COLLEGE AID GOES TOO FAR : CREDITS FOR STUDENTS' PARENTS WILL ONLY ADD TO UNIVERSITY SUBSIDY OVERKILL BY GARY M. GALLES.

IN his State of the Union message, President Clinton reiterated his earlier proposals for a $1,500 tax credit for each of the first two years of college and a $10,000-per-family college tax deduction.

These two proposals would cost more than $35.4 billion over the next five years. But would this additional college subsidy really benefit America as advertised, rather than some at others' expense given how heavily subsidized higher education already is (a 1991 CBO study that found tuition subsidies alone averaged more than 80 percent of the cost of providing an education at public colleges and universities)?

President Clinton's answer is yes, because, as he stated at last year's Princeton graduation, ``More than ever before in the history of the United States education is the fault line, the great Continental Divide, (greater) between those who will prosper and those who will not in the new economy.'' But Clinton's plans would actually do little to increase educational attainment, despite their hefty price tag.

College attendance would see only a small effect because, especially at public schools, tuition is a small part of the total cost of education. Books, supplies and room and board must also be financed. But more important are the earnings foregone by going to college (roughly $12,000 over the nine-month school year, for a recent high school graduate). This dwarfs public school tuition. Therefore, even eliminating public college tuition (a $1,500 credit was chosen because it slightly exceeded average yearly community college tuition) would make only a relatively small dent in the real cost of college to students. Few added students would graduate, but those attending anyway would get larger subsidies than they do now.

This would also make little difference in increasing education among students from lower income families. Pell Grants, Stafford Loans, and other student aid were targeted at increasing college attendance by lower income students, but made little difference: Families above the median income still send about twice the percentage of college age children to college as lower income families, just as in 1970. While more aid has gone to each low-income student, because so many more students from higher income families attend college, most of the subsidies actually go to students from above average income families.

Beyond this, given the fact that returns to higher education have been increasing too rapidly in recent times, why aren't more students already going to college, if it is such a great and heavily subsidized investment? Given such returns, students should be willing to borrow to pay for college. Educational opportunity does not require added subsidies, government need only assure access to loans to finance college, which it already does. According to Peter Passell, ``The prospect of heavy debt after graduation would no doubt discourage some students from borrowing. But that may be the wisest form of restraint. Someone has to finally pay the bill, and it is hard to see why that should be the taxpayers rather than the direct beneficiary of the schooling.''

Added education subsidies, to the extent they increase college demand, would also go in large part to education providers in better wages and working conditions (a point Adam Smith made two centuries ago). And even if higher wages result from added training, these people must then be paid for their services, so that they, not society, capture the value of their training (any cultural benefits of added education would also primarily accrue to students, rather than to society). Since students reap the vast majority of the benefits of such training directly, despite all the glowing but misleading rhetoric to the contrary, this argument cannot justify the existing public subsidies for higher education, much less increasing them out of others' pockets.

There may be some difficult to articulate and measure social benefits to justify education subsidies. But current subsidies are already very large, and given current tax burdens, the argument for leaving the money in citizens' hands, where it can be used for education if they see fit, is at least as strong.

It is hard to justify this proposed sharp increase in taxpayers subsidies to higher education, based on what it will actually do rather than on supporters' rhetoric. Not only will it make little difference in educational attainment, it fails to help those who are really neediest. As economist Edgar Browning puts it, ``Subsidies to higher education effectively benefit the brightest and most ambitious young people, and this group will on the average have the highest lifetime incomes even without assistance.''

CAPTION(S):

Photo

Photo: Clinton's college tax break proposals would cost over $35 billion during the next five years.

Associated Press