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Beth Akers: "Free College" Doesn't Mean What You Think It Does

Free college, or making public colleges tuition-free, has become a popular idea among Democrats and has now been embraced by the party’s nominee for president, Joe Biden. This once-radical idea gained mainstream prominence during the early 2020 Democratic primaries. It was first proposed by Bernie Sanders and fits with his identification as a democratic socialist, but then was also taken up by both Senator Elizabeth Warren and Congresswoman Tulsi Gabbard. Since the early primaries, Biden has moved to the left and beyond his partial endorsement of the proposal to fully take up the idea of making all public colleges tuition-free. (He initially proposed making community colleges, but not four-year colleges, tuition-free.) With his change of heart, it seems that a national debate about free college is here to stay, at least for a while.

The movement to make public colleges free comes on the heels of a decade of concern over increases in the number of students borrowing to pay for college, and their resulting increased debt load and subsequent higher loan balances. The presumption, of course, is that college is simply too expensive, so it is natural to see this movement to address the problem by lowering the costs paid by students and their families, or even by making college free. A new report by Jason Delisle and Preston Cooper published earlier this week argues that, in addition to imposing tremendous fiscal costs on the nation and perverting incentives for states to continue funding higher education, free college won’t significantly lower debt burdens.

The report analyzes the free college proposal that has been endorsed by Biden and examines the extent to which it would affect borrowing, using historical data. They predict that it would reduce borrowing by $177 billion over the next ten years, a 15 percent reduction. That’s nothing to sneeze at, but it also isn’t the game changer it’s being sold as.

Why is this the case? First, a huge portion of the new debt volume taken on in each academic year is intended to cover living expenses like food and rent. Because of the design of the plan, as a "first dollar" program (free tuition wouldn't impact eligibility for income-contingent programs like Pell Grants), some students could use the new funding to cover these expenses. But for many students, especially the middle class, significant borrowing for non-tuition expenses would remain. It’s also the case that much of the borrowing we see each year is for the purpose of covering expenses, both for tuition and living, at private colleges, which are not covered by the plan either and also tend to have much higher price tags. And to make matters worse, the estimates from this report might overestimate the reduction in debt because the analysis didn't incorporate the income eligibility limits that are part of Biden's plan. In his current platform, students with household income above $125,000 -- who are also big borrowers -- aren't eligible for additional funding.

Free college has the advantage of ensuring that a more affordable pathway is available for all students, but it’s not a silver bullet solution. The biggest challenge with any free college proposal is that it ends up delivering benefits to some already well-off folks, which would often make the plans more regressive than a status quo that gives the largest subsidies to the poorest students.

If we are willing to throw an extra $80 billion per year into higher education spending, I’d much rather see it delivered to those who need it the most. Doubling down on the existing Pell Grant program by increasing grant limits while preserving benefits for the neediest would go the farthest toward leveling the playing field. Those same dollars, if spent progressively in addition to what’s presently available, might even begin to cover the entire cost of higher education, including living expenses. This may prove to be a more effective strategy at making education work as an effective pathway promoting social mobility.

Beth Akers is a senior fellow at the Manhattan Institute and a former Council of Economic Advisors economist. Follow her on Twitter here.

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Posted: June 15, 2020 Monday 09:38 AM