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Tuition-free college: Should we support it?

Gov. Andrew Cuomo recently unveiled a plan, the so-called Excelsior Scholarship, which will offer free tuition at all state-run colleges for students from families earning less than $125,000 a year. Since the provision of free college tuition was vociferously championed by U.S. Sen. Bernie Sanders of Vermont during the 2016 presidential campaign, this idea is still fresh in our minds. However, this plan raises two fundamental questions. First, should college be free? Second, if the answer to the previous question is yes, then does the governor’s plan lead to an improvement over the status quo? Let us investigate.

It is clear that Cuomo would answer the first question posed above affirmatively. Even so, it is not obvious that college should be free. A college education is a valuable commodity for most Americans. This value derives not only from the fact that real and scarce resources are required to provide it but also from the fact that relative to a high school education, a college education typically makes one wealthier. So, if such a valuable commodity were to be provided free, then elementary economics teaches us that the demand for a college education would exceed its supply. In other words, relative to what is socially desirable, we would have too many college graduates in our state.

Looking at this question a little differently, note that just because tuition is set to zero does not mean that the cost of providing a college education is also zero. In fact, this cost is typically positive and increasing over time. Therefore, unless public generosity (higher taxes?) keeps pace with rising college costs, it will be increasingly difficult for our state-run colleges to serve the larger numbers of students without sacrificing the quality of their educational offerings. In sum, there are very good reasons for believing that college ought not to be tuition-free.

The above conclusion notwithstanding, let us temporarily believe, as Cuomo does, that college ought to be free for at least some New Yorkers. Although we still know very little about the specifics of the governor’s plan, what we do know is the following: Students who are eligible for Pell Grants must use these funds first to pay for school. After these funds have been exhausted, the state will chip in the remaining amount to ensure that eligible students end up paying no tuition.

As a professional economist, I know that there is no such thing as a free lunch. Similarly, there is also no free college. The pertinent policy question involves determining how best to distribute the burden of paying for Cuomo’s plan. In this regard, analysis by Robert Kelchen of Seton Hall University shows that the income threshold of $125,000 falls approximately at the 80th percentile of family income distribution in New York. This includes students from middle-income and upper-middle-income families and hence these students are likely to benefit greatly from Cuomo’s plan. Although students from such families may have to borrow to pay for tuition, college enrollment rates for these students are already quite high.

What will Cuomo’s plan do for low-income students? The picture here is mixed. Mikhail Zinshteyn points out that Pell Grants tend to cover almost all of the tuition at a school like SUNY Albany and hence there is very little that Cuomo’s plan will do for students receiving these grants. In contrast, students from financially better-off families, i.e., those that are ineligible to receive Pell Grants, are likely to profit from Excelsior Scholarships. Since more than three out of five students in the SUNY schools are ineligible to receive Pell Grants, Cuomo’s plan, once again, is likely to assist those students who can afford college tuition in the first place.

The governor recently noted that many New York families cannot afford to send their children to college. Although this is true, it is not clear that his proposed plan will tackle this problem effectively. In particular, not only is his current plan fairly vague but, in addition, it would appear to have a targeting problem in that it is more likely to assist those students who are not in particular need of this assistance.

Amitrajeet A. Batabyal is the Arthur J. Gosnell professor of economics at Rochester Institute of Technology. These views are his own.

1/27/2017 (c) 2017 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email rbj@rbj.net.

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