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Commentary By Patrick Holland

Free College Would Help the Rich, Not the Poor

Economics Tax & Budget

“College debt is spiraling out of control.” “Only the rich can afford to go to college.” “College just isn’t worth the cost anymore.” For anyone following politics recently these statements will be familiar. But the truth is more complicated. 

A bipartisan collection of lawmakers is finally beginning to turn its attention to the problems young people face, but many on the left have used student debt to justify a massive expansion of government spending in higher education.

During his State of the Union address, President Obama proposed universal free community college. Many presidential candidates have followed. Senator Bernie Sanders (I-VT) recently proposed tuition-free college, and Hillary Clinton is expected to announce a plan for debt-free college in the coming weeks. These plans are all well intentioned, but they are overreactions to a solvable problem. 

The real cost of college has been rising for some time, but not as quickly as one might believe given the apocalyptic rhetoric coming from Washington. Headlines have recently proclaimed that college costs have increased by 500 percent since 1985. If true, this would be cause for alarm. But, the statistic does not take inflation into account. The real cost of college has only doubled since 1985. While this increase is substantial, it is much more manageable than many believe.

In addition, the real cost of attending a public two-year college has actually dropped since 1992. While the cost of attending a public four-year college has grown, it has been far outpaced by cost of attending a four-year private institution. Public school is still quite affordable for the majority of Americans. 

Even if the cost of attending college were rising at a ridiculous rate, taking out a loan to pay for it is still worth it. On average, college graduates earn 83 percent more than high school graduates. This is more than enough to outweigh the average loans of $27,000 that indebted college graduates face when they leave school. Some studies have shown that college graduates earn upwards of $10,000 a year more than non-graduates, enough to make college worth the cost in three years. Graduates also have a 6 percent lower unemployment rate than non-graduates. Taking out massive loans to pay for college is undesirable but the strategy still makes sense in the long run. 

This is not to say that student loans as they currently exist have no problems. Even though taking on debt to get through college is worth it, the way student loans are structured is often unsustainable. Most graduates do not immediately obtain a high-paying and stable job upon leaving school. The unemployment rate for 20- to 24-year olds is about 10 percent, twice the rate for those 25 and over. In this initial stage of their professional life, graduates are often unprepared to shoulder the burden of college debt. If they are unable to meet their obligations, mounting penalties will follow them throughout the course of their life, often forcing them to default. 

This is a flaw in the way that loans are administered. Many policymakers have suggested ways to make loan payments more manageable. Senators Marco Rubio (R-FL) and Mark Warner (D-VA) have created a plan to make the default method of loan payment wage-based. Under their plan, graduates would pay 10 percent of their monthly wages to pay off their debt, with a cap of $10,000 a year. Innovative thinking about loan structuring could reduce the burden of debt.

Any sort of free college policy would stifle innovation in higher education. Online courses are already beginning to provide quality education at a much cheaper cost to students. Eventually, these courses will begin to drive down the cost of attending a brick and mortar school through competition. But free traditional college would disincentivize any new development in this marketplace. Companies trying to revolutionize education would have to contend against a competitor with an annual $70 billion subsidy.

A free tuition policy may not do much to solve the debt problem either. Sweden has abolished tuition, yet many of its students have comparable debt to their American counterparts. In 2013 the average Swedish college graduate was saddled with $19,000 in debt. High debt in Sweden is a result of the ballooning cost of room and board. Since the state does not cover these costs, Swedish colleges have increased their prices in order to raise much needed revenue. Free tuition may similarly give American colleges an excuse to inflate prices and do little to decrease debt.

Advocates of free tuition often point out that the country has an obligation to make sure more low-income students go to college. The United States should do more to help low-income students achieve their dreams, but making college free is not the best way to do this. Currently, 81 percent of college graduates come from families with above average incomes. Free college wouldn’t just make college affordable for low-income students, it would also offer a massive subsidy to the upper class. More than 56 billion of the $70 billion it would cost to eliminate tuition would go to families with above-average incomes. If this policy’s goal is to increase accessibility, there are certainly better ways to spend $70 billion.

Instead of trying to subsidize the cost of college, public policy should focus on actually reducing its cost. This could be done by insisting that schools that take federal aid keep costs in check, or by letting innovative models for higher education lower the relative value of brick and mortar schools. There are multiple solutions that do not require substantial federal spending. 

What will not work, however, is free tuition. While Senator Sanders likes to use the word “free” when discussing his plan, he must realize that taxpayers should not have to foot the bill to subsidize college costs when the problem can be solved without an expansion of government. 

 

Patrick Holland is a contributor for Economics21. Follow Patrick on Twitter here.

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