Economics

Home/Economics

“Free” College Tuition Doesn’t Add Up*

Students in physics class

Photo: Tommy O’Laughlin ’13

Presidential candidate Bernie Sanders had significant success in attracting young people to his campaign in no small part due to his proposal to make tuition free at public colleges and universities.

Hillary Clinton responded to the Sanders proposal with a means-tested program of free tuition for families with incomes under $125,000. Donald Trump did not offer his own free tuition plan, but the end of the campaign season did not bring about an end to this proposal. In January, New York Gov. Andrew Cuomo unveiled a free tuition plan for his state similar to the Clinton plan.

The goals of these programs are certainly admirable. It has become well understood that a college education has become increasingly important, maybe even essential, for entry into the middle and upper-middle class.

The goals of free tuition are to increase educational attainment and better prepare students for the job market, especially those for whom costs might be insurmountable. Some proponents argue that for many future students a college degree will become what a high school diploma is today.

These policy proposals have been met with mixed reviews for three important reasons.

The first concern focuses on costs. In tight budget times, it is not clear Congress nor states would be interested in a program that costs $75 billion a year, according to The Wall Street Journal and Sanders’ estimates.  It is a basic question of opportunity cost. If we, as a society, can find $75 billion in additional tax revenue or if we are willing to borrow it, is free tuition the best way to spend that money?

A second concern is equity. A free tuition program is not, of course, “free.” Federal and state taxpayers would pay for tuition costs, and here the analogy with high school education breaks down.

The equity implications of funding the two educational models are different in important ways. Most public high schools are funded with property taxes in the district where the schools are located. The recipients of the education are, by and large, the children of the taxpayers. Revenues are collected in a means-tested fashion where wealthier homeowners pay more and, therefore, the costs of education are generally means-tested too, as wealthier families are paying more for their children’s education than less well-off families. (There are, of course, further equity concerns as richer districts can choose to offer a different quality education than poorer ones.)

Students in classroom discussion

Photo: Tommy O’Laughlin ’13

Under any free tuition plan, the link between the taxpayer and consumers of education is much less clear, potentially raising equity concerns.

Many taxpayers who would fund free tuition will never have children who pursue public college education. Weakening the link between those paying for a program and its beneficiaries likely weakens political support.

More importantly, the means testing of the student recipients is much weaker. With tuition at zero, the free tuition plan is basically a transfer from taxpayers to students, regardless of the individual student’s economic circumstances. Data from the College Board reveals that because of financial aid programs, the primary beneficiaries of free tuition are upper-middle-class students who pay the most tuition at public institutions.

Even if this transfer from taxpayers to upper-middle-class families was defensible, most economists would argue that if transferring income to students for their education is the goal, then it should be done directly — such as Pell Grants at the federal level or the Minnesota State Grant program at the state level. Such a grant could be means-tested and targeted if taxpayers felt low-income students should be the primary beneficiaries.

The third concern is the way free tuition would distort educational choices. By making the price of state colleges and universities zero, a free tuition program would significantly increase the price differential between public colleges and private institutions. This change could have a significant impact on enrollments between different types of four-year schools and be detrimental to some students.

Private and public schools offer a range of different experiences, as those of us in Central Minnesota are well aware — from small schools like Saint John’s University and the College of Saint Benedict to mid-sized, public, comprehensive schools like St. Cloud State University to large research institutions like the University of Minnesota.

Most high school students have the option of choosing from among different kinds of four-year schools. Price is a consideration. But with financial aid, most students can consider public and private options. With a free tuition model, the playing field is tilted dramatically in favor of public options, and the strongest students will likely take the majority of free places, leaving the less academically prepared students with fewer options.

The 2,200-plus four-year options for post-secondary education in the United States serve students well by letting them select the best fit for their talents, interests and previous educational experience. Any public policy that narrows the range of choices, in this case by distorting prices, potentially leaves the intended beneficiaries worse off.
These policy debates are likely moot given the Republican administration and Republican Congress in Washington, but given the increasing importance and costs of higher education, the free tuition debate will be back.

*This column originally appeared in The St. Cloud Times on February 25, 2017.

An Oracle for Higher Education?

bionicteaching via Flickr

Kansas State University freshman Billy Willson created a kerfuffle last month when he announced that he was dropping out of college.  Lots of students make this decision without attracting much attention beyond that of their families, but social media has created a new world, and Willson made his announcement on Facebook, naturally.

The other thing that drew more attention to Willson than would be typical was that he wrote critically of higher education, calling it a “scam, ” and posted a picture of himself flipping off Kansas State .  As Inside Higher Education reported, Willson posted:

“YOU ARE BEING SCAMMED,” Willson wrote on Facebook. (The wording, grammar and capitalization quoted here are verbatim from Willson’s Facebook post.) “You may not see it today or tomorrow, but you will see it some day. Heck you may have already seen it if you’ve been through college. You are being put thousands into debt to learn things you will never even use. Wasting 4 years of your life to be stuck at a paycheck that grows slower than the rate of inflation. Paying $200 for a $6 textbook. Being taught by teacher’s who have never done what they’re teaching. Average income has increased 5x over the last 40 years while cost of college has increased 18x. You’re spending thousands of dollars to learn information you won’t ever even use just to get a piece of paper.”  He added: “Colleges are REQUIRING people to spend money taking gen. ed. courses to learn about the quadratic formula (and other shit they will never use) when they could be giving classes on MARRIAGE and HOW TO DO YOUR TAXES.”

Other observers thought is was especially significant that Willson reported having a 4.0 GPA.  At the blog American Thinker, under a post entitled, “Higher Education at the Precipice,”  Bay-area blogger Thomas Lifson wrote:

A straight-A student at Kansas State University has boldly proclaimed that the college emperor has no clothes and bidden a public farewell to what he calls a “scam.”  This could be a sign of what lies ahead for the left-wing propagandists who have taken over our colleges and universities. An entirely predictable cataclysm awaits the American higher education sector.  Having jacked up their prices at roughly triple the rate of inflation for at least five decades, college education is no longer affordable without crippling debt for all but the richest families.  The sole justification for spending a quarter of a million dollars on a child’s education at a full-price private school is that a prestige degree is the gateway to upper-middle-class work status.

Lifson concludes by writing, “The marks are wising up.”

What is most interesting in this episode is not the opinions offered by Willson, though his facts about the economic returns from college are simply wrong, and he has only the shallowest understanding of the benefits of a liberal arts education.  But Willson is certainly entitled to his opinions and can make his own decisions about  the relative benefits of starting a t-shirt business, as he intends to do, versus pursuing a bachelor’s degree.

What is striking is that some observers think Willson has made a thoughtful or even bold statement about the benefits and costs of higher education.  Lifson, who lives in near Silicon Valley, seems to think that some classes on coding are all techies really need:

Willson’s own first plan, a t-shirt business, will be only a stepping stone.  But if this angry young man focuses and starts to acquire online education on demand, as is now possible, he can learn every skill he will need.  I live in the San Francisco Bay Area and am exposed to numbers of Millennials working in the tech sector.  Some have computer science degrees; others do not.  All are pulling in enviable wages, and all of them are constantly acquiring new skills online.  That is the nature of life today for techies. For this life, an online degree in computer science would be helpful, but a young person like Willson can simply pick up a skill set and get hired without ever paying outrageous tuition.

It is not clear what Lifson suggests for those who do not want to be techies or whether he’d recommend Willson’s path to his own kids.

The reporting from Inside Higher Education is even more perplexing.   Surely there are more important issues facing higher education.

As for Billy Willson, it is possible that he will turn out to be the next Bill Gates, Steve Jobs or Mark Zuckerberg, but the chances are much higher that he will be seeking some post-secondary education in the next few years as he discovers, either, that a little economics, accounting, marketing and design are useful for his business, or that a t-shirt business does not give him the career opportunities over a lifetime that a college degree does.

A Timeless Mission for the New Year

The New Year is often a time for resolutions and change.  Individuals make commitments to self-betterment and leaders encourage their followers to bring about positive change.  Pope Francis is no exception to this impulse and had a message for Catholics and others during evening prayers on New Year’s Eve.

The Pope called on the faithful …

…to help young people find purpose in the world, noting the paradox of “a culture that idolizes youth” and yet has made no place for the young.  “We have condemned our young people to have no place in society, because we have slowly pushed them to the margins of public life, forcing them to migrate or to beg for jobs that no longer exist or fail to promise them a future.”

Image Globovision via Flickr

The Pope, of course, has other concerns as well but his emphasis on an explicitly macroeconomic issue is interesting.  While the Pope’s message is certainly meant to be universal, he is likely to be especially concerned about the situation in the EU, where he lives and sees the day to day economic challenges.

The youth unemployment data from the European Union is striking, particularly since economic research suggests that there are significant long-run impacts from unemployment during an individual’s earliest years in the labor market.  The data below are from the International Labour Organization (ILO) in 2014 and show the percentages of youth (ages 15-24) unemployed as a share of the total labor force.

France 23.9%
Greece 53.9%
Germany 7.6%
Italy 44.1%
Spain 57.4%
United Kingdom 16.7%
EU 25.1%
USA 14%

With the notable exception of Germany, the percentage of youth that are unemployed (this does not include those in school) is at Great Depression levels across the EU and shockingly above 50% in Spain and Greece.  Furthermore, according to a New York Times article examining this issue specifically for college educated European youth, even “for people 25 to 30, the rates are half to two-thirds as high.”

These data are for all youth, and naturally one would expect that for the college educated, the numbers would look better, but as the Times article cited above notes:

There is no sign that European economies, still barely emerging from recession, are about to generate the jobs necessary to bring those Europeans into the work force soon, perhaps in their lifetimes.  Dozens of interviews with young people around the Continent reveal a creeping realization that the European dream their parents enjoyed is out of reach. It is not that Europe will never recover, but that the era of recession and austerity has persisted for so long that new growth, when it comes, will be enjoyed by the next generation, leaving this one out.

The Pope’s message together with these data reminded me of how blessed we are at the College of Saint Benedict and Saint John’s University to have a mission that is all about helping young people find a purpose and meaning for their lives—both economic and spiritual.  And how fortunate we are to have an economic environment that gives our students real possibilities for growth and development and for the “true inclusion” in society that Pope Francis calls for.  Though the comparison is imperfect and the macroeconomics of the US and the EU are not identical, it is notable that the unemployment rate for the college educated in the United States in November 2016 was 2.3%.

In the Times article, a young Spanish woman working in the Netherlands at a menial job slowly comes to understand that “it is a sign of the plight of her generation that simply having a job and a measure of independence makes her one of the lucky ones — never mind homesickness, dashed dreams of a very different career and a gradual acceptance that her life will probably never be the one she expected to live.”

The situation is reversed for our students.

For many students at CSB and SJU and for earlier generations of our alumni, they did and can live lives very different than those they expected–in a positive sense–because of the transformational power of their residential, liberal arts, Catholic and Benedictine experience.  It is a mission that has been central to our institutions since their founding and a mission that will continue to serve us well in 2017 and beyond.