You are not currently authenticated. If you would like to authenticate using a different subscribed institution or have your own login and password to Project MUSE Authenticate

Are Higher Education Subsidies Second Best?

AbstractAn optimal taxation framework is considered in which part of the population can take advantage of investment in higher education. It is shown that social welfare can sometimes be increased by supplementing linear income taxes with a subsidy to material investment in higher education, but that social welfare can never be increased by supplementing a non‐linear income tax with such a subsidy.

6 - Means Testing: The Dilemma of Targeting Subsidies in African Higher Education

Means testing, a form of subsidy targeting, attempts to distribute at least some higher education subsidies on the basis of need or estimated ability to pay. This article explores the major principles, approaches, and challenges as well as some of the controversies surrounding means testing, taking into account the unique context of the African continent. For example, in many African countries incomes are not only low but are also frequently hidden or partly in kind. Assets are often both minimal and extremely illiquid. These conditions limit possible cash contri- butions toward higher education but also make it difficult to measure and to verify the subsidies to which many families are entitled. Therefore, many developing countries complement measures or estimates of income and assets with so-called categorical indicators of need (e.g., race/tribe/ethnicity, parents’ education, type of employment, secondary school attendance, possession of an automobile or access to a car driver) which are readily observable and more difficult to hide than con- ventional measures of incomes or assets. This article acknowledges some imper- fection in these measures but argues that rough justice in estimating ability to pay is still preferable to equal subsidies for all. It concludes with some recommenda- tions about targeting subsidies to higher education in Africa.

Redistribution and Subsidies for Higher Education

The financing of higher education through public spending imposes a transfer of resources from taxpayers (whether or not they are users of the educational services) to the university students ans their parents. Furthermore, most of these students come from middle and upper income groups, who are, therefore, the chief recipients of such transfers of purchasing power. We provide a simple explanation for this phenomenon. We already know that the individuals who attend higher education will earn a higher level of income in the future and, as such, will pay more taxes. People whose children do not attend higher education, howevershould agree to help pay the cost of such education, providing that the taxes are sufficiently high to ensure that there will be an adequate redistribution in favor of their own children at some time in the future.

Redistribution and Subsidies for Higher Education

The financing of higher education through public spending imposes a transfer of resources from taxpayers to university students and their parents. We provide an explanation for this phenomenon. Those who attend institutions of higher education will earn more income in the future and will pay more taxes. People whose children do not receive higher education, however, should agree to help pay the cost of such education, providing that taxes are sufficiently high to ensure an adequate redistribution in favor of their own children at some time in the future. JEL classification: D71; H21; H52

Higher education subsidies and heterogeneity: a dynamic analysis

In this paper, we develop a simple dynamic general equilibrium framework to address the effects of increasing higher education subsidies in the US, from their already substantial levels, on inequality, welfare, and efficiency. We focus on three policies. The first is a tax and subsidy scheme that ensures that the parental decision to send a child to college is independent of income. Such a policy decreases the efficiency of the utilization of education resources, while the welfare gain is minimal. The second policy maximizes the fraction of college educated labor. This results in a large drop in the above-mentioned efficiency with little or no welfare gain. The third is the provision of merit-based aid to the poor as opposed to purely need-based aid. This policy can increase education efficiency with little decrease in welfare. Based on these experiments, we conclude that the case for further increases in higher education subsidies might have been overstated.

Black Male Unemployment

Public policies intended to raise the wages of unskilled workers, equalize educational opportunity, stabilize employment, and increase imports were sources of the growth of unskilled and, therefore, of black unemployment since 1950. The wartime wage-equalization policy and postwar minimum-wage policies raised the cost of unskilled labor relative to that of capital and of skilled labor. The Fed's inflationary full-employment policy between 1950 and 1970 reduced real interest rates relative to unskilled wages. Subsidies for higher education increased the supply of skilled labor, reducing its cost relative to that of unskilled labor. Trade liberalization increased imports of manufactured goods from developing countries, which displaced U.S. unskilled labor.

Staff, Students Protest University Cuts

Berlin—Not since the heady days of anti-Vietnam War protests and student strikes had Berliners seen such a massive university demonstration. But this time the 30,000 students who took to the streets on 24 April were not railing against the academic establishment; they were marching in step with militant university presidents, deans, faculty members, and many scientists who joined in protesting deep cuts in Berlin's subsidies for higher education and university research. The planned cuts could hit science programs especially hard.

Keeping College Affordable: Government and Educational Opportunity.

As Congress debates the reauthorization of the basic federal student aid legislation, and as governors and state legislators cope with increasingly severe budgetary problems of their own, the issues of preserving college opportunity and sharing the burden of college costs are particularly critical and timely. This book assesses the role of government subsidies for higher education --especially but not exclusively federal student aid --in keeping college affordable for Americans of all economic and social backgrounds. The authors examine the effects of student aid policies of the last twenty years. They address several vital questions, including: Has federal student aid encouraged the enrollment and broadened the educational choices of disadvantaged students? Has it made higher education institutions more secure and educationally more effective --or has it raised costs and prices as schools try to capture additional aid? Has federal student aid made the distribution of higher education's benefits, and the sharing of costs, fairer? And what are the likely trends in patterns of college affordability?Drawing on their analysis, the authors highlight some of the principal dimensions of policy choice on which the debate has focused, as well as some that have been relatively neglected. Building upon their conclusion that student aid works, they propose reforms that would bolster the role of income-tested aid in the overall student financing picture. McPherson and Schapiro recommend a number of incremental reforms that could improve the effectiveness of existing federal aid programs and present a proposal to replace a substantial fraction of state-operating subsidies to colleges and universities with expanded federal aid.

Student loans for higher education in Singapore: some observations

The higher education system of Singapore is seen as crucial for the economic prosperity of the country. It is highly elitist, with fierce competition for limited places, and high private returns. In 1989 the Government announced a policy of reducing subsidies for higher education, in order to reduce the financial burden on the tax-payer, increase expenditure on other levels of education and achieve a more equitable distribution of costs. Tuition fees were increased sharply and a new student loan scheme, the Tuition Loan Scheme (TLS), was introduced. There are in addition two other loan schemes in Singapore, the Student Loan Fund (SLF), and the Central Provident Fund (CPF) Approved Education Scheme, under which parents may borrow from their CPF savings in order to finance their children's higher education, but must repay the loan. This article examines the arguments for and against student loans in Singapore, and concludes that the conditions necessary for a successful loan scheme are already in place: full employment, high private returns to higher education, and an efficient banking system and financial infrastructure. In the light of those conditions student loans seem to be an efficient and equitable form of finance for higher education in Singapore.

Federal student financial aid awards as subsidies for higher education: What kinds of institutions are we supporting?

This paper attempts to shed light on the following question: What kinds of four-year institutions of higher learning benefit the most from federal student financial aid programs? We address this question by investigating how institutional quality, institutional mission, and the student's average net cost of attendance covary with average Pell grant, SEOG grant, GSL loan, and college work-study financial aid awards. Our sample is comprised of 254 nonproprietary four-year public institutions of higher learning and 499 nonproprietary four-year private institutions of higher learning.