As part of the 10 Ideas: New Ideas for a New Economy series, a tax break plan for Michiganders burdened by student debt that would stop the state's brain drain and give a much needed boost to its economy.
Michigan lawmakers are failing the state's college students. Once a strong supporter of public universities, Michigan is now one of four states that allocate more money for corrections than to higher education. This decline in support for state universities stems from multiple years of poor choices made by lawmakers in Lansing. Faced with yearly fiscal shortfalls, state legislators were forced to cut the budget to make up for the deficit. Higher education suffered the most, as its budget was repeatedly slashed, ultimately losing nearly 30 percent of its funding in the past decade. Faced with difficult choices, legislators took the path that was politically easy, but it was a path that has and will continue to be detrimental for students and the state of Michigan.
While most other sectors of the budget are funded mainly through taxpayers, state universities are fortunate to have other significant revenue sources, making it relatively easy for the state government to relinquish the burden of funding these important institutions. The unintentional result of shifting the cost has been a drastic increase in tuition levels, causing the burden to fall to the students. As the state reduces funding for higher education, universities raise tuition to maintain the quality of education. In raw numbers the current average cost of in-state tuition is $10,416, more than 28 percent higher than just five years ago.
There are several apparent ways the higher tuition is affecting students. The most obvious is in the rising levels of student debt in the state. The average student graduates with $25,000 in debt. Other students are choosing not to go to college at all because of the expense. Public education is suddenly becoming out of reach. Both lawmakers and university officials are in agreement: the rising cost of a college education is detrimental and unfair to students. Politics, however, continues to prevent progress.
The state of the tuition debate has devolved into a blame game between legislators and the universities. University officials say that as long as the state keeps reducing funds, tuition must increase in order for the institution to continue to educate at its full potential. Legislators say that universities should focus on reducing costs and use higher education funding reductions as a way to pressure universities to be more efficient. To the universities' credit, efforts have been made to keep costs under control. The University of Michigan, for example, has eliminated over $200 million from its expenses by reducing energy costs and student services. Michigan State University has cut academic programs, and Eastern Michigan University recently cut 70 staff positions and froze wages. Cost cutting measures are at the point where universities are forced to choose between quality and affordability. Budget constrained lawmakers, however, continue to cite inefficiencies to justify cuts, and the finger-pointing continues as students are caught in a situation that only continues to worsen.
Another bystander that is negatively affected by the rising cost of college is the state of Michigan. Still recovering from a nearly decade-long recession, Michigan is struggling to diversify and enhance its economy. Meanwhile, students are leaving the state in droves, creating a vacuum of human capital. With few economic opportunities and high levels of debt, students have no incentive to remain in the state and are instead seeking employment opportunities elsewhere. Nearly 50 percent of students leave the state after graduation, giving Michigan one of the highest migration rates for young adults. Michigan is caught in a vicious cycle where highly educated graduates leave the state to find jobs, and in turn businesses decide not to invest in Michigan because of lack of human capital. The state cannot expect a powerful economic recovery without high-skilled labor.
The issue of the "brain drain" and the rising cost of college, as suggested already, are linked. High levels of debt and the poor economy have created conditions where students are forced to leave the state, subsequently hampering Michigan's recovery. Frustrated with the political bickering and lack of innovation among lawmakers, I, along with other members of the Roosevelt Institute | Campus Network's Economic Center at the University of Michigan, sought to create a policy that would provide a solution to these two important issues.
In our initial research, we came across a program called Opportunity Maine. This program, implemented by the Maine legislature in 2008, involves providing a tax credit for students who graduate from Maine universities and remain in the state after college. Businesses that take on the payments for employees' student loans would also qualify for the tax credit. The goal of Opportunity Maine was to address the issue of the "brain drain" affecting Maine at that time. The program was passed in the state legislature with broad bipartisan support.
With Michigan suffering from the same issues, we took the central principles of the program and created a policy proposal arguing for a tax credit incentivizing any student graduating from Michigan universities to stay in the state. With high levels of student debt, the tax credit not only motivates students to stay in Michigan, but would also help those who are suffering the most from the cost of college. The tax credit would make college more affordable for students from low and middle-income backgrounds, and thus significantly reduce the cost barrier to a good education. More graduates remaining in the state would raise the supply of human capital in Michigan, attracting businesses to the concentration of a highly qualified workforce. The additional provision allowing businesses to qualify for the tax credit if they take on employees' student loans is a further advantage for both students and businesses. The provision represents a strong incentive businesses can use to attract qualified workers. Implementing this tax credit program would represent a milestone for the state's effort to rebuild the economy. The incentives of the tax credit will create an environment favorable to attracting new business. Most importantly, students will receive guaranteed long-term financial support to tackle student loans.
Another positive feature of the tax credit is that it will pay for itself in the long run. As more graduates stay in the state and businesses expand their operations in Michigan, the income from the expanded tax base will cover the cost of the tax credit. These revenues will ensure the continued use and success of the tax credit program.
Recognizing the economic implications of this solution and the immense benefit students and the state of Michigan would receive if the tax credit would be implemented, we have taken action to make our idea heard. We have made two trips to speak with legislators in Lansing and received positive responses about our proposal. We are currently working with supportive legislators to have our policy drafted as a bill. In addition, we plan on reaching out to the Business Leaders for Michigan, which is an organization composed of major executives of Michigan's top businesses and universities. The organization has recently expressed concerns about the state's divestment in higher education and pressed the need for a highly educated workforce in the next decade. We feel that our policy will provide the solution that the Business Leaders for Michigan desire.
Michigan can no longer sustain this lack of funding for higher education. Students continue to suffer and the economy continues to be stifled as a result of the cuts to state universities. But a solution does exist to solve these issues -- one that is cost effective, innovative, and simple. One that will help the students that need the most support and help Michigan in its economic recovery. We will continue to press Michigan legislators to support our proposal -- a proposal that will ensure a brighter future for students and the state of Michigan.
Adam Watkins is the director of the Roosevelt Institute | Campus Network's Economic Center at the University of Michigan.