Bernie Sanders has tapped into a frenzied millennial base by proposing “free” college tuition (that is, tuition paid for by the government). Bachelor degrees are pitched as the primary means by which individuals can gain skills and increase their incomes, so skyrocketing tuition is becoming a hot election topic. But are more subsidies to the university system a legitimate solution to the problem, or simply a stunt to capitalize on youthful outrage?
There's no denying that the price of higher education is unrealistically high, and a fix is needed. But Sanders’ plan doesn’t even purport to be a solution. It does nothing to address the root problem of rising costs. It merely spreads those costs to society as a whole by socializing them.
Proponents of this idea don’t ever seem to explore the more fundamental question of why the cost of college continues to increase, let alone how socializing those costs stops the inflationary trend.
The assumption seems to be that rising costs are simply a law of nature that we have to deal with. Fortunately, this isn’t the case. If we look at the wider economy, the cost of higher education is clearly an anomaly. Products across the economic spectrum, from smartphones to automobiles, decrease in cost and increase in quality year after year, despite heavy demand. Indeed, consumer demand is what drives continuous innovation in these industries.
Could the problem be something as simple as decreased public funding? Even if that were true, it still wouldn’t explain why universities seem incapable of cutting costs and maximizing performance. Apple, Samsung, and most any other firms seem perfectly able to do so without any regular source of taxpayer funding.
Higher education possess no unique characteristic that prevents it from improving and adapting as every other industry regularly does. But incentives matter, and the market incentives that drive competitive innovation in other industries are heavily distorted in the college and university system.
For starters, under the Higher Education Act signed into law by Lyndon B. Johnson in 1965, universities and colleges gained a de facto monopoly on higher education.
As Senator Mike Lee explains,
Under the federal Higher Education Act, students are eligible for Title IV student loans and grants only if they attend formally accredited institutions. That makes some sense, for purposes of quality control.
Except that under the law, only degree-issuing academic institutions are allowed to be accredited. And only the U.S. Department of Education gets to say who can be an accreditor.
That is, the federal government today operates a kind of higher-education cartel, with federally approved accreditors using their gatekeeper power to keep out unwanted competition.
Can this explain why higher education seems perpetually stagnant and inefficient? Since 1965, computers have gone from being the size of a small building to vastly more powerful, more common, and more affordable pocket-sized devices. Whole other industries have been continuously disrupted again and again, giving way to newer and better models for doing business.
Yet despite a relentlessly increasing price tag, a college education is largely the same beast it was decades ago. In 21st century America, our higher education system is still governed by rules written in 1965.
Because of these rules (and a flood of taxpayer-backed loans), more students are funneled into accredited higher education every year, while the supply remains artificially restricted. Even the smallest regional colleges turn away more students than they could hope to take in.
Is it any surprise then that tuition continues to climb when there exists so little competitive pressure to keep it in check? Without the risk of losing potential students to superior alternatives, universities lack the basic incentives to maximize the value they provide while minimizing the cost.
With this in mind, what does Sanders's proposal do to address the underlying structural problem in higher education? As it turns out, worse than nothing.
Instead of seeking to weaken the cartel and drive down prices by increasing competition, free tuition goes the exact opposite way. Like decades worth of failed higher education programs, Sanders seeks to continue stimulating demand while doing nothing to address the artificially limited supply and dearth of innovation. Unchecked by any last remnant of market forces college costs will continue to run away at an even faster rate than before.
Were it still 1965, the Senator might suggest we deal with the AT&T telephone monopoly by demanding free landlines for all Americans forever. Thankfully, this isn’t what happened, and instead of a sprawling federally subsidized landline monopoly, we have a cheap, competitive nationwide market for cellular and mobile internet providers.
But this is exactly what Sanders proposes for higher education: a stagnant, expensive, uncompetitive industry, stuck in the past and eating up billions in subsidies. In doing so, he threatens to deny us the creative destruction sorely needed to bring higher education into the 21st century.
Socialized college tuition may provide a popular and illusory respite for students, but only the competition present in free markets can actually reduce costs and spur sustainable innovation.