There is No (Tuition-)Free Lunch

The Obama administration’s proposal to make community college free is part of a pattern of elevating sound bites over sound higher ed policy, Arthur M. Hauptman writes.

January 14, 2015

President Obama has jumped on the bandwagon, which started in Tennessee, of making community college tuition-free. This latest proposal is his most recent effort to increase the prominence of the federal government in higher education. While giving higher education more federal  visibility may be a good thing, making community colleges tuition-free is also the latest in a series of proposals in which the administration seems to have decided that sound bites trump sound policy.

The cycle began in the administration’s early days when it declared its primary goal in higher education was to “re-establish” the U.S. as having the world’s highest attainment rate -- the proportion of working adults with a postsecondary degree of some sort. 

Never mind that the U.S. has not had the highest rate in the world for at least several decades and that achieving such a distinction now is well nigh impossible given where some other countries are. And also ignore the fact that some countries which have overtaken us, such as South Korea and Japan, have done so in large part because they are educating an increasing share of a declining number of their young people – a demographic condition we should want to avoid at all costs. 

In this effort to be Number One in higher education, the Obama administration is continuing a trend in K-12 education that began in the Clinton and George W. Bush administrations in which we as a nation set totally unrealistic goals to be achieved after the incumbent administration has left office.  Not clear why we would want to expand this practice into higher education, but that’s what we are doing.

The administration also in its first year pushed for a remarkable expansion of Pell Grants as part of the economic stimulus package of 2009. It was certainly good to augment Pell Grants in the midst of a severe recession when so many students were having a tough time paying their college bills. But rather than doing it on a temporary basis by increasing awards for current recipients, the administration pushed for and the Congress agreed to a permanent legislative change that increased the number of recipients by 50 percent and doubled long term funding. 

This is the equivalent of changing tax rates in the middle of a recession rather than providing a rebate.   It certainly provided more aid for many more students – nearly one in two undergraduates now receives a Pell Grant.  But the expansion in eligibility means less aid is available for the low-income students who most need it.  And few seem worried that Pell Grant increases may have led many institutions that package aid to reduce the grants they provide from their own funds to Pell recipients, as is reflected in the fact that institutional aid increasingly goes to middle-income students.

The Obama administration’s recent effort to develop a rating system for postsecondary institutions is another example of politics triumphing over sound policy. The rhetoric goes to the noble notion of making institutions more productive and more affordable, but the metrics the administration has proposed using are unlikely to produce the desired result or may well have the unintended effect of producing bad results.

Much more troublesome, the administration’s ratings proposal would penalize students based on where they decide to enroll, as those going to colleges that don’t perform well would get less aid. This is illogical as well as counterproductive. Thankfully, there seems little chance that this proposal would be adopted, but one is left to wonder why it was suggested and pushed when it would do little to address the many real challenges facing American higher education, such as chronic inequity and unaffordability.

Which brings me to the most recent proposal by President Obama – to make community colleges tuition-free.  At this stage, we know relatively little about what is being proposed other than that it is modeled on what was done in Tennessee where state lottery funds (not a very good federal model) were used to ensure that students with good grades would not have to pay tuition to go to community college.  But since there are so few details as to how this tuition-free package would be structured, there are more questions regarding the President’s proposal than there are answers.  These include:

Who will benefit and who will pay? If the administration were to follow the Tennessee plan, current Pell Grant recipients will largely not benefit as their Pell Grant award fully covers the cost of tuition at most community colleges throughout the country. So beneficiaries would disproportionately be middle-class students who mostly can afford $3,300 in annual average tuition costs of community college, just as has been the case for the Tennessee plan. 

The administration to its credit seems to recognize this potential lack of progressivity, and its spokesmen have declared (to Inside Higher Ed) that the new benefits will be on top of what Pell Grant recipients currently receive. This could be an avenue for a big step forward in federal policy were we to recognize that Pell Grants are largely for living expenses for students whose families cannot afford to pay those expenses, but it means that the federal costs of implementing such a plan will be substantial, probably far more than the $60 billion in additional costs over 10 years now being suggested.

Also lost in the enthusiasm about making community colleges tuition-free is the reality that the biggest bill for most students are the costs of living while enrolled and the opportunity costs of leaving the job market to enroll in school on more than an occasional basis. Also lost in the hubbub is the question of how these benefits are going to be paid for. This key financing question seems largely unanswered in the administration’s explanation thus far.

What would happen to enrollments in other higher education institutions? Advocates for the Tennessee Promise talk about how it has already boosted enrollments in community colleges. There seems to be little consideration, though, of whether this might come at the expense of enrollments in other colleges and universities. The Obama administration clearly prefers for students to go to community colleges rather than for-profit trade schools, but it seems to have little concern that offering more aid for students enrolling in community colleges will have any adverse effect on enrollments in more traditional four-year institutions -- including historically black colleges that could ill afford the dropoff in enrollments.    

But federal and state officials have an obligation to recognize that enrollments in higher education are not unlimited and that providing incentives for students to enroll in one sector means that enrollments in other sectors are likely to decline. Is the next step for the federal government to propose a program of support for those institutions that cannot afford to wait for all those new community college students to transfer in two or three years to fill their now empty seats?

Why would community colleges participate? Like many other federal and state policy initiatives, the president’s proposal reflects a tendency to think only in terms of demand and to believe that price reductions will inevitably result in enrollment increases. But the economic reality is that good policy must take into account institutional behavior as well, and it is not at all clear why community colleges would change their behavior in light of the Obama proposal. Under the Obama plan the federal and state governments would replace funds that families currently spend or loans that students currently borrow for tuition. The likely result of such a policy would be more students enrolling in already overcrowded community colleges will little or no additional funds provided to community colleges to educate them.

If one truly wants to improve community college financing, a better approach would be one in which governments recognize the additional costs entailed in enrolling additional students and try to help pay for those costs. But in the absence of such a proposal, the current Obama plan seems more of the same – more requirements but no more money. As a result, it is hard to understand the enthusiasm of the community college and other national associations for the president’s plan.

Why would states participate? It’s also not immediately clear why states would participate in the Obama plan as it is aimed primarily or entirely at changing how tuition is financed. As a result, it really would not get at the majority of the community college financing iceberg – what states and localities spend in support of every student who enrolls. So the question remains: why would states choose to participate in this plan that obligates them to meet a series of new requirements AND pay for one-quarter of tuition costs in addition to still paying what they do now for operating subsidies.

In sum, an analysis of what we know of the president’s plan is part of a troubling pattern that seems to characterize our higher education policy debates these days. Political considerations trump good policy. The interests of low-income students get second billing to middle class affordability, or no billing at all. Not enough attention is paid to how things actually would work or why institutions or states would decide to participate. 

It all goes to show that, as the economist John Maynard Keynes famously said, “There is no free lunch.” One of the problems with the Obama administration’s continuing enthusiasm for higher education policy initiatives is that is doesn’t seem to recognize this basic economic reality.


Arthur M. Hauptman is a public policy consultant specializing in higher education policy and finance. This is the first in a series of articles about how federal and state higher education policies might be changed to produce greater equity, efficiency and effectiveness.


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