ACTA in the News | Costs

What Does “Free College” Really Mean?

FORBES   |  December 23, 2020 by Michael B. Poliakoff

Utopia has perils. Is free college a progressive and humane plan or will it encourage yet more reckless spending by colleges and universities, leaving taxpayers with the bill. And will it ensure that more students will attain meaningful degrees that prepare them for a successful career, or could it become a bureaucrats’ bonanza with academic standards and students, ironically, paying the price? Last month in Forbes, economist Richard Vedder raised urgent questions about the Biden plan for higher education. His analysis and critique calls for serious consideration. Whether free college means progress or the Devil will be in the details.

For decades higher education has been digging itself into a deeper and deeper hole. From 1986 to 2018, the average total tuition, fees, room and board rose 128% at four-year public universities and 105% at four-year private universities after adjusting for inflation. The picture is not much better for two-year colleges, with costs going up by 51% for public and 72% for private institutions during the same period. Add to the equation fallout from the pandemic and you have lots of promising students postponing if not canceling their college plans.

And then there is the mater of the $1.6 trillion of outstanding student debt that such costs have caused.

President-elect Joe Biden’s plan would make a two-year degree free and do the same for a four-year degree for families whose income is below $125,000. Mr. Biden calls for a “a federal-state partnership, with the federal government covering 75% of the cost and states contributing the remaining obligation.” This could solve longstanding problems of access to higher education. How affordable it is—or ultimately how wholesome it would ultimately be for American higher education—is far less certain.

Under this plan, what incentive would colleges have to maximize education quality and operational efficiency and hold costs down with such a secure stream of revenue from the government? Clearly, admitting and retaining students would be in their interest, keeping the revenue stream robust. Colleges might race to gain and keep as many students as possible, paying less attention to the academic rigor on which career success rests.

Private institutions other than HBCUs (Historically Black Colleges and Universities) and MSIs (minority-serving institutions) would be at an extreme competitive disadvantage, so much so that the survival of the uniquely American phenomenon of the small liberal arts college would be in grave peril, except for the most prestigious schools. In 2018, the Economist wryly noted that what makes the American system of higher education so effective is that it is not a system. “Free” college could well put an end to the brilliant diversity of our institutions.

In October 2019, the Biden website estimated a cost of $750 billion for his higher education reforms, which also include student loan forgiveness, institutional support, and other benefits. This dollar figure was derived and then removed from Biden’s website before the Biden campaign added free college to the platform. Other estimates go past the trillion-dollar mark. Bowen’s Law, developed by the late economist and president of Grinnell College, Howard Bowen, states that colleges will raise as much money as possible and spend it all, without saving adequately or passing savings onto students or taxpayers. Under the Biden plan, what is to dissuade schools from frivolously hiring an even bigger roster of administrators and starting yet more non-instruction related campus programs, if they can depend on endless revenue from the government?

The Bennett Hypothesis of 1987 posits: “If anything, increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that federal loan subsidies would help cushion the increase.” Effectively, with the availability of federal funds, expenditures soar, schools raise prices, and students take out ever more loans to meet the cost of tuition, fees, room, and board. Richard Vedder suggests that for every dollar of federal aid, tuition prices rise approximately 35 cents. Other economists put that figure closer to 60 cents. The theory has drawn supporters and detractors, and although the size of the impact is in dispute, the connection of federal money and price to students seems clear. College will be a great financial deal for those eligible for the Biden plan, but the hammer of rising tuition will fall ever more heavily on students over the $125,000 cutoff, as the cost of attendance rises.

To what extent does the infusion of money benefit students? The conventional wisdom is that more money spent equals better service provided. Yet, according to data from a 2018 report by the Organization of Economic Cooperation and Development (OECD), the United States already spends 95% more per pupil in higher education than the average of the other 36 OECD nations, while its graduates rank slightly below international average on measures of the core collegiate skills that matter for career success.

Where will the new money go? We have already seen a continual growth in the higher ed administrative class. The American Association of University Professors reported in 2008 that the median presidential salary at a public doctoral institution was $338,228. In 2020, the median was $495,813, a 47% increase. Growth in non-instructional spending is a longstanding issue. According to a Delta Cost Project report, between 2000 and 2012, professional workers—business analysts, HR, admissions staff, etc.—came to make up one quarter of on-campus jobs at public research universities, outnumbering full-time faculty. As campuses add bureaucrats and the inevitable compliance professionals who come with increased federal money, the university must find revenue for these salaries. Some universities, such as the University of Akron, have found the money by slashing their instructional budgets.

The Biden plan could end up costing far more than ever expected, even with such a substantial initial price tag. A precedent has been set that countries who have provided free college eventually have to start rationing it because they cannot afford the cost. Potentially tighter admissions restrictions or funding limits will be a roadblock for students.

It is highly ironic that plans to make higher education more accessible could result in making a quality college education harder to achieve than ever before. Proceed with caution.


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