Thursday, March 7, 2019
“Risk Sharing” is a Covert Tax on Higher Education (take 2) (Michael Simkovic)
Inside Higher Education reports that along with an executive order that would politicize federal funding for higher education and scientific research, President Trump may soon unveil a "risk sharing" plan to tax higher education institutions that accept federal student loans. As I noted previously, when Senator (and former Democratic Presidential candidate) Hillary Clinton proposed a similar plan, such proposals are little more than a covert way of raising taxes on educational institutions and pressuring colleges into pushing students into borrowing using higher cost private student loans.
We do not expect home builders or auto-manufacturers to pay when home buyers or car buyers default on their loans--even government backed mortgages--and there is no good reason to impose similar penalties on colleges and universities, especially given how much of the financial benefit of education flows to the federal government as higher tax revenues and lower disability and unemployment benefits costs rather than as student loan repayments.
Under symmetric risk sharing, including upside as well as downside, the federal government would be paying universities more, not less.