Bernie Sanders has gained a foothold in the Democratic primary by promising Americans a number of things: universal health care, paid leave, pre-K for all, and free college education. These proposals are very popular among the young and lower-income Democratic voters who are drawn to the seemingly free government services. However, the efficacy and economic impact of these proposals deserves higher scrutiny. Just because something is good does not mean it should be free, and as Milton Friedman would remind us, there is no such thing as a free lunch. This is certainly true of higher education.
The student debt crisis is very troubling for those grappling with debt as well as for the financial system in general. The cost of higher education has risen far faster than inflation, interest rates on student loans have risen in both the private and public markets (to 18% and 4.29% respectively), and student loan debt has doubled over the past seven years, totaling $1.3 trillion today. Bernie Sanders is right to raise awareness of this issue, and he and Democrats like Elizabeth Warren are sure to win political points by decrying the current system (as Elizabeth Warren says, why should Wall Street banks get a lower interest rate than students trying to get an education?). Ignoring the faulty economics of that statement, there is certainly evidence of predatory practices among private loaners, and the cost of higher education and debt have become incredibly onerous. Bernie Sanders also makes the valid point that, in our increasingly competitive world, the United States needs a highly educated work force. But would making higher education free at public institutions solve these problems?
Kevin James of the right-leaning American Enterprise Institute says no. James argues that government subsidies have made college education more expensive by increasing demand. He also argues that higher education for every American who wants it is not effective in making our workforce more competitive. Numerous studies, including a recent Gallup survey, have doubted the value of certain college degrees in our modern economy. In addition, the 5-year graduation rate at public universities is the lowest it has been in three decades at 36.5%. Making college completely free creates a moral hazard problem. Students who would not necessarily benefit from a college education will be far more likely to go to college, and the likelihood that they will graduate on time will decrease even further. And of course, thousands of Americans who can afford to pay for college would no longer have to.
Instead, James makes the following observation: “At a basic level, there are two routes to affordability: subsidizing to bring price down or making something cost less to deliver. The focus of government policy for decades has been on the former approach. We need more of the latter.” This is exactly what Mitch Daniels, President of Purdue University, has sought to do. Daniels, who served two terms as the Republican Governor of Indiana, froze tuition at the University upon becoming president and has undergone cost-cutting measures to prove that colleges do not need to be as costly as they are. Daniels, among others, places blame on the bloated administrations of college universities. He argues that a large portion of the money received from government subsidies, in an amount that Bernie Sanders would effectively double, goes to administrative salaries. At Purdue, the size of the administration and staff has increased 75% over the last 13 years. The benefits of this increase are suspect. In his efforts at Purdue, Daniels has shown that much of the problem of rising education cost lies with the cost structures of universities. Daniels also argues for the need for flexibility and innovation in the operation of American universities. Were the government to fully subsidize tuitions, it would need to control costs by heavily regulating the universities and hindering their ability to invest and innovate.
Lastly, we have to consider the costs of Bernie Sanders plan. In a recent Wall Street Journal editorial, the author used the Sander’s campaign numbers to estimate the price tag of the proposals listed at the start of this column, among a handful of others: $18 trillion over the next ten years. Making public universities free for all Americans would cost $750 billion over this same period. The Sanders campaign argues that taxes on Wall Street speculators could fund higher education for all. If this is even true now, it may not be as universities grapple with the higher costs of students flooding into their now-free programs.
The rising costs of higher education and mounting student debt is a dire issue in this country. Some of America’s best students simply cannot afford college and either do not attend or leave college with unmanageable debt. This is both deleterious to the country’s workforce and simply inequitable. However, Bernie Sanders’ plan to make public universities free would have adverse effects on our education system and the very people it seeks to help. Instead, targeted governments subsidies, cost-cutting measures like those being implemented at Purdue, and market-based solutions like “income share agreements” are more feasible and effective ways to preserve the best higher education system in the world and make it available to driven American students irrespective of their family’s income.