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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
statement
. Sens. 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.

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.

Fully government
subsidized college wouldn’t solve the problem of rising prices, it
would simply hide it.

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 op-ed: “If anything,
increases in financial aid in recent years have enabled colleges
and universities blithely to raise their tuitions, confident that
federal loan subsidies would help cushion the increase.” A
2015 Federal Reserve Bank of New York study
concludes that for every dollar increase in the subsidized loan
maximum, tuition increases by about 60 cents.

Even with higher education’s confusing finance system,
students and families have a sense of the cost and …read more

Source: OP-EDS

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