The Fundamental Flaw in ‘Free College’ Proposals
The rising cost of college has not been borne by students, but by taxpayers—through rising subsidies.
Contemporary debates over higher-education policy are dominated by claims that access to college is severely inequitable and unaffordable, and that matters have grown worse in recent years. Yet empirical data do not suggest that higher-education access, equity, or affordability are at the crisis levels these narratives imply.
In fact, both access and equity in our higher-education system have improved over the past 20 years. And thanks to policies already in place, tuition prices and student-loan payments are far more affordable than many assume.
Most student-loan borrowers make affordable loan payments and have access to a generous safety net to help them through difficult times. But these benefits are not universal in practice. Millions of borrowers have slipped through the cracks and defaulted on their loans. They are then subjected to an ill-designed and costly system of wage garnishment and tax-refund seizure (including seizure of Earned Income Tax Credit benefits). Because the U.S. government offers loans to virtually every student who applies, default rates on student loans are far higher than they are on other consumer debt. But it is not borrowers with large debts who default; it is those who take on less than $10,000, attend college for a few semesters, and then drop out with debt but no degree. Greater awareness of the contours of this student-debt crisis would help build a consensus around reforms that mitigate high default rates and impose a fair and rational collection system when defaults do occur.
Borrowers with the largest balances ($100,000 or greater) present an entirely different set of policy problems. In contrast to how it treats undergraduate loans, the federal government allows graduate students to borrow unlimited amounts while imposing few controls on the quality of the programs financed. The result has been a proliferation of expensive but questionable graduate programs, such as Columbia University’s one-year master’s degree in data journalism — the total cost of which is nearly $115,000 ($160,000 after factoring in living expenses).
Loan-forgiveness benefits remove any market discipline that might normally correct this problem. While IDR plans offer a sensible safety net, the terms are overly generous. Absent reforms, graduate students are set to pass the costs of their degrees on to the government to the tune of $167 billion in total forgiveness over the next decade, according to the Congressional Budget Office.
What’s more, while college tuition after financial aid has remained roughly flat for lower-income borrowers, the rise in underlying college spending is a concern. The government has increased student financial aid by billions of dollars, but that aid has not reduced tuition. And because tuition before aid has risen much faster than inflation — a trend driven by underlying spending increases — government-aid programs are having to run faster just to stay in place. In a counterfactual world where colleges did not raise pre-aid tuition, expansions of government grant programs could have eliminated tuition for most students whose families earn less than the median income. Students could have then used the leftover funds to defray their living expenses, which often pose a much larger barrier to access than tuition for the most disadvantaged students.
The real problems plaguing our higher-education system will not be solved by free-college programs, student-loan forgiveness, or a doubling of the Pell Grant. Tackling them will require solutions that are more creative and better aligned with how prices work.
