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Free College Will Hike Costs for Taxpayers and Make the System More Opaque

September 5, 2019 in Economics

By Russell Rhine

Russell Rhine

“Free, free, free” is the Democratic presidential front runners’ proposed solution to many kitchen-table issues, including the high and rising price of college. Joe Biden indicated his support for 16 years of free public education in a 2015 statementSens. Bernie Sanders and Elizabeth Warren have made free college, as well as total or significant student debt “forgiveness,” part of their campaigns. However, prices give students and the public essential information, and we need to let the price system work with minimal distortions to help students tailor their best educational path.

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Past federal attempts to increase higher education affordability — third-party payments of guaranteed private loans and direct federal loans and grants — contributed to non-transparent pricing and fueled rising prices. Free college would make things worse, while simultaneously transferring the entire burden to taxpayers. What American colleges need is more price transparency, not less.

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It’s virtually impossible to know what four or more college years will cost at the time of admission. Prospective students and their families must face the daunting task of combining colleges’ listed price, possible institutional scholarships, government grants, loans, work study, and more to determine the true price. Now add the confusion of third-party payment, out-of-pocket vs. future student-debt payments, and various loan forgiveness programs, and the true price becomes even more obscured.

By having a high “sticker price” and adjusting the amount of aid (needs based or other) for some, colleges charge different prices to different students. Colleges can effectively “price discriminate” in terms of ability to pay, because they know exactly how much families earn. To qualify for financial aid, detailed financial records are required, including tax returns. Because only some students pay the listed price, schools can increase it, not worrying about losing applicants, and choose which students will pay based on their family’s capacity.

Students already have easy access to federal loans, which enable colleges to increase tuition knowing students have access to more debt. President Ronald Reagan’s then-Secretary of Education William Bennett famously explained this relationship in a New York Times …read more

Source: OP-EDS

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