Magazine October 19, 2015, Issue

The Cost of ‘Free’ College

It will reduce quality without guaranteeing higher enrollment

There are many good reasons to be skeptical of the Democrats’ new infatuation with “free college.” The massive price tag, the favoritism toward the public sector, the federal coercion — all are legitimate concerns.

But there’s a more basic objection: Free-college plans would move American higher education from being a voucher-based market to being a government-administered “public option.”

For a half century, federal funding has flowed to students in the form of vouchers, and students have had the power to choose from an array of providers — public, private, and for-profit. The federal government has had little direct control over colleges, relying instead on third-party accreditation agencies and market competition to ensure quality.

A growing number of progressives — including prominent Democratic politicians — have soured on this voucher-based approach. Instead of compelling schools to compete for students by offering lower prices and better value, they argue, the market has allowed colleges to raise their fees at will and left policymakers powerless to do anything about it.

Admittedly, the market is imperfect. Students lack clear, comparable information on the cost and quality of different post-secondary options. Schools compete with one another on such things as spending and faculty–student ratios rather than the value of the education they provide. And federal loans encourage attendance at any program at nearly any price, creating little incentive for students to borrow prudently or for institutions to contain their costs.

Rather than work to fix the market, however, the Left wants to scrap it altogether. Free-college proposals are designed to move us away from the decentralized, voucher-based approach and toward one where federal funding flows directly to public institutions that are subject to federal rules. Proposals from President Obama, Bernie Sanders, and Hillary Clinton would all send federal subsidies directly to states and colleges that eliminate tuition fees.

The problem is, these proposals won’t do what progressives think they will. To be clear, the price of college should indeed be dramatically lower — not only at public institutions but across the board. When governors, colleges, and entrepreneurs work to create lower-cost pathways for students, we should applaud.

Ultimately, though, price is less important than value: what students get in return for their time and money. Shifting costs from students to taxpayers is not the same as making higher education more cost-effective. While federal funds, price caps, and rules can bring public-tuition costs down temporarily, they will have a harder time improving quality and cost-effectiveness. Doing that will require addressing the wasteful spending and disappointing results that have been the consequence of current higher-education policy, which has provided easy money and demanded little or no accountability.

Not only will free college fail to solve these problems, it may well create new ones. Providing a free public option might actually diminish some students’ chances of finishing a degree. Tuition caps might result in rationing, not increased enrollment. And imposing new federal rules would sap the system of what little creative energy and innovation do exist.

What does “free” actually mean here? There are a few varieties of free college — tuition-free college, debt-free college (with money provided for living expenses), no-loan tuition (for which families pay according to their income) — but they share some basic features. President Obama has proposed to make two years of community-college tuition free for high-school graduates whose adjusted gross income does not exceed $200,000. Any students who are eligible for Pell grants might have their tuition covered and could spend grant aid on other expenses. Insurgent presidential hopeful Bernie Sanders, meanwhile, has called for $750 billion in federal funds over ten years to eliminate tuition at public four-year colleges. And while Hillary Clinton’s “new college compact” does not go as far as Sanders’s plan, it would spend $350 billion over ten years to provide tuition-free community college and create no-loan tuition at public four-years. Families would still contribute, proportionately to their income, to paying the cost of attending a four-year public college.

These proposals share two key features. First, they all aim to use the federal money as a carrot to encourage states to spend more on their public colleges. Democrats see “state disinvestment” — or the fact that states appropriate less per pupil than they used to — as the biggest problem facing higher education. Under Sanders’s plan, the feds would pay two-thirds, while the states would pay the remaining third. Obama’s proposal has the feds covering three-quarters of the national average tuition price and the states covering the rest of what it would cost to eliminate fees. Clinton’s plan would work similarly.

Of course, “free” college isn’t really free. The Democrats’ approach shifts costs without necessarily lowering them. Transferring costs away from students onto taxpayers would lower tuition prices while allowing schools to continue operating under their current wasteful cost structures. An influx of new funding might actually lead them to pay less attention to cost-effectiveness than they do now. If everybody is receiving tuition on the taxpayer dime, schools don’t have to worry that students will flee to a lower-cost option.

Second, the free-college proponents believe that they can use federal tax revenue to improve public colleges and influence states’ education-funding priorities. Clinton’s plan, for instance, would require that states “ramp up . . . investment over time” and hand out new federal money only to institutions that ensure “that all funds received will be applied toward instruction and learning, and [improve students’] prospects for completion.” Sanders’s proposal would require that at least 75 percent of faculty at participating state systems be made up of tenured or tenure-track professors and prohibit schools from spending new federal money on administration or non-academic buildings. Obama’s free-community-college plan would require that states “allocate a significant portion of funding based on performance, not enrollment alone,” and that institutions “adopt promising and evidence-based institutional reforms to improve student outcomes.”

In other words, “free” college would entail an unprecedented expansion of federal power over public colleges. The implicit assumption is that greater control will better empower the feds to set standards and hold public colleges to them than the voucher-funded model does.

But it’s just that — an assumption. Most free-college proponents claim that direct government control will solve quality problems as if this were self-evident. Education scholars Sara Goldrick-Rab and Nancy Kendall, for example, assert that, “by investing in a universal system, the federal government can engage states and institutions in a conversation about what is required to ensure that students begin and complete a quality college education.”

Conversations are nice, but how, precisely, are they going to improve colleges whose students have dreadful completion and loan-default rates? And what happens when participating colleges don’t make good on their pledges? Federal policymakers rarely cut off schools’ eligibility for student-aid programs now, even when they clearly run afoul of existing loan-default standards (which are supposed to exclude colleges if more than 40 percent of their borrowers default on their loans within three years of entering repayment, or more than 30 percent do so in three consecutive years). In 2014, the Department of Education “revised” the loan-default rates of an untold number of institutions, effectively saving many from sanction. It seems plausible that a large share of them were for-profit colleges — a top target of Obama-administration regulators — yet they still got a pass. We’re supposed to believe that federal bureaucrats are going to defund politically connected public institutions that don’t make the grade?

Free-college proponents may reply that even if such proposals do nothing to improve quality, at least they will boost enrollment by making public tuition more affordable. This, too, is a questionable assumption.

First, free tuition may well draw in students who otherwise would have attended a higher-quality institution. After all, it’s hard to compete with free. But a series of rigorous studies have found that “under-matching,” or attending less selective colleges than they are qualified to attend, actually decreases students’ rates of degree completion. For instance, Sarah Cohodes, an education professor at Columbia, and Josh Goodman, an economist at Harvard’s Kennedy School of Government, found that Massachusetts students who qualified for a state-funded Adams Scholarship — which entitled them to a tuition waiver at state colleges — were less likely to complete a bachelor’s degree. That’s because the free state colleges were lower-quality than private alternatives. Similarly, research suggests that students who could aim higher but enroll in a community college are less likely to earn a degree than similar students who start at a four-year college.

Second, free tuition could lead to rationing rather than higher enrollment. Such a policy essentially limits college spending to what the public is willing to pay. If federal and state funding does not keep pace with increases in enrollment or the cost of providing education — a real possibility, given other budgetary priorities — then tuition-free colleges will have to limit enrollment. This has already happened in countries with free tuition.

The United Kingdom, for example, has progressively moved away from free tuition for precisely this reason. Before the late 1990s, public universities in the U.K. were directly funded on a per-pupil basis, and students paid no fees to attend. Enrollment numbers were closely regulated, and institutions that over-recruited had to pay penalties. As a result, student demand consistently outstripped available slots. Eventually, tight public budgets and rising student demand led the British government to introduce fees of £1,000 per student (with exemptions for low- and middle-income students) and to increase those fees over time.

In 2010, the British government freed colleges to charge students up to £9,000 in tuition and created a student-loan program to finance tuition payments. In a policy paper, Minister of Universities David Willets explained the flaws of the rationing model as follows:

The current system of controls limits student choice, because institutions are prevented from expanding in response to demand from applicants. That in turn protects institutions with lower levels of demand, which fill their places with students who cannot get to their first-choice institution. . . . Another issue is unmet demand from the growing number of prospective students unable to find places at any higher education institution.

Many colleges did raise their tuition fees to the maximum, and most students were predictably upset. But those fees enabled the government to relax its restrictions on student numbers at colleges funded by the Higher Education Funding Council for England. The cap increased by 30,000 students in 2014–15, and as of 2015–16, colleges will be free to recruit as many students as they want. The government estimates that there will be 60,000 more entrants per year.

Finally, rules that dictate how public colleges may spend their money will further constrain colleges’ ability to innovate and adapt. And as students flock to the free public option, private providers will have a harder time competing, further reducing the public sector’s incentive to change.

American higher education is undoubtedly in need of reform. But in reforming it, we must be careful not to discard its strengths. Our system’s history of expansion and innovation is a function of the market-based policies that govern it. Scrapping those policies would be a costly mistake.

– Mr. Kelly is a resident scholar at the American Enterprise Institute and the director of its Center on Higher Education Reform.

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