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Friday, January 22, 2016

What “Free” College Can’t Fix

Tuition isn't the only thing that's broken

Higher education is shaping up to be the next front in public policy battles. In his State of the Union address, President Obama reiterated his proposal to make two years of community college free. Not to be outdone, Democratic presidential contender Bernie Sanders has called for abolishing tuition entirely at public colleges and universities. Tempting as the prospect of free tuition sounds, these proposals will do little to resolve the crisis in higher education.

The federal government heavily subsidizes higher education through a complex system of grants and loans. While the programs are great for colleges — they have enabled an astronomical increase in tuition — they contain few measures holding the institutions accountable to their students.

As a result, only 59 percent of students graduate from four-year colleges and universities within six years. Those lucky enough to graduate face another hurdle: 44 percent of recent college graduates occupy jobs which do not require a college degree.

Taken together, these numbers suggest that only one-third of college enrollees emerge from the system with both a degree and a relevant job.

Making college free would do nothing to address these problems. In fact, it would worsen them.

At community colleges, which President Obama would make free, only 40 percent of students graduate, even when taking into account those that transfer to other institutions. Bernie Sanders’ proposals look even worse. At four-year colleges with open enrollment, which are most likely to accept the additional students drawn into the system by free tuition, the graduation rate is just 34 percent. More students attending these colleges would push overall graduation rates down.

Without measures to ensure that colleges help their students graduate and find good jobs, free tuition would only shuffle more young people into a system that fails two-thirds of them.

Advocates of free college often point to similar systems in European countries such as Denmark and Norway. But these nations have effectively made the college degree into the new high school degree. In Denmark, young people with the equivalent of a bachelor’s degree earn just 12 percent more than those with a high school degree alone, compared to 65 percent in the United States. By putting more students through college, European countries have nearly erased its value as an investment.

What to do instead? Policymakers have two problems to solve. First, colleges must be held accountable to student outcomes and bear some responsibility if students do not graduate or find a good job. Second, instead of shifting the burden of high tuition onto the taxpayer, the cost of college itself must come down.

There are good ideas on the left and the right. Democratic Senator Elizabeth Warren has advocatedforcing colleges to cover a certain percentage of student loan defaults. Since default rates are much higher among dropouts, institutions would have a financial incentive to ensure their students graduate.

On the other side of the aisle, Republican Senator Marco Rubio has proposed expanding options for private finance of student loans. Unlike the government, which can stick taxpayers with the bill for student loan defaults, private investors have “skin in the game” and thus will ensure that students get adequate value for their money. If tuition is too high, or graduation rates too low, investors can improve college quality by tightening the purse strings until colleges shape up.

We also cannot ignore the role high schools need to play in improving the higher education system. Too many students are poorly prepared for college and thus struggle to graduate. While colleges must raise graduation rates, policymakers also ought to look for ways to improve high school education.

While free college may be appealing politically, the crisis in higher education will never be resolved until colleges get accountability instead of handouts. Reform requires real changes to the finance of higher education rather than more promises of free stuff. Students and taxpayers deserve nothing less.

Cross-posted from E21, a project of the Manhattan Institute.