Merit Goods Inflation Part III

Part III

What about education? The federal government should announce that 43,500 boys and girls, one thousand from each of our Congressional districts, will get a merit scholarship every year, to pay for four years of college. In any particular year, four times that number, 174,000 men and women, will be going to school for free on this program. The amount of the award should be based on the government’s judgment of the cost of educating a student—it could vary by category of school. Let’s keep things simple by using one number, say $20,000 per person. The total cost of the program? $2.6 billion per year. No big deal, it wouldn’t get noticed in our trillion dollar budget. But here’s the reason it makes economic sense. The dollars would get paid directly to the schools the kids decide to go to, but in order to qualify for the program, the schools must lower their tuition—for all the undergrads—to $20,000. So that the millions who don’t win the scholarship will get a benefit too. You think Yale would turn up their noses at all the scholarship winners? I don’t. Not with their endowment. So the Yale tuition comes down to $20,000. Columbia, Penn, Cornell would all want those kids too. Some schools might stick it out, hoping to get big fat tuitions from those rich enough not to care, but even their tuitions would respond to the increased competition.