How will colleges survive if Bernie cancels tuition fees?

The Democratic race to be the party’s presidential nominee in the 2020 US election is heating up and has candidates trying to outdo each other on sweeping proposals and policies.

Just two days away from the first Democratic debate, Vermont Senator and presidential hopeful Bernie Sanders has announced one of the most radical propositions yet.

While just a few election cycles ago the idea of upending the college tuition model was a no-go area, Sanders has turned that on its head and proposed one of the most sweeping changes to student debt in memory.

On Monday, in front of an excited crowd and flanked by fellow Democrats Representative Ilhan Omar and Representative Alexandria Ocasio-Cortez, Sanders promised to cancel all US$1.6 trillion-worth of student debt and make higher education accessible for all Americans by eliminating tuition and fees.

Sanders himself has called his College for All Act, “revolutionary.” A political move that promises to turn the college system on its head and, according to Sanders’ campaign website, “end the racial and class disparities that persist throughout higher education.”

At a time when colleges and universities are already struggling under proposed funding cuts, how exactly is this expected to work and what does it mean for HEIs?

The concept explained

While Sanders is proposing clearing student debt for all, he is not proposing eliminating tuition fees for all colleges in the US.

Sanders plan will eradicate tuition and fees at public two- and four-year institutions and community colleges. It would also cancel tuition at trade schools and apprenticeship programmes and channel more funding to selective private institutions that cater to low-income students. Clearing all student debt would be added to the costs.

The expected initial value of this is predicted to be US$2.2 trillion. That’s a pretty penny and a hard sell in a government currently carrying the burden of US$22 trillion worth of debt. But Bernie has a plan for that.

The idea is to impose a Wall Street Speculation Tax, which would raise small levies on buying and selling stocks, bonds, and derivatives. This is revived from his unsuccessful 2016 presidential nominee campaign, during which Sanders stated that, as the American people bailed out Wall Street during the Global Financial Crisis, it was time for them to repay the favour.

Under the proposals, stock trades would be taxed at a 0.5 percent rate, a 0.1 percent on bond trades and a 0.005 percent fee on derivative trades.

At the launch of his plans on Monday, Sanders said he believes his proposal would eliminate all debt within six months.

So, what do the colleges get?

It’s no surprise that running a college doesn’t come cheap.

To keep them sustainable and cover the losses from student tuition and fees Sanders’ College for All Act would give states and Native American Tribes a share of a national budget of at least US$48 billion per year.

To receive the federal funding, states and tribes would have to meet certain requirements.

They would have to demonstrate to the Department of Education that they are maintaining needs-based financial aid funding and rely less on assistant and additional faculty to teach classes.

The poorest families in each state or tribe must also be taken care of, with governments showing they can cover the full cost of higher education for those who earn less than US$25,000 a year.

For tribal colleges with at least 75 percent low-income student enrolment, the federal government would cover 95 percent of costs to eliminate tuition and fees.

Before colleges go splashing out on new facilities, there are restrictions to what the money can be spent on. It cannot be spent on non-academic buildings, administrators’ salaries, or any merit-based financial aid.

The plan doesn’t leave out private non-profit institutes, setting aside US$1.3 billion annually in funds for historically black colleges and universities (HBCUs) and minority-serving institutions (MSIs) to eliminate or significantly reduce tuition and fees for low-income students.

If Bernie proves successful, there could be big changes on the horizon. As he puts it:

“If Wall Street can be bailed out for several trillion dollars, 45 million Americans can and will be bailed out of the $1.6 trillion burden of student loan debt and we can provide free college for all.”