David Deming Analyzes the Economics of Tuition-Free College!

Dear Commons Community,

David Deming, the director of the Malcolm Wiener Center for Social Policy at the Harvard Kennedy School of Government, has an op-ed in today’s New York Times entitled,  Tuition-Free College Could Cost Less Than You Think.  He examines the issue from an economic point of view and concludes that a free public college education is within financial reach of the states and country.  The issue of free public college education is getting renewed attention especially from the Democratic candidates hoping to become the party’s flag-bearer in the 2020 presidential election.  Not everyone supports the concept.  See, for example, Five reasons why free college doesn’t make the grade by Michael Horn of the Clayton Christensen Institute.  Here is Deming’s analysis.

“While college tuition is high at many private schools, median in-state tuition at four-year public universities was only $8,738 in the 2017-18 academic year.

Still, that was an increase of about $1,100, or 15 percent, since 2010 after adjusting for inflation. Tuition at public two-year colleges was $3,304 in 2017-18, and has increased by about $450, or 16 percent, inflation-adjusted, over the same period. Seventy-five percent of college students attend public institutions. And for many of them, even this tuition is too high to pay without help.

Consider, though, that in 2016 (the most recent year for which detailed expenditures are available), the federal government spent $91 billion on policies that subsidized college attendance. That is more than the $79 billion in total tuition and fee revenue for public institutions. At least some of the $91 billion could be shifted into making public institutions tuition-free.

First, about $37 billion of the federal money went toward tuition tax credits and other tax benefits, which disproportionately helped wealthier families, who were likely to send their children to college without government help. I’m not proposing that these benefits be cut — but in a financial pinch, some of this aid could be repurposed to allow for tuition-free public institutions, which would help poorer people more.

Second, $41 billion in federal spending went toward aid for low-income students and military veterans, while $13 billion subsidized interest payments on student loans while students were enrolled in college.

If tuition payments were eliminated, students at public colleges would have less need for these programs. (College costs also include room and board, books and supplies, and other living expenses, so tuition-free college would not eliminate the need for financial aid, even at public schools.)

In short, at least some — and perhaps all — of the cost of universal tuition-free public higher education could be defrayed by redeploying money that the government is already spending.

Some form of tuition-free college already exists or soon will be in place in 13 states, and some of this cost would not need to be duplicated to achieve universal tuition-free public college.

The existing tuition-free state programs apply almost exclusively to two-year colleges (New York’s Excelsior scholarship is an exception), and they are funded by increasingly tight state budgets, which threaten their long-term viability.

The federal government has much deeper pockets than the states do, but it mostly reduces tuition costs indirectly by providing financial aid to low-income students. The largest program is the Pell Grant, which provides a maximum award of about $6,000 per year.

Thanks to various forms of financial aid, for the neediest students, some public colleges are already tuition-free. So why not simply expand financial aid to provide larger dollar amounts to more students? The problem is that need-based aid requires a determination of eligibility, and students usually don’t know what they will pay for college until after they decide to apply.

Pell Grant aid helps low-income students attend and graduate from college, but it has little impact on the decision to enroll in the first place. Financial aid is helpful but only for low-income students who can successfully navigate the system.

The simple promise of zero tuition, whatever your family income, is in itself an effective nudge that is likely to attract more low-income students to college. That is unequivocally a good thing. But such a promise will also attract some wealthier students, who would go to college anyway, so reduced tuition would be just a windfall for them.

This may not be an ideal use of scarce public resources but, on balance, I think that is acceptable because of the enormous benefits of college attendance for those who are less advantaged.

Consider that tuition-free public college has already drawn many more low-income students into college in places where it is offered, such as the state of Tennessee and the city of Kalamazoo, Mich. If some of these students complete a degree, they are likely to increase their lifetime earnings — a boon that is generally much more valuable than a few years of reduced tuition. What’s more, higher earnings will also increase tax revenues, further cutting the long-run costs to the government.

But there is a danger that the promise of free college could become a political mantra rather than a serious attempt at reform. A particularly worrisome possibility is that states will reduce tuition to zero without committing any additional resources to higher education, and simply cut spending.

We could end up making college worse by making it free. This might not even produce more college graduates: Spending cuts at public institutions tend to result in lower graduation rates, studies by me and by others suggest.

It is important to lay the groundwork for success by providing more resources, but targeting them carefully. One idea — proposed by Senator Brian Schatz, Democrat of Hawaii, and Representative Mark Pocan, Democrat of Wisconsin — is a federal matching grant to public institutions in states with tuition-free public college. (I proposed a similar idea in a 2017 paper for the Hamilton Project, an economic policy initiative at the Brookings Institution.)

A federal match on the first, say, $5,000 of state funding per student would be proportionally larger for colleges that spend less on education. This directs resources to public colleges that serve most poor students.

With matching grants, the federal government could build in safeguards to ensure the money was well-spent. For example, the money could be restricted to core categories like teacher salaries and academic counseling, rather than administration.

The long-term payoff of these policies could be enormous. Considerable research shows that public and private benefits greatly exceed the costs when students are nudged toward obtaining a college degree. Yet at the moment, only 37 percent of Americans between the ages of 25 and 29 have a four-year college degree, and completion rates are lower for poorer students.

Dollars and cents aside, there is a strong ethical case for devoting more public spending to policies that encourage poorer students to get a college education, giving them some of the opportunities that richer students receive as a matter of birth.

But budget hawks should know that making all public colleges tuition-free could be relatively inexpensive — or even revenue-neutral — if this initiative replaced other less-effective programs.”

Our early experience here in New York with the tuition-free Excelsior Program supports Deming’s analysis.  My sense is that free college is not a question of whether but of when.




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