Free Community College – Economics and Education in Freefall Together

Yes, the United States are bankrupt; no sane financial manager would allow our nation to accept an additional expense, particularly of such a size as a “free community college for all” proposal.

No problem, we’re told – we’ll fund it through other tax increases! – as if that would make it all better.  But additional tax increases, especially the ones they propose – would just make everything else even worse, driving even more companies out of business or out of the country, reducing the productivity of the businesses that remain, jeopardizing the retirement funds of our struggling working population. So no, tax increases are not a solution; they just make an awful proposal even worse.

What Does College Cost Today?

When considering a new entitlement, we should begin by getting a good picture of the situation as it stands today.  Is college truly unaffordable?

No.  The straight, honest answer has to be no.

For some, yes.  For most, no.  The pricing process is complicated, crazy, destructive, but some college education is not unaffordable for most; only the college education you want – the school you want, the major you want, the location you want – might be.

But don’t we hear all the time about people going bankrupt paying for college?  Yes, we do.  But that doesn’t mean that college is unaffordable.  What it means is that the shoppers selecting college for their kids – as a group – may not be doing a great job… and that our economy, strangled as it is by a leviathan state, isn’t producing as many good jobs for the graduates as it ought… and that the process our government is using to try to make it more affordable has failed miserably and is instead making it far worse for a huge percentage of attendees (chiefly, those from the middle class).  If anything, the government needs to concentrate on creating jobs for our graduates, not on producing ever more unemployable graduates.

Outside of a few special free colleges – the service academies, Cooper Union, and a couple of other tiny outliers – colleges tend to price themselves at anywhere from $12,000 per year to $50,000 per year, plus about $10,000 in room and board.  That’s quite a range.  Prices vary by location, by whether the student is in-state or out-of-state, by size and offerings, by quality, by perks.

Loyola, DePaul, and Northwestern Universities are all in Chicagoland, on incredibly expensive real estate, where they must pay their staff in accordance with the Chicagoland cost of living.  Eureka, Lincoln, and other downstate colleges are in the country, hours away from Chicago.  They have cheaper real estate and their employees have a lower cost of living; lower costs mean lower prices, so their tuition levels skew cheaper.

But at the same time, their offerings differ – some are great for engineering, some don’t offer it at all.  some have law, business, and medical schools; some don’t. And the state schools – the public universities – have the same variety of costs, pricing, and offerings, but with a lower bottom-line offer because the states’ taxpayers subsidize them.

It’s with subsidies that it all gets weird. Virtually nobody pays the full asking price of any four-year college.  Some get ten percent knocked off, some twenty, some fifty, some eighty.  There’s a mixture of federal grants and college programs that results in considerable discounts, so that hardly anybody really pays these $50,000 sticker prices.  When politicians cite them, claiming “these $50,000/year college costs are bankrupting the American people,” they’re really being disingenuous.    It’s not the $50,000/year tuition that’s bankrupting the American people; if anything, it’s the way that the government is already helping the students and their parents pay.

When you get five or ten grand knocked off your price by a government grant, that means that the national government has just subsidized your tuition.  So the federal government is already subsidizing the tuition of practically every student in America, to some degree, and it’s the knowledge that it will do so that gives the colleges the okay to raise their prices every year; whether students can afford it or not, colleges know that the government will make up the unaffordable difference.  What today’s Democrats are doing is proposing an increase in the federal contribution, which will have the end result of ensuring that the colleges just raise their rates more.

Put yourself in the colleges’ shoes:  If you know that every price increase will be met by a government commitment to cover the affordability delta, then what would you do?  I’m betting you’d raise your price. You’d be crazy not to.

The Community College

In the United States, as in many countries, government has been in the higher education business at least as long as the private sector has.  We have state universities and even city colleges, where government runs the show and the taxpayers subsidize a quarter, a third, even a half of the cost.

In addition to these four year colleges and six, seven, ten year universities, many states have established junior colleges, or community colleges, similarly taxpayer-subsidized, but generally only leading to an Associates’ degree after two years.  They design the curricula so that most classes can transfer to the four-year colleges, so if a student plans right, he can study for two years at a community college, then transfer his credits to a public or private four-year-or-more institution.  Community colleges therefore already provide a huge basket of cost savings for the student body.

The community colleges tend to be no-frills establishments, so they can be much cheaper than most four-year schools.  They don’t normally have boarding options, engineering schools, or any of the other more expensive frills, so they cost less than universities… plus, the taxpayers subsidize these at an even heavier rate than they do their state universities.

As a result, in the Chicago suburbs for example, one can obtain two years of college, either for an Associate’s Degree or for transfer toward a Bachelor’s elsewhere, for about $5000 to $6000 per year, depending on the number of classes and cost of the books.

Now, that’s not to say it’s free, just that the taxpayers are already being awfully generous, wouldn’t you say?

The Many Kinds of Taxpayer Assistance

What does the American taxpayer already contribute toward the education of our college students?  Well, to recap and expound a bit further:

• A four year degree is free at the service academies, in exchange for a commitment to some future military service, and the same deal is offered across the country at public and private universities if students join the Reserve Officers’ Training Corps (ROTC).
• A four year degree is also largely subsidized or completely free to veterans, in gratitude for past service, under the G.I. Bill.
• Generous need-based federal grants, determined by a FAFSA form, meet several thousands of dollars of need per student, based on parents’ and students’ income levels… like any entitlement, such programs are most generous to the poor, then taper through the middle class; only the rich get nothing from these.
• The government has largely taken over the student loan industry, so that kids can take out loans for as much as the full amount of a community college tuition if they need to, under a taxpayer-backed guarantee.
• The government distributes research projects all over the country, so that almost every college and university can obtain some lucrative government contracts; these profits help subsidize the schools too, making them less reliant on tuitions and donations.
• And we mustn’t forget donations!  Oh yes, the voluntary donation marketplace pours billions into higher education, giving schools a deep well of cash to draw from, in order to reduce the price for needy students. Right, this isn’t government money… finally, we got to a funding source that’s private and voluntary… but it’s so huge, it’s worth mentioning here.
• Sports and other entertainment programs also bring in needed cash; alumni buy pennants and scarves, jackets and bumper stickers, all proudly bearing their alma maters’ logos, then descend on their college town for basketball or football games for the next fifty years.  All this private largesse does the general coffers fill.
• And finally, there are the tax breaks.  Various tax credits and deductions, depending on the students’ and his parents’ income levels, knock off hundreds to thousands from the students’ real final cost, through reductions in the parents’ income tax.

If community college isn’t free after all this, it must be awfully darned low, mustn’t it?

The Grocery Marketplace

Let’s leave education, just for a moment, to consider a different commodity:  The need to eat.

Time was, if you wanted to feed your family, you had two choices: hunt it or grow it.

Over the course of human history, food production grew ever more diverse, so that today, you have many more choices.  You can buy groceries at a store and cook them yourself, or you can go to a fast food place and buy a cheap prepared meal, or you can go to a real restaurant and buy a better meal.

The options in cuisine and quality are practically unlimited; they all cost something; what you save in dollars by purchasing groceries, you expend in effort by cooking.  What you save in effort by going to a restaurant, you expend in additional dollars.  Every purchase is a cost-benefit decision.

Most families today choose some balance of these options for their 21 meals per week.  Maybe they cook fifteen meals a week at home, grab fast food five times, and go to a restaurant once.  Or maybe they cook twenty and only get fast food once.  Or maybe they make their own breakfast every day, have fast food at lunch every day, and dine at restaurants every night?

The variety is practically unlimited, depending on ability and time, location and socio-economic status.  Our economy has developed to meet these demands. Through the invisible hand of the free market, our economy provides a mixture of grocery stores, fast food establishments, and fine dining options, in a mix that’s appropriate for the geographical area they serve.  If the main employer in town closes down, or if a recession hits, or if an economic boom occurs, people’s choices will change, and the mix of providers will change with them.  But always, the free market will somehow provide.

Now, what would happen if we just decided to make one of those options – not the best option, but one of them – completely free?

What if society were to say that fast food – not fine restaurants, not groceries, but fast food – should be completely taxpayer-subsidized?  What would that do to the marketplace?

If the government funded all the fast food places, whatever you think of that choice – what would it do to the grocery stores and real restaurants?  Would they still have the same business they did before?

Oh sure, some people will always want to cook for themselves, because they enjoy it, or because of food allergies, or health concerns… and some people will always go out to fine restaurants once in a while, if they can… but there is simply no denying it: if we make fast food places free – through taxpayer subsidies – we will certainly make the fast food proprietors quite happy, but we will make the grocery store owners and restaurateurs quite sad indeed. Their sales will plummet.

By robbing so much business from them, we would cause a collapse in the grocery and restaurant businesses.  You think Darden and Red Lobster and other such famous chains are having rough years nowadays, in this seemingly endless recession? Imagine if all of a sudden food was free at the competition.   Goodbye, restaurant chains.  Goodbye, grocery stores.  And with the lack of so much business, even those few that remain to handle the outliers would no longer have the economies of scale that made their previous prices competitive; costs would rise as clientele falls, and both grocery stores and restaurants would become ever more expensive by comparison.

Eventually, there would be practically nothing left but burgers and fries, thanks to a too-generous government, even though, of course, the leviathan was just trying to help.

Education After Free Community College

We have choices today.  We can buy books or take them out of libraries, buy online courses or attend private seminars, and learn on the job by taking an entry-level job and rising in a career.  This is an education too, but it doesn’t involve the traditional college system.  And it is right for many people.

We have community colleges, which can be used as either a route to a two-year degree or a way to save money on the route to a four-year degree from a university.    It’s relatively inexpensive – for most, in fact, it’s quite inexpensive – and it is right for many people.

And we have the traditional college system, a combination of public and private colleges and universities, with Bachelors’ and Masters, Doctorates and MDs and JDs, all sorts of degrees preparing students for all sorts of career paths.  And that path is right for many people as well.

Every time we meddle with any of these, we cause an effect that ripples throughout the fabric of our society.   Allowing the private sector to handle it is wonderful – new options like distance learning, and seminar programs, and educational internships at real businesses, are all combining to improve the options, and improve the opportunities, for Americans to grow and progress in their careers.

But allowing the public sector to meddle is always far more problematic.  When government promises funding, the price goes up to meet the money made available.  When government pays the bill, government will demand the right to control the product (“he who takes the king’s shilling, must dance to the king’s tune).  And when government pays one vendor, the competitor who’s left out must obviously suffer as a result.

Today, if community college costs $6000 per year and regular college costs $20,000, a family can make the decision either way… if they can afford it, the full $20,000 for all four years might make sense.  If they can’t, then the $14,000 delta justifies splitting it two and two.  But when we recognize that not all of the two years usually transfer, that savings might only be one year’s worth, not two, and that, at the cost of an additional year of the student’s adult working life.  We all know that these are the choices, and we can make them.  The educational system has developed around this marketplace.

But now what if the delta between the two becomes complete?  If that community college becomes completely free, there is now a psychologically different aspect to the decision. Rather than “Shall I pay more?” it becomes “Shall I pay at all? Unnecessarily?”

The Law of Unintended Consequences

What will happen to the higher education marketplace if community college becomes completely free?  Will the freshman and sophomore classes at all of our four-year-and-more institutions disappear completely, or just shrink considerably?  Either way, it will have an impact on the finances of the four-year-and-more campuses.  With one or two years less of a student body, what will happen to their respective cost models?

Free community college will be followed – must be followed – by a proportional (at least!) increase in the tuition at the four-year-and-more institutions.

Worse yet, with half the time for their student bodies to develop a connection with their universities, what will happen to their endowments?  Spending four years at a campus, you develop friendships, and a connection that can be mined by direct mail and telephone fundraiser appeals for the rest of your life. Will you feel such a connection after only two years there instead of four?

Remember what these alumni donations do: they fund the endowments that provide gift aid to the students.  Four years at Northwestern or DePaul or Loyola means lots of donations for the next fifty years, donations that help others attend.  Two years might mean fewer; it might even mean none.  What does that do to the affordability of the school for the very students we claim we’re trying to help?

When government intervenes in the market, it doesn’t help.  It cannot help.

Free community college can only mean one thing: a net increase in the cost of higher education.  More debt, more cost, more economic pain, not less.

Far from the gift to higher education that it appears on the surface, this program is a direct shot across the bow of America’s higher education sector.

As with most of the utopian ideas that have come from the Resident’s administration, the ultimate conclusion is destructive of the very ends it purports to help.  Higher education is already far too costly, entirely because of government interference.   Any seller will charge what the market will bear, and our government has promised, again and again, to bear whatever this corrupted market charges.

This proposal will, and must, be put to a swift and certain death.  Wherever government has intervened in the arena of education, it has brought nothing but price inflation and quality reduction.  This “free community college” program, if passed, would take people out of the four-year-and-more system, artificially swell the community college system, cause unemployment in the four-year-and-more sector, and break the budgets of students and taxpayers alike.

Any sane professor grading this proposal would give it a solid F.

Copyright 2015 John F. Di Leo

John F. Di Leo is an international trade compliance lecturer, Illinois Review columnist, and recovering politician.  He earned his bachelor’s degree in Political Science and History at Northwestern University in Evanston, Illinois, where he participated in the Young Republicans, the Conservative Council, and a school newspaper, The Northwestern Review.

Permission is hereby granted to forward freely, provided it is uncut, and the byline and IR URL are included.  Follow John F. Di Leo on Facebook or LinkedIn, or on Twitter at @johnfdileo, or at his own personal website at JohnFDiLeo.com.