The Simple Case for Free Higher Education

16Jul13

The cost of higher education hardly seems to be out of the news, whether it’s the Congressional failure to prevent the doubling of student loan interest rates, or the rising cost of higher education itself. Recent budget shortfalls have led many states to cut public funding for public higher education, contributing to already climbing costs, and putting college further out of reach, especially for poor students. The burden of student debt affects not just students and graduates, but also the economy itself.

The debate about the higher education costs also leads to a concurrent debate about the value of certain majors. I have no desire to wade into that particular debate, except to provide links to several articles. I should acknowledge that this particular debate assumes that the sole purpose of higher education is to increase one’s earning potential. This, in turn, leads to the assumption that any college or degree whose average predicted future increase of earning potential (over high school education alone) does not exceed the total cost of attendance is not worth the cost. (As an aside, the ‘total cost of attendance’ includes room and board — expenses that have to be met whether a person is in school or not.)

There are many reasons to attend college, and increased earning potential is an important personal one. Other personal reasons to attend include: personal enrichment, love of learning, and the desire to develop critical thinking skills. Some other public benefits include: expanding the skilled workforce, developing potential technological developments, and developing an informed electorate. Any of these are valid reasons to pursue higher education, and the public benefits show why federal and state governments have contributed to higher education funding during the post-WWII era.

Most of the benefits of higher education are not economically transparent. How do you put a dollar value on the public benefit of general numeracy, or scientific literacy? What is the economic benefit to society of expanding and deepening people’s critical thinking skills? On the other hand, the benefit to the government of increasing people’s earning potential can be easily tracked.

After all of that, this is where it gets “simple”:

United States taxes are complicated, but it is possible that a person could earn $44,455 for a year, and remain in the second-lowest (15%) tax bracket. However, even assuming that the graduate remains in the 15% tax bracket, fifteen percent of $970,000 (the difference between the lifetime earnings of a high school graduate and a college graduate, according the the US News and World Report) is $145,500 — more than the cost of three years’ attendance at a moderately priced private university. If the additional income pushes the graduate into the 25% tax bracket (which it would if the graduate was single, and which it probably would if the graduate was part of a two-income married couple), then the graduate will end up paying $242,500 in additional federal income taxes — almost as much as the highest estimated cost for four years at Harvard (including room and board). Paying directly for higher education would not necessarily cost as much as one might assume, as the programs that currently pay for it indirectly (Pell Grants and Federal student loans, for example) are phased out.

Clearly the government benefits financially from its citizens’ higher education. Once the additional public benefits of higher education are added to the tax benefits, it seems clear to me that it is in the national interest to provide higher education to all who are capable of it and inclined to it. In short, the government would get back its investment, and the nation gets the all the other benefits of an education as a bonus. Similarly, it is in the national interest to provide further education or apprenticeships for those who are not inclined to pursue higher education.

Now for a few caveats:

  • Tax rates change. Increases or decreases to tax rates can affect the rate at which the graduate’s additional income contributes in taxes.
  • All these figures are at current or 2012 rates, and do not account for inflation. While salaries should (in theory) approximately keep up with inflation, tuition rates have changed gone up more significantly in recent years.
  • This is a ‘back of the envelope’ calculation. It does not factor in the possibility that a person’s innate talents might provide them with a similar income without the formal education. On the other hand, it also does not factor in the additional state and local taxes that a graduate will pay as either a direct or indirect result of their additional income.
  • These calculations also do not factor in graduates’ increased likelihood of employment, or corresponding decreased need to rely on government anti-poverty programs.
  • These numbers are averages… results will vary by individual graduate. However, I would argue that an elementary teacher (for example) contributes much more to the society and economy than their tax contribution would suggest, making them well worth the investment.

And a few additional notes:

If any policy were to be adopted to implement the principle discussed here, it would need to set limits on what it would be willing to pay. Just because providing higher education may be justified, butler service in the dorms would not be. Similarly, there would need to be some oversight to ensure that the schools were providing the education that was being paid for.

Any policy to implement free higher education would also have to deal with the question of whether to subsidize the costs of room and board during education. Certainly, in the short term, it would cost less to pay for food and housing. On the other hand, though, in the long-run, it might cost less to pay for four years of full-time study than six or eight years of part-time study.

The personal benefits of higher education are significant. Even in terms of income, the graduate benefits more than the government. Because of the benefits to the individual, it would be appropriate for graduates to make some sort of contribution to their education, perhaps including some work-study, or after-the-fact through a graduate tax, or perhaps national service (to include military service, the Peace Corps, AmeriCorps, the civil service, and work in the non-profit sector).

The state of Oregon is investigating ways to offer free higher education at its public universities, to be paid for through a graduate tax. Talk about the Oregon plan commonly describes the graduate tax as an opportunity to, “pay it forward.” When you look at graduates’ increased tax contributions, though, you see that they already are.

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