The Residential Library

The sometimes demented, frequently irreverent, and occasionally stupid musings of Ron Hargrove

Free college tuition

This analysis needs to account for the fact that college graduation rates are only 50%, so there will be no additional tax revenue for half of the students who would get the free tuition.  (That would also mean the government isn’t paying 4 years of tuition for them).

Who would benefit?

Students who otherwise couldn’t afford a college education obviously benefit.  The economy benefits from having a better educated work force.  And when the economy is better, everyone benefits.  Finally, the government benefits by bringing in more income taxes from better paid workers.

How much would the government gain or lose by providing free college tuition?

How much does the typical US worker with a college degree pay in taxes compared to one without a college degree?  Over the course of their entire career?

In 2014, the average salary of a young college grad was about $50,000.¹  Let’s assume that the average worker with a college degree has a 40-year career and averages an annual raise of 2% over the course of those 40 years.  Given those assumptions, her average annual income will be $75,500.  Using the 2018 standard deduction of $12,000, her taxable income will be about $63,000.  Using 2018 tax tables, she’ll pay about $9,000 in federal income taxes each year.  Over the course of 40 years, she’ll pay a little over $358,000 in income taxes.²

Using the same procedure but assuming a starting annual salary of $32,000 for a worker without a college degree¹, the career income taxes paid will be about $128,000

Over the 40 years, the federal government will receive about $230,000 more from the worker with the college degree.

Average annual college tuition and fees in 2018 for in-state residents at public colleges was $9,970³ — let’s call it $10,000.  Average annual college tuition in 2018 for in-state residents at public community colleges was $4,835²³ — let’s call it $5,000.  So paying for 2 years of tuition at a community college and 2 more years at a 4-year college would cost the federal government $30,000 which would easily be recouped by the $230,000 additional income tax that person will pay.

What about all those who would get college degrees even if the government didn’t pay for their tuition?

Obviously the number of students who graduate from colleges now will continue to graduate each year even without free tuition.  That means that the government will not make $230,000 in additional income taxes over the course of their careers.  In those cases, the government loses $30,000.  Let’s suppose that out of every 6 students that would get free tuition, 5 of them would have paid for their own college degree and 1 would not have gone to college.  The government would gain $230,000 on the 1 and lose a total of $150,000 on the other 5, netting a gain of $80,000.  Free tuition for all still pays for itself even only 16% of the recipients would not have graduated without it.  (In addition, all of those who would have spent their own money on college tuition could, and probably would, spend that money on other things which would be a significant boost to the economy).

What would it cost the government upfront?

About 15 million students attend public colleges each year.¹¹  The tuition for a year at an in-state public school averages about $7,500 ($30,000 / 4 years, as we saw above).  Paying the tuition for all of them would cost $113 billion per year.  Repealing the 2017 tax cut for the rich would save $230 billion per year according to the CBO¹³, covering the cost of tuition for all those students plus students who otherwise couldn’t afford college.  After the first 4 years the government would start reaping the rewards of higher income taxes from any college grads who wouldn’t have been able to afford a college degree.

Is this really a radical idea?

No.  In fact, similar plans have been executed in the US with great success already.

The first time was during the industrial revolution when US factories needed workers with a basic education, but the labor force was made up almost entirely of agricultural workers with little or no education.  The government instituted free education for elementary and high school.  This enabled the factories to hire the educated workers that they needed and led to an economic boom.

After World War II a high school degree was no longer sufficient for the type of work our economy needed.  The government stepped in again with the G.I. Bill which provided free college tuition for all US military veterans.  The influx of college graduated veterans into the work force led to another economic boom.

Now, in the information age our economy is stunted again by a lack of workers with the necessary academic skills.  Some of the shortfall has been filled by well-educated immigrants (e.g. doctors from India).  But the rest could be filled by our own people if they just had sufficient education.

Free tuition for all will reduce income/wealth inequality in our country and it will be good for our economy.  There is no downside.

What are the potential problems with this analysis?

  1. I have made several assumptions and estimates that were intended to reflect the best information available, but which may be incorrect.
  2. The tax calculations in particular are over-simplified.  However, I believe they are close enough — and other assumptions are conservative enough — that they don’t significantly skew the results.
  3. I have ignored inflation.  Since inflation will increase both the income and expenses, I think that not accounting for it has negligible impact on this cost-benefit analysis.
  4. Providing free tuition for those who otherwise could and would pay their own tuition would arguably cost the government “unnecessarily”.  This is a legitimate point of debate.  I’ll concede that means-testing the free tuition and fees may be more palatable.  But I contend that the government would still come out ahead even if free tuition and fees were offered to everyone.
  5. It would be irresponsible not to put some performance restrictions on the offer of free tuition.  For example, a high school senior might be required to graduate with a 2.5 GPA.  Similarly, college students might have to maintain a minimum GPA and a minimum number of credit hours each year to continue receiving the free tuition.
  6. The government would incur its expenses for each recipient in the 4 years that she is in school and the payback wouldn’t start until after the student graduates and begins working.  Also, since the worker’s increase in tax payments would be spread out over 40 years, the break-even period for the government would be about 10 years.  If so, it’s still a good deal for the government which has the luxury of waiting a long time for a good investment to come to fruition.

Some of these issues may dampen the government’s “return on investment”.  Even if that’s true, this deal remains a no-brainer.  It’s obviously a win for the student/worker and it’s a win for the government, and it’s a win for the country.

¹ The Department of Education’s 2017 IES Report.

² My spreadsheet.

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