The American Opportunity Tax Credit won’t make college cheaper

President-elect Barack Obama has some fine goals regarding you and your tuition. I mean it–I like them! But the way he’d prefer to make college more affordable is not a tenable one.

The best plan he has yet is one he shared with Sen. John McCain; Obama said in a 2007 speech in Iowa, “I’ll also simplify the financial aid application process so that we don’t have a million students who aren’t applying for aid because it’s too difficult.”

In fact, in 2004 The Christian Science Monitor reported that 850,000 students, who would qualify for the federal Pell Grant up to $4050 per year, don’t apply for government aid. So the kind of improvement that makes existing programs easier to navigate and more efficient is always welcome.

Additionally, he’s proposed an American Opportunity Tax Credit that guarantees $4,000 a year for college students who do 100 hours of community service. The idea is to cover about two-thirds of the average total four-year tuition cost. If it passes, surely this would put more in reach of college, right?

I’m not so sure. The new tax credit is aimed most specifically at the “2 million academically qualified students [between 2001-10 that] will not go to college because they cannot afford it,” says Obama’s Web site.

The number is disputable–“270,000 of the roughly 4 million ‘college-entrance-aged’ persons who don’t attend college are hindered explicitly by cost,” according to a Manhattan Institute study, as reported in the June 2008 edition of The American.

If the study number is low, compared to the million students Obama cites, it is still difficult to see the cost of higher education becoming more affordable as a result of the credit. Soaring tuition and inequity are the cited backers of this good-will credit. I even think it reflects Obama’s genuine concern about you and I.

But beyond whatever “maze of tax credits” Republicans and Democrats have mentioned that prevent some students from applying, college is still affordable, if expensive. While tuition has increased more than inflation, it appears to be slowing down. The Washington Post picked this up as early as 2006, and last week US News reported that average tuition fell relative to inflation.

Still, despite continued tuition increases, enrollment at PSU is up from last year. As long as enrollment can be kept increasing, tuition will increase–this is not about greed and exorbitant salaries, it’s the way an institution that knows it will receive more money from you, the state and the feds. Giving students more buying power will surely do nothing to keep costs competitive.

The Federal Reserve Bank of Minneapolis put out a report saying, “Though overall faculty salaries have been held somewhat in check (a 6 percent increase after inflation from 1990 to 2001), the number of faculty has risen about twice as fast as enrollment over this period, and the number of nonprofessional staff has been rising faster still.”

This accounts for some of the tuition hike. Unless you’re a minimalist (which you have the right to be), increases in building and services might be worth the money–particularly when a college must update to remain competitive.

Speaking of competitive, we have a lot of students in college: 5.7 percent of our population is enrolled, in fact, compared to the 4.5 percent in 1975. And that was after the baby boom, when a higher percentage of our population was college-aged! No wonder cost has increased. What is impressive is when universities like PSU remain affordable and keep class sizes small.

And again, it is still affordable. Besides a $57,500 lifetime Stafford loan limit (including the partially interest-free loans), there are many businesses–U.S. Bank and UPS, for instance–that cover tuition for students. And heaven forbid I mention any old-fashioned ways of paying for education–military service, Peace Corps and Teach for America.

Obama estimated the program would cost $10 billion for those who would take advantage of it and, in return, we’d have potentially more than a million students doing 100 hours of community service work. As much as I trust the generous, truthful hearts of fellow 20-somethings, I do know that wherever people can take advantage of a system and not an individual, they will.

Suppose you will really contribute with your service, like volunteering at a school, making copies–is your volunteering worth 40 bucks an hour? And are you already a volunteer? You could get paid for it! This is not to discredit the generous community service many already spend hours being involved in; these are good things. But $4,000 for only 100 hours of vaguely defined “community service” can’t be worth it. And I don’t want to even imagine the oversight required to see the system were never abused.

Call me old fashioned, but I’d be more interested if the American Opportunity Tax Credit required students to build roads, or just handed it over no questions asked.

Finally, it is misleading to call the American Opportunity Tax Credit a tax credit. A tax credit is money you get back on money you actually paid. If a college student doesn’t make much money, doesn’t work or already receives most of their taxes withheld back as a result of standard deductions, the American Opportunity Tax Credit goes beyond that. It gives you money you never paid.

You might compare this to McCain’s health plan to give families $5,000 to spend toward health care, and naturally ask what the difference is. Only one key thing: That plan was designed to keep cost low by opening state borders for competition. The proposed “tax credit” won’t keep overall cost low.

Here is what I encourage you to do if you are going to take advantage of the “tax credit”: earn it. If I catch you loafing on the job, I’ll take it personally and write the president myself until you lose the credit. I hope the credit works, I just wouldn’t bet on it. I’d bet on simplification of what already exists.