Economics 101

Making College “Free” Will Only Make It More Expensive

Making higher education free of charge won't make it free to provide.
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Making things free only makes them more expensive.

Making things free sounds like a good policy idea. Who doesn’t like free things?

These days, a lot of policy-makers are calling for no prices (or at least lower prices). “Free higher education” is the form this refrain takes the most, especially during presidential debates.

But free higher education is a policy unicorn. Making college free sounds great, but it will bring great harm instead of great benefits.

Free of Charge, but Free to Provide?

Presumably, the goal of making college free is to make it more widely available. We’re facing a problem of scarcity, constraints, and, ultimately, tradeoffs.

The key to human flourishing in a fallen world marked by scarcity is to overcome and, if possible, eliminate tradeoffs. Unleashing human creativity and entrepreneurship is the best way to do this. If college is a path to more entrepreneurship, greater technological innovation, and higher incomes, wouldn’t cheapening the cost of college increase all these things?

Paradoxically, lowering the cost of college will increase the cost on society. And it won’t make entrepreneurship and creativity more widely available, either.

Why?

Economics teaches that reducing or eliminating prices induces greater consumption. Think about your favorite ice cream flavor or pair of shoes. You consume more of these things when their price drops. It’s as predictable as gravity.

The same thing will happen with college. If we reduce the price of college to zero, we will encourage inefficient consumption of higher education.

Inefficient? What does that even mean?

College dropout rates are at an all-time high. One-third of all students who enroll in school will drop out before finishing. This is a tragic unintended consequence of inducing more students to attend college, regardless of their needs. This also makes college incredibly expensive for everybody.

Eliminating prices doesn’t change the level of scarcity of any item, college included. Making college free of charge doesn’t make it free to provide. Professors still need to be paid. The lights still need to be turned on. The janitorial staff is still required. Eliminating the price doesn’t eliminate the resources required to provide the education. Somebody still has to pay those costs, even if students aren’t.

So making college “free” just makes it more expensive, because now we have to find a way to pay for all the resources more students will be consuming at higher levels now that the price is (theoretically) reduced. And now we know that one-third of those students will consume those resources only to later drop out altogether.

Prices Help Solve the Problem of Higher Education

Policy makers cannot eliminate prices any more than meteorologists can fend off snowstorms. Snowstorms happen. So do prices. The difference is that prices are critical to better stewardship of our scarce resources.

Prices bring together the people who want to consume college the most with those who can supply it best. Increasing higher-education opportunities and alternatives happens when competition in the supply of college exists. That means opening more universities or providing professional certificates and vocational schooling. This competition will also drive down prices of higher education over time.

If we want more people to be able to afford and attend college, we need to allow the market, through buyers and sellers, to innovate, create alternatives, and compete to lower costs. In college, as with any other good, prices provide transparency and encourage innovation – we need more of that, not less.

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  • Peter G

    Anne, You would be interested in the Australian experience of “free” university education. Eventually it was disbanded by the same political party that introduced it & replaced with a Loan scheme which is currently the source of some angst to both sides of politics. Of course along the way there have been numerous distortions in the sort of education provided when price signals are removed. Some professional graduates can expect employment rates of 13% or less. Again both sides of politics have deemed it necessary to try to repair these problems with everything from enrolment quotas to forms of price signal either direct in the form of fees or indirect in the form of funding. All sides would agree that they haven’t solved the problems yet but they have spent an enormous amount of money 7 effort trying!

  • Charlie Albright

    Good points! I really like you statements,

    “Policy makers cannot eliminate prices any more than meteorologists can fend off snowstorms. Snowstorms happen. So do prices. The difference is that prices are critical to better stewardship of our scarce resources.”

    There is always be a cost to everything. If not with money, then with time and energy.

    Also, along with your points, one can make the observation that college, in the USA, is already accessible to everyone who wants to go. That’s one of the big problems with this “free college” push. It is claiming that it will fix a problem that really isn’t there.

    The fact is that the government will already willingly provide for anyone to go to college (surprise!). How? It is called, “government subsidized student loan.” Anyone can apply and get it. The catch (though not really a catch) is that the person who gets it is responsible to pay it back.

    That is where the bottom of the bucket falls out in our system. People do not relate to their loan as a stewardship to understand and work with but an entitlement that they mindlessly accept. They party through college and then come out with a $40,000 loan to pay.

    “free college” is saying to all this, “Well the individual is living irresponsibility with the loan and so the system is failing. Thus, we need society as a whole to be responsible for paying the school bill.”

    Ultimately I don’t see this working out in the long run. It is not fixing the problem but instead perpetuating it on the backs of everyone in the country. Instead of the student having to face the consequences of $40,000 in a pointless gender studies degree now I have to pay the toll for it.

  • Matias OK

    Well. I agree that drop-outs on universities should be reduced but I don’t see how prices are going to help on that more than no prices at all. I believe that drop-outs are to blame on a lack of professional guidance on high school and it can be diminished by attending that matter, also by following students development and with deeper review of applicants.
    About free education i can speak of my own experience. I study at a public and free university in Mexico, the National and Autonomous University of México (UNAM), and the absence of cost does not affect the quality of the education at all. In fact UNAM is the sixth best university in latin america, according to Forbes, and it’s actually not on its best moments, it has been higher on the list. Plenty of the universities on that list ar also public and free.
    About cost I believe free universities should expand its social services requirements so that the students that receive the free education give back not only to the community but also to the school.

  • Conanjay Wallace

    I know that’s right. Very well said. Creativity, entrepreneurship, and innovation are what builds any successful society and will continue to be the means to do so. Since we were created in the image of the Creator it should be no surprise that “creating” would be one of those characteristics that we are to display and multiply throughout the planet.

  • People at all places on the political spectrum need to work together to overcome the real issue with higher education: The unsustainable increase in tuition (not including other costs students incur, such as room and board, books, supplies, equipment, and transportation). The average increase in tuition for the past ten years has been at 5% per year, which is substantially higher than the general inflation rate and the average increase in personal incomes. The average cost for tuition at state universities in 2015 was $39,400. If something isn’t done to address tuition cost increases, by 2033 tuition will be $94,800. If we are talking about “PRICE,” it should be clear that VERY FEW will be able to pay that price for college!

  • Samson

    There is no such thing as “free” education, free medical care or free anything. I live in Finland and to make education, unemployment salaries, medical and a whole other lot of things “free” in this socialistic society we have to be taxed heavily. Are Americans ready to part with more than a third of their pay checks in taxes and still pay higher VAT for the products and services they buy? That is how “free” will be funded. Oh, I forgot to add, in Finland most student receive almost 400-500 euros per month as a living stipend and yes some take a really really really long time to graduate. Why should they graduate on time? They don’t directly pay for the tuition costs! It’s the only country that you ask students “when do you plan to graduate?” And the answer goes in the lines of “I really don’t know when I want to graduate”. In summary, it’s never “free” it’s tax funded.

    • Samson is right – nobody really believes that education is “free.” Even those who are advocating for tuition to be paid are not saying that it will be free for society. Like pubic education at the primary level, they are saying that it will be paid by some other means besides out of the pocket of the student.

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