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8/6/2020 Free College Will Ruin the Finances of America's Universities - Bloomberg

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Economics

Governments aren’t going to plug the gap. They’ve been cutting funding for universities.

By Noah Smith November 26, 2019, 8:00 AM CST

Free Tuition Will Bleed Colleges Dry

The numbers don’t work? Photographer: Alex Wong/Getty Images North America

At last week's Democratic primary debate, the issue of free college became a sticking point. Free tuition at state universities has long been one of Vermont Senator Bernie Sanders’s flagship proposals. But critics such as South Bend, Indiana, Mayor Pete Buttigieg say that it’s a giveaway to the rich.

In one sense, Buttigieg is right; high-income families tend to pay much more tuition than their low-income counterparts. But most plans for free public college count on replacing the lost

8/6/2020 Free College Will Ruin the Finances of America's Universities - Bloomberg

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tuition revenue with increased government spending, funded by tax revenue. Since the tax system is progressive, the wealthy and upper-middle class would end up paying most of the bill. The net effect mostly would be a wash -- basically just a transfer of money from well-off people who don’t send their kids to college to those who do.

But free college comes with a much bigger risk that is rarely acknowledged by its proponents. If governments don't shell out the money to replace the lost tuition dollars, universities could end up starved of funds.

Almost all public universities now receive much of their funding from state governments. In some cases these are controlled by leaders who doubt the value of universities, and are occasionally downright hostile. For example, former Wisconsin Republican Governor Scott Walker cut public funding to the University of Wisconsin system.

Cuts like these may partly be driven by ideolo�y. In recent years, Republican opinions of colleges have taken a sharp negative turn:

Down on Academia Share of Republicans who say colleges and universities have a positive effect on the way things are going in the U.S.

8/6/2020 Free College Will Ruin the Finances of America's Universities - Bloomberg

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But opposition to higher education spending can be based on economics as well as ideolo�y. Raising taxes can be politically dicey, especially where rates are already high and there are worries about driving business elsewhere. In states that are inclined to spend a lot, there’s often a great deal of political pressure to use revenue for other purposes like social spending and K�12 education.

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Then there’s the business cycle. Most states reduced spending on universities during the Great Recession and the vast majority didn’t restore it to its former levels after the recession ended. Sanders’s own state of Vermont decreased higher education spending per student 16% between 2008 and 2018.

If even Vermont's government won’t pony up the cash, who will? Those on the socialist left seem to believe that the federal government will step in, but this seems overly optimistic given decades of cuts to every major spending item except health care. As soon as a Republican administration or Congress gets into power, federal education spending would be under threat.

Some might argue that the very existence of tuition at state schools might be driving governments to shift costs onto students, since they know tuition money can replace lost tax dollars. But even places that have much cheaper college tuition, such as Australia, France, the U.K. and Canada, have seen university funding cuts or pressure for cuts in recent years. In Ontario, decreases in tuition have been matched with reductions in student aid.

So it’s highly likely that free tuition would force U.S. universities into an era of painful austerity. How would they respond? They would almost certainly accelerate the shift from classroom instruction by tenure-track faculty to low-paid adjunct faculty, lecturers and graduate students:

The Rise of the Part-Timers Source: American Association of University Professors

Student services would also likely take a hit. Conservatives are already salivating at the chance to cut budgets for diversity programs. Academic departments would likely shrink, with humanities and social science taking the biggest hits because of their inability to fall back on research grants or consulting gigs.

And some universities would simply shut. In recent years, college closures have come mostly in the for-profit sector, but private colleges have also suffered some pain:

Cast Out From the Academy Approximate number of students displaced by college closures during the past six year

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An inability to charge tuition could extend this unhappy trend to lower-ranked state schools, which probably are a lower priority for state governments, have less administrative fat to trim and have fewer alumni donations.

Economically, starving the U.S. university system of funding would be a terrible move. Universities are the best tool the country has for revitalizing flagging regions. Their research sustains U.S. technological and industrial leadership. They remain one of the few truly effective, world-beating institutions that the U.S. has left. And like it or not, America's university system has been built on the back of upper-middle-class tuition dollars.

Although free-college crusaders might imagine a never-ending wave of socialist political victories providing a shower of government money for colleges that ends the need for tuition, the rest of the country should look on this fantasy with a jaundiced eye. Instead of smashing the funding model of the nation’s most functional and important liberal institution, the U.S. should simply focus on improving access and affordability for poor and minority students. Universalism is good in many cases, but this isn’t one of them.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story: Noah Smith at [email protected]

To contact the editor responsible for this story: James Greiff at [email protected]

Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.

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