Bernie Sanders is drawing lots of people under 30 with his calls for “free college for all.” It sounds great to be able to go to college and not worry about the bills. But before your slap the “Bernie 2016” bumper sticker on your car, let’s put a little thought into what free college would be like.
America has some of the best colleges and universities in the world, which is the reason that many foreign students come to America. Certainly it would be great to be able to go to whatever college you gained admittance to, based solely on your grades and life experiences as you do now, and not need to pay tuition. And perhaps that is how many people are picturing free college – exactly like it is now, but with no tuition bills. And it might be that for a year or two it would remain about like it is now, but with public college becoming tuition free.
But then problems would start to emerge because the costs of paying for this free college would exceed expectations. It might start as a tax on investments, but that income stream would dry up as people adjusted their behavior based on taxes. If taxes were severe enough, people would just quit investing or move overseas with their money. Even if you took it all before they left, that wouldn’t even pay for tuitions for a year. Once you start a program and people are on it, however, you can’t end it. This means taxes would need to be raised on middle class Americans to pay for “free college.” Rather than save up and pay for college, or take out loans and pay for your college for five to ten years after college, then live your life free of the burden, you would start paying taxes from the year the law was passed and never stop your whole life. It would be like student loan payments that never stopped. Even if you didn’t go to college, you would still have student loan payments for life.
There would also be a significant change at the public universities. Currently there are many middle class students at Harvard, Yale, and other elite colleges. That would quickly end as soon as public colleges became free. This would be initially because many students would choose to go to the public colleges which were free, instead of the private schools which they would need to pay for, unless their families had enough money to ignore the costs. After a few years, however, as taxes increased, middle class families would need to have their children go to public classes because there would be no way they could afford private colleges. They could not even get student loans because they could not afford to pay them back with the taxes they would need to pay (remember, never-ending student loan payments).
This would cause many private colleges to close their doors due to the drop in attendance. The very elite schools would remain open, but their enrollment would be limited to the very wealthy, both because they would be the only ones who could afford to pay twice for college – once for the public school and then again for the private one – and because the private schools would no longer be able to afford to give out scholarships since the would need to keep every dime they could. Dropping enrolments would mean the need to allocate more tuition dollars to professor salaries and grounds maintenance. Higher taxes would mean fewer alumni donations.
The public schools would suffer as well. As more and more people attended college since it was free and beat working, there would be more competition for classes. There would also be a lot of abuse as people gamed the system, attending college but not attending classes. This would result in an increase in bureaucracy and a decrease in choice. There would be a huge amount of competition to get into the more popular fields, so those spaces would be filled mainly by people who had connections of by those in chosen classes (races, religions, places of origin, etc…) determined to be desirable at the time. It is very unlikely that you would get to choose your major. Instead, it might be chosen based on the needs of society or whatever was open at the time.
It is also likely that people would be assigned a college based on where they lived, just as is done with K-12 schools now. Since colleges would no longer need to compete to attract students, quality would drop. There would be no incentive to meet the needs of students, so many colleges wouldn’t. The quality of interactions with admissions and other offices would be worse than it is even now, teaching quality would suffer, and facilities would fall into disrepair.
So before you vote for free college, realize that you would be choosing a college with low quality, no choices, and poor quality facilities. It is always better to save up and pay for things because then you have the choice. As the saying goes, beggars can’t be choosers, and when you ask the government for free stuff, you end up begging for the return of your own money. Don’t be fooled.
Got and investing question? Please send it to firstname.lastname@example.org or leave in a comment.
Follow on Twitter to get news about new articles. @SmallIvy_SI
Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.