The Reagan Administration’s tuition tax-credit proposal, which the President has said will allow a family “to keep a bit more of the money it earns for itself,” may actually create a federal subsidy for private schools, several independent economists have concluded.
In response to the Administration’s plan to provide a $500 credit that would cover up to 50 percent of private-school tuition, private schools are likely to raise tuition prices, so that, in effect, the benefit is passed through the parents to the schools, agreed several economists who have analyzed the attendance patterns and costs of private schools. Raise Tuition
Certain private schools--especially Catholic schools--are likely to raise tuition by the amount of the tax credit, said Daniel J. Sullivan, senior economist with Abt Associates, a social-science research firm in Cambridge, Mass.
“Tuition tax credits are an incentive for Catholic schools to raise their tuition,” Mr. Sullivan said. “Catholic schools traditionally have had a reluctance to raise tuition. Consequently they are financially strapped, and they see the tax credit as a way to capture revenues.”
He said that although other private schools are likely to raise tuition as well, Catholic schools, which comprise 60 to 65 percent of private schools, “will get the bulk of the money.”
Mr. Sullivan, who has contributed to the School Finance Project of the U.S. Education Department and is the author of the book, Public Aid to Nonpublic Schools, said he based his conclusions about the effects of tuition tax credits on the “empirical evidence” of numerous studies.
Research shows, he said, that tuition is not a determining factor for most people who send their children to private schools. “The demand for private schools isn’t price-responsive,” said Mr. Sullivan. “Schools can raise tuition, and the number of people who still choose private school won’t fall [proportionately].”
This is also true for Catholic schools, he said. “Every study that’s ever been done says that at current tuition levels, the current demand for Catholic schools is ‘inelastic,”’ which means that more students would not be attracted to Catholic schools by a tax credit, so the schools will raise their tuition prices, he said.
David Longanecker, the former director of the education unit of the Congressional Budget Office, said he agreed that “a significant benefit will go to the institutions in the form of higher tuition.”
“It’s the logical behavior for them to follow,” he explained. “The schools won’t be reaping a windfall profit, because those institutions are highly subsidized through methods such as paying low wages to teachers. But, through tuition tax credits, the schools will be able to increase tuition without decreasing the net cost to parents.
“They’ll benefit themselves by the pass-through of benefits from family to institution,” Mr. Longanecker, who is currently the deputy executive director of the Minnesota Higher Education Coordination Board, said. “Many people who send their children to private school will not argue with that.”
Benefits Confirmed
Research conducted by other economists appears to confirm that the tuition tax credits would benefit schools more than parents.
Donald E. Frey, an instructor in economics at Wake Forest University in North Carolina, analyzed a tuition tax-credit proposal that would reimburse parents for 50 percent of tuition, with no limit on the amount of the credit. He concluded that elementary-school tuition would rise by 50 percent and that secondary tuition would rise by 9 percent.
In addition, a federally funded study released in draft form last month, “The Demand for Private Schooling,” found that schools would initiate some “price creep because of increased demand that cannot immediately be met,” according to Jay Noel, one of the authors.
Mr. Noel, an Education Department statistician, and David Myers, an analyst with Decision Resources, a research firm here, also analyzed price “elasticity” and concluded that, in non-church-affiliated schools, enrollment is unrelated to the cost of tuition. They predicted that “tuitions would probably increase, but not by the full amount of the tax subsidy.”
They wrote that if no new private schools were opened in response to increased demand for private schools prompted by the availability of tuition tax credits, tuition would be likely to rise by the amount of the tax credit. Conversely, if enough new private schools opened to meet increased demand, private schools would not increase prices, and demand for private education would rise by more than 16 percent.
“The actual supply-side response of the private-school sector would probably be somewhere between the polar cases we have sketched,” they concluded.
The other researchers agreed that the demand for private schooling would increase with the passage of tuition tax credits. Two of them said, however, that they believed a tuition increase was more likely to occur than an increase in the supply of private-school positions because of the prohibitive costs associated with building new schools.
“The marginal costs of two or more new students in a school are not very high,” said Mr. Longanecker. “Beyond a certain threshold, the costs become very high. You need more classrooms, more teachers, more schools,” he said.
“Capital costs--15-to-20 percent interest rates--make any significant development in the supply of private schools unlikely,” said Mr. Sullivan. “The existing schools could expand somewhat, but capital costs on the supply side make it very unlikely.”
‘Conjectural’ Effects
Asked to comment on the researchers’ findings, John C. Esty Jr., the president of the National Association of Independent Schools, said that in his opinion, “the likely effects of tuition tax credits are almost all conjectural.”
Mr. Esty said that because the President’s tuition tax-credit proposal did not provide a “refundability” provision--which would reimburse the tuition costs to families whose income was so low that they had no tax liability--and because the full credit would be limited to families who earned $50,000 or less, “there is some unknown proportion of families not eligible for a tax credit.”
“That would tend to inhibit tuition rises [in some schools],” he said. He also pointed out that because private schools, like public schools, are facing shortages of teachers, “it would be impossible to unscramble” a rise in tuition based on the need to pay higher salaries to teachers from a tuition increase prompted by the availability of tuition tax credits.
“If there were no tuition tax credits, there would still be an elevation of tuition in private schools somewhat beyond the cost of living’’ because of a desire to raise teacher salaries, Mr. Esty said.
Robert L. Smith, executive director of the Council for American Private Education, said, “My own feeling is that you raise tuition like the grocer raises prices for bread in a small town.”
“You do it only as a last resort, because you’re very close to those families [whose children attend your school], and you know they’re scraping for money.
“I don’t think there’ll be any major change in the pattern of schools raising tuitions as a last resort. When a school makes a decision to raise tuition, it is based on several factors. Eighty-five percent of school budgets represents personnel costs. A school will make the decision [about raising tuition] primarily on what its faculty is going to cost.”
P. Edward Anthony, director of the office for educational assistance of the United States Catholic Conference, said most nonpublic schools “are facing the same cost increases as public schools are facing. With or without tuition tax credits, there are going to continue to be increased costs [to parents] for private education,” he said. Asked if he thought Catholic schools would raise tuition if tuition tax credits for parents became available, Mr. Anthony said certain Catholic schools that are not heavily subsidized by church funds--that function on their own by charging relatively high tuition--"would not have a great deal of room” to raise tuition.
“In parish schools where tuition is low, there may be some incentive to raise tuition a small amount, to improve the salaries of teachers,” he said. Mr. Anthony added that “an extremely key element” is the extent of parental involvement in the schools in question.
“Most Catholic schools that I know of have some type of parental involvement--a school board, parish council, or an advisory board. Tuitions aren’t going to be raised [without the approval of parents] in those schools,” he said.
