Arnold Kling

College Tuition and Socialism

Arnold Kling, Great Questions of Economics
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Peter Scheer argues in Slate that high college tuition is used to carry out socialism.

The elite private colleges use gargantuan tuition to do what is usually thought to be the province of governments: redistribute wealth by "taxing" the families of rich students in order to subsidize the less rich and the not rich.

Martin Feldstein argued that this collegiate socialism provides a huge disincentive for families to save. I cannot find Feldstein's paper on line, but it is referred to here.

Martin Feldstein (1995) explains how need-based financial-aid formulas act like a tax on the savings of middle-income families. Using data from the 1986 Survey of Consumer Finances, Feldstein estimates that this implicit tax annually causes the typical middle-income family with two precollege children to reduce the amount it saves by about 50 percent. According to this analysis, it is not surprising that the savings of most middle-income families are now inadequate for them to pay to send their children to the Ivy colleges and MIT and that applicants from middle-income families need more and more financial aid.

Discussion Question. What keeps other sellers of big-ticket items, such as automobiles, from engaging in redistribution? Why is it not possible for an auto dealer to make rich people pay list price while giving poor people a discount on cars?

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