The College Tax?

August 21, 2020

Whenever I and my parents were discussing paying for college, the relatively comfortable jobs that my parents had meant that I was going to be paying full price. Although, this was not something I rather liked there was an equity element to it that I always appreciated. At least, in theory, the ability for any student to receive a college education irrespective of their parents’ financial status was the great equalizer and it was just for colleges to prioritize lower-income students in their Financial Aid decisions. From such a perspective, a progressive increase in the payable tuition varying by net income made sense.

But this calculus changed when my mom lost her job.

My mother was an employee of United Airlines working on their web operations. When COVID-19 hit the airline industry hard, she lost her job along with so many others. Although she promptly found a job only a month after being laid off I noticed something that I felt was a kink in this system.

 

 

This is the Notre Dame Financial Aid Calculator. The difference in the scholarship (Disclaimer – Approximate) that I would receive if my mom’s job loss had been permanent and if she had found another one was close to $25000. Without revealing too many specifics, that is almost a third of what my mother would make at her new job, which seems to be a significant disincentive to work. Now my family’s case is quite irrelevant to prove my point and we should have to pay the fair share.

But later on the marketplace podcast, I heard the story of a single mother who had monetized a business that she was running and this was much-needed additional income. But she later found out that she would have to pay over a fifth of that income for the increased tuition bill for one of her children in college. She also had another child in high school who would enter college the next year and would have to pay the increased tuition for her as well. Now, considering the increased cost from college bills alone (set aside taxes) she decided to postpone the monetization of her online business deciding that it was not worth the effort.

This is a prime example of a hindrance to social and economic mobility. College is a long 4 years and for parents with more than 1 child, it can be much longer. This kink is also likely to affect women who are more likely to be reserve second income earners who might work during periods of financial duress or make ends meet when investing in a new house or any other significant expense. In a time when there are a plethora of free resources on the internet to learn any subject under the sun and the unfeasibility of in-person education due to COVID, students and parents are seriously reconsidering the value of college. If the financial aid system proves as a disincentive to economic and social mobility then it is an additional argument against an expensive college education. Furthermore, even small differences in income result in a large change in the scholarship amount which seems like an unnecessary burden on parents.

My experience with this problem is only anecdotal and I have not conducted any rigorous examination of the question. I am also basing my judgment on charts that don’t reflect the full consideration and deliberation that goes into financial aid decisions. But on the face of it, certain suggestions come to mind to alleviate this problem. Firstly, financial aid offices, if they don’t already, should pay extra attention to such cases of upward mobility and be cognizant of their decision not being and overly burdensome disincentive. Secondly, the ratio of what a family earns in net income and assets and what their payable tuition is can progressively reduce with income.

Let me explain what I mean:

Imagine Family A makes $60,000 and Family B makes $150,000 and both of them see an increase in their net incomes of $40000. What I am proposing is that the portion of the $40,000 that Family A should have to pay in tuition should be lower than what Family B should have to pay. In this way, there can be an element in progressiveness even in the cases of upward mobility, and families with lower incomes can fully take advantage of their opportunities to expand their financial horizons without much disincentive.

But we must recognize the financial duress that colleges are facing and the extent to which they can be generous in their aid offerings. But structural reform needs to made to improve the affordability of college and this is a starting step.

Disclaimer: Some colleges may have already applied this factor into their decisionmaking and my thinking is predicated on only the Financial model of Notre Dame. This is also not to suggest that the Financial aid office of Notre Dame does not weigh individual stories differently.

By

Pranav Guntupalli

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