Why free college is a good investment

Intro:

I think in the very long run where we're headed is a world where just like we think of high school as being a prerequisite for having a good paying job, we're getting there with college. There's no law of nature, okay, that says that everybody should only get 12 years of education, but not 16. I think what's happening is we're living longer. Work is becoming more complex, the knowledge frontier is continuing to push outward. And so it makes sense to me that eventually we would want everyone to have something like a college education.

Thoko Moyo: So what exactly do we mean when we talk about free college in the US?

David Deming: Well, different people mean different things, but what I mean when I talk about it is zero tuition at all public two year and four year universities in the US.

Thoko Moyo: Okay, so that's public universities. Not touching the private universities.

David Deming: Yeah, for a couple of reasons. I think one is that most people go to public schools. And the second one is that of those people who attend private schools, they tend to be wealthier and the tuition at private schools is much more expensive. And so in terms of redistribution, sort of bang for buck, trying to accomplish the goals of expanding access to education, I think it's likely that free public tuition would draw a lot of students in who would otherwise not go to college at all. Whereas free tuition in private schools would mostly just subsidize tuition for people who are going to go anyway. And so that would just be a transfer from the tax payer to relatively well off.

Thoko Moyo: So let's come back to that. But first, let me understand. So what's the lay of the land at the moment? So most public universities offer some level of financial aid or grants. So let's talk about that a little bit and see what it looks like and then what it is that you're proposing or you're in support of.

David Deming: Sure. So I think the important thing to consider as you mentioned is that most people don't pay the sticker price of college tuition. A few do. But most families, particularly families in middle and lower middle income families who go to college don't pay the sticker price. But we often don't know that until long after a student has made the decision to go to college, filled out their financial aid forms, receive a complicated financial aid package. And so in some sense the fear of paying tuition comes long before the actual bill comes due. And so part of the design of a free college plan, I think, not just in my mind, but in the minds of many others who propose these things, is actually the transparent promise to families who are worried about college costs. That tuition will be free, you will not pay tuition. And the idea that just knowing that in advance months before you make the decision to attend a college is likely to attract many students that wouldn't otherwise come.

Thoko Moyo: But when you think about going to college, it's more than just the tuition though. When people think free, I mean assuming your child is going to stay on campus, there's room and board, there's books, et cetera. Does that come into the calculation at all? Let's just make sure we're clear about that as well.

David Deming: Yeah, sure. So most of the free college plans that are out there proposed by let's say Senator Bernie Sanders or Senator Elizabeth Warren, and then also some of the plans that have been enacted in states like New Mexico and Tennessee and New York. None of those plans to my knowledge, pay for room and board. They pay for tuition and required fees. And I think there's a couple of reasons for that. One is that a lot of people live at home and they go to college and that's a decision that folks make depending on the type of school and depending on financial situations. The other thing is you'd have to pay for living expenses even if you don't go to college, right?

Thoko Moyo: True.

David Deming: And so in a sense, the tuition and fees are really the direct fee for service component of the plan. And so while no one is saying that a free college plan means there will literally be no expenses at all associated with going. I think that dramatically lowers the cost of going and has people thinking in a more forward looking way about whether or not they can afford it, right? So you might still have to borrow money to go to college, even if you weren't paying tuition because of room and board because you wouldn't be working. So the opportunity cost of going to college is still quite high because the alternative is working in a regular paying job for a lot of young people. And so none of those things are going to go away. College is still going to be a financial stretch for a lot of people if tuition were free. But this is a way to make it easier.

Thoko Moyo: So just for the benefit of our listeners who may not be in the US and sort of have a sense of what it costs to go to a public university here, do you have sort of a sense of what the numbers are?

David Deming: Sure. So for a two year college, sometimes called community college tuition is very low. Something like, oh I can't get the numbers off the top of my head. It's somewhere between $3,000 and $4,000 per year.

Thoko Moyo: Per year.

David Deming: Yeah. And then for a public four year school, tuition is less than $10,000. I want to say it's $9,000 something. I can't remember exactly. But that's the average tuition. So when you hear ... I think one of the issues here is in the public understanding of tuition, newspaper articles are written about very high tuition schools that are a very tiny slice of where people go.

Thoko Moyo: They're usually private.

David Deming: That's right. So school like Harvard, the institution here, we're charging something like $60,000 a year for tuition. But that is by far the upper end of the distribution. Most students, particularly in public schools pay much, much less than that.

Thoko Moyo: Yeah. So let's say if we stay with a price of say 10,000 a year. Now you're saying most families don't pay the sticker price. So there are some grants that come in. So how does that work?

David Deming: That's right. Yeah, so the largest federal financial aid program's called the Pell Grant and families that are roughly in the bottom half of the US income distribution qualify for some Pell Grant funding. And that, I believe the maximum is up to something like $5,000, a bit less.

Thoko Moyo: Which could be half of what you'll pay.

David Deming: Which could be half. Yeah. For the lowest income families. And so the Pell Grant works on a sliding scale. So the lowest income families get the full amount and then it gives you less as you have a higher family income. So the issue though is that you don't ... So when students go to college, they have to apply for something called the federal application.

Thoko Moyo: FAFSA. (Note: FAFSA is an acronym for Free Application for Federal Student Aid.)

David Deming: Yeah. So families have to fill out the FAFSA before they go to college and that is a complicated arrangement. It's a very long form. It takes many hours to fill out, requires a determination, not just a family income, but also assets, extended families sometimes, things like that. And-

Thoko Moyo: That can be daunting.

David Deming: Very daunting. Yeah. Not all families are financially literate. We're talking about a first ... a bunch of first generation students who have never faced this issue before. A lot of times you have young people going to college who may not know how much their parents make, may have complicated family situations that they're being addressed for the first time in filling out the FAFSA. And so that really deters a lot of people. And then you fill it out, you send it in, and then you get a financial aid package from colleges many ... sometimes many months later that lets you know how you can attend as a function of the grants you qualify for. And then also student loans and the packages really vary quite a lot. And the terms can be complicated. And so while we do have financial aid at the federal government level, it's not really working for us to lower the price of college at the time when students are most likely making that decision, right?

Thoko Moyo: Right.

David Deming: So you sort of decide to apply, you fill out the application, you fill out the FAFSA, you find out whether or not you got in and only then do you get your financial aid package, right? Which is very different than knowing, okay, if I go to the University of Massachusetts, I'm going to pay zero tuition.

Thoko Moyo: So you're more likely to attract more people. Some of whom might've been put off just by the idea of they couldn't afford college. So I have to ask you this. The idea of free tuition was tried in some places elsewhere in the world. So for instance, in the UK they used to have free tuition. But over the past decade or maybe the past 15 years, they've moved to actually charging tuition. So that seems a little different from the sort of direction that you're proposing. Why would that be?

David Deming: Yeah, so I think it's important to consider the context for something like this, and part of what's happening not just in the UK but in other countries, is that more and more people are going to ... choosing to go to college, right? And so that puts a lot of financial strain on the system. More people coming, you have to hire more faculty, you have to expand buildings, and it's expensive. And so there's kind of two parts of any calculation with free college. One is what is the price you're paying? The other one is what are you getting for the money? Right? And so in the UK and increasingly in the US as well, what we have is more and more people go to college, but the public investment in higher ed, that is dollars going directly to universities to support the educational mission are not increasing in a way that keeps pace with the increasing demand for slots.

Thoko Moyo: And this is what you talk about when you talk about quality of college?

David Deming: Yes. The quality of college, right? So a school, even a school like Harvard may charge 60 something thousand dollars a year in tuition, but is actually spending close to a hundred thousand dollars per student on the educational experience. And the difference is made up by endowment. So investments of the university's income that then goes and feeds into this experience and grants and other things, right? And so every college is actually spending a lot more money per student than it's charging. And at public schools, the subsidy rate is very high, right? So UMass might be charging 8 or $9,000 a year, but they might be spending 35 or $40,000, right?

Thoko Moyo: Per season, right.

David Deming: Yeah. And for public universities, a lot of that difference is actually made up for by direct subsidies from state governments, usually in the US. So the state of Massachusetts will give legislative appropriations, will vote to appropriate a bunch of money to the UMass system, which will then use that money to pay for the difference between the true cost of the education and what students are actually paying. And so in the UK and in the US what's happened is that subsidy, that amount, for which the public is subsidizing each individual student has gone down quite a lot. And that just puts a lot of strain on resources. And in the US what's happened is we've decided we're going to ask students themselves to cover a higher and higher share of the cost of their education.

Thoko Moyo: I see.

David Deming: Yeah. And so that's the issue faced by many countries that they're basically ... the UK is going in the opposite direction relative to what's happening in a lot of US states. But the underlying financial issue is the same, which is that we used to have a country where maybe 20 or 30% are people are going to college and now it's 40 or 50 or 60 and so who's going to pay for that?

Thoko Moyo: Right. And let's stick with that idea. Who's going to pay for that? So if we were to get to a point in the US where you get free tuition at public universities, where would that money come from? And I'm curious to hear sort of your comments about subsidies from the state going into the quality piece of college. So what's the relationship between those two numbers?

David Deming: Yeah, it's a great question. So an important piece of context for our non US listeners is that in the US, the federal government has all the money but education is regulated and created mostly at the state and local levels. And state governments, for example, the governor of Massachusetts cannot usually run a deficit. So the federal government can borrow a bunch of money and we have a large national deficit and can finance their way out of recessions and state governments can't do that, right? So usually. A lot of states have things like balanced budget amendments or laws called tax and expenditure limitations that say you can't spend more, you can't increase spending more than some percent of the tax base.

And so what that means is state governments, when there's a recession or when they have a shortfall in revenues have to cut. They can't just borrow money and wait until the good times come back. And higher education is the largest discretionary item on most states budgets. And so what that means is during bad times, higher ed budgets get cut. And state governments, I think that's a situation that's unlikely to get better anytime soon, especially because the states have other obligations like the cost of healthcare that are increasing all the time. And so what you really need I think to pay for all this increase in higher [inaudible 00:11:54] in the long run, in a way that sustainable is you need the federal government to get involved.

And so what I propose and what other people have proposed, like Senator Brian Schatz of Hawaii have proposed essentially a matching grant structure where the federal government would tell states, "Listen, if you spend a dollar to increase the quality of your educational institutions, the federal government will match that with another dollar, match it with $2," or whatever the match rate could be. And that's a way for the federal government to use the power of the purse to help states increase the quality of their educational institutions, expand access to students, increase affordability while also not getting intimately involved in the details of how state governments, state universities operate.

Thoko Moyo: Right. But what's the case that you make to federal government to open up the purse strings and do the matching grants? And give me some numbers as well. I mean, what would it actually ... I know you've done some estimations of how much is currently being spent on subsidies and what it might cost to make tuition freeze. So throw some numbers in there.

David Deming: Yeah, I'll throw some numbers there for you. So in a rough calculation, it would cost about $79 billion to zero out tuition at all public, two year and four year colleges in the country. That's a big number. It's a big number. However, for context we already spend a little more than half of that subsidizing higher education only at the federal level, not considering states at all. So we spend about a third of it actually, about $27, $28 billion on tax credits for higher education.

So if you send a kid to college, you can claim it, a deduction on your taxes for the tuition expenses you pay. And the thing about that is like the FAFSA, that reimbursement comes long after the decision to enroll your kid in college. And so a bunch of people have studied this very carefully and found that essentially these tax benefits do not do anything to increase the number of people going to college. It doesn't affect people's behavior at all. It's really not a higher ed program. It's really just a redistribution program. Because it doesn't affect behavior at all. So I propose you take a ... you could end those. Now that would be painful for middle class families who are paying for college for sure.

Thoko Moyo: Because they are the ones that mostly feel the benefit of this tax credit.

David Deming: That's right. On the other hand. For those families who are sending their kids to public college, they wouldn't need to claim a credit because they would no longer be paying tuition because they would have free tuition. Right. So that's the upside of it. The point that I made in a recent op-ed in the New York Times about free college, it was not that it would be easy to do, but that actually that 79 billion is a lot less than you think compared to what we're already spending.

So we could get a long way toward just shifting the way the federal government spends money subsidizing higher education to a way that I think gets more bang for the buck, which is saying it's free or super low cost. If somebody said you can't have free but you can charge what the University of California charged a generation ago, which was something like a thousand dollars or $1,500 a semester. I think that would be fine too. I think you do get some mileage out of calling it free, but I think what families really want to know when they're making these important decisions, is that it's going to be affordable and we're not doing that now.

Thoko Moyo: Yeah. They want to know early and upfront.

David Deming: That's right. That's right. And I think we're leaving a lot of value on the table in terms of actually affecting behavior, getting a lot of families to take the plunge and say, "Yes, my child's going to go to college. I'm going to set aside some money to help them pay for living expenses because I know tuition is free or whatever." I think it's a lot of families who are just worried they can't afford that. Even if it turns out once they get the FAFSA back, they can. I think a lot of them aren't going because they just don't know.

Thoko Moyo: Right. So we'll come back to the numbers. What you're saying is that it probably won't cost that much more extra to be able to roll out free college tuition across public universities-

David Deming: Public universities.

Thoko Moyo: In the US.

David Deming: Yeah. I mean to be clear, that 79 billion assumes that nobody else goes ... that is the static cost of sending everybody who currently goes to college for free. But if the program works in the way that I'm describing more people will go. And it will be more expensive. So I don't mean to suggest that hey, everyone gets free college. No big deal. But I think if you compare the cost of zeroing out tuition to a lot of other things, like for example, debt forgiveness, which is something that both Senator Warren and Senator Sanders have proposed, that's actually a lot more expensive than subsidizing free college. Because what you're doing is you're paying off some very high dollar loans for people who are going to graduate school and things like that. The bottom line is that tuition expenses at public schools are just not that high. There are other costs, tuition expenses at fancy private schools are very high. But that's not what we're talking about.

Thoko Moyo: So remind me again, so what, when people argue against the idea of free college, what are the main arguments, what are the main concerns?

David Deming: Yeah, I think there are some understandable concerns. I think there's an idea that if you make it free, people won't value it as highly. There's an argument that we can't afford it. And I think while each of those has some merit, ultimately they don't pass muster from me just by comparison to other things that we're already doing. So for example, I can imagine people making this, we can't afford it, and people won't value it highly enough, and not everyone is college material type arguments. A hundred years ago when we expanded to universal high school in this country. So a hundred years ago, the high school graduation rate was 20 something percent. And yet what happened was local, small high school started all across the country that people were paying tuition for in small towns all across the US because people needed to get basic literacy and numeracy education to work in factories during kind of the dawn of the industrial revolution in this country.

And what happened was these local communities saw that there was a lot of demand for this education. And eventually communities started to finance it on their own. That is rather than having a situation where yeah, you might have some subsidy and lower income families get it and you just say, "Look, listen, if everyone needs this, what we're going to do instead, it's more efficient for us to tax everybody and then publicly provide K through 12 education all the way up to high school." And that's eventually what happened, right? And so now our high school graduation rate is over 90%.

Thoko Moyo: But does everyone need go to college?

David Deming: Not today, but eventually I think so, yes, I do. I think in the very long run where we're headed is a world where just like we think of high school as being a prerequisite for having a good paying job, we're getting there with college. Now, will it take a hundred years or 50 years or 20 years? I don't know. I mean, I could guess, but I think that there's no reason, there's no law of nature, okay, that says that everybody should only get 12 years of education, but not 16. I think what's happening is we're living longer. Work is becoming more complex, the knowledge frontier is continuing to push outward. And so it makes sense to me that eventually we would want everyone to have something like a college education.

Thoko Moyo: Okay. And by college education, I mean some people will argue that you don't need a go to college. You could learn a trade. You could think about the future of work. Maybe the sort of training around the type of skills that will be required are more important than going to get a college degree. What would your response be to that? I mean, how should people be thinking about that?

David Deming: Yeah, that's a great question. I think it's important to draw a distinction between education that is career focused or teaches you work skills, which I think is important for everyone. And then also the level of education, right? And so I think what happens, at least in the US context is we tend to put these two things together. So we say, "Well you can either go get a four year degree that is sort of bachelor's degree that gives you a general skillset that you then take and you get a white collar job, or you can go get a two year degree at a community college by the way, that has a lower graduation rate and isn't funded as well as the four year colleges and you can go work in a blue collar vocational job." And I don't think we should separate things that way.

I think all education, including education here at Harvard should be more focused on teaching people the kinds of skills they need in the modern workplace so that we should make education more, I don't want to say vocational, but more focused on skills that are relevant in today's workplace. But I also don't think we should decide that what people, what we need is kind of a education on the cheap for a class of people who are not kind of four year college material. I think that's a mistake. I think it's kind of class ... I think at some level, what we're talking about is if you're advocating for an educational model that is for other people's kids and not for your own, then I don't think it's ultimately going to work either politically. And I also ... I don't think it's right.

Thoko Moyo: Okay. So I mean I can see one of the advantages as you say, is that encouraging or getting more people to actually consider going to college. Because there's this guarantee or this sense that you can afford the tuition because there is no tuition. But part of the challenge when we think about college these days is not just the numbers of people going to college. You also have a lot of people dropping out-

David Deming: That's right.

Thoko Moyo: Before graduation. So how do you balance that?

David Deming: Yeah. That's right. So I think it is definitely a bad outcome to invest a lot of money in a college education and have high drop out rates, have students dropping out. So we need to also push on the institution side to increase the quality of the college education, and to implement a variety of strategies to help students get through and to help support-

Thoko Moyo: People drop out because the quality of education is not good.

David Deming: That is not the only reason that people drop out. But if you look across colleges in the US, even just across public colleges, let's leave the kind of Harvards out of the conversation. There's a very strong relationship between per student spending in the college and graduation rates. And part of that of course is because of differences in academic preparation of the students. And so there's going to be some students who would graduate no matter what college they went to. But I think it's a lot less than people realize. If I look around again at a place like Harvard or even a well-funded public university, what I see is a lot of what the money is going to is smaller classes, more tutoring, more counseling, basically adults around to help students who after all are still just 18 or 19 years old, navigate a new situation. Make sure they stay on top of their classes, make sure that they're doing well in terms of their mental health and they're getting ... they're adjusting to life in college.

And I think at a college that has less resources, you don't have those supports and students fall through the cracks. I went to a public school, Ohio State University, it was a good school. It worked out great for me. But I also had friends who I thought could have graduated if people had paid a lot more attention to them. Kind of slipped through the cracks because when you're in a 500 person lecture, nobody knows if you miss two weeks of class.

Thoko Moyo: Yeah. So you don't identify the kids.

David Deming: And it's not about aptitude. It's not about aptitude for everybody. It's also about are you allowed to make a mistake? Are you in a situation where you can be supported? And I think that's what, when you have a college that spends a lot of money, that's often what they're spending the money on is supports for students to help them get through. And there's a lot of good research evidence suggesting those supports really boost graduation rates. And so I think one answer to the dropout problem is just to spend more money on the quality of the college experience. And I'm not just talking about faculty, I'm mostly talking about supports for students. Although I think smaller classes, more contact with faculty is a big component of that.

Thoko Moyo: So let's come back to this. So free tuition and more spent on the quality of education would be the sort of-

David Deming: Yeah, so I mean I'm an education economist. Okay. So I think we should spend more money on my pet issue. There's no question about that. Okay. But I also think if you look across the body of social science evidence, and my students have heard me talk about this ad nauseum. I think there are very few findings that are more robust and have been found in more contexts and in more different ways than the fact that there's a high return to education. Education pays. If we spend money on increasing the quality of education, if we have some kind of policy that gets more people into school. They do well, they earn more money, they're happier, they live longer, they're more likely to get married, they have children in wedlock instead of out of wedlock. They pay more in tax revenue.

It's an investment in our future. And I think one that we sorely need to be making, we're not making enough. And so yeah, I mean I'm an advocate for spending more money on education. I also happen to think that higher ed is a very, very important source of inequality in the US today. Especially even compared to K through 12 education. And so I do. I think we need to spend more money both on the price side, that is subsidizing the tuition so it gets lower to attract people in. But then once they get in, it's also about improving the quality of the experience so that people can get through and graduate.

Thoko Moyo: Is there anywhere in the world that you've seen that has had success in doing this?

David Deming: Well, it's interesting you asked that. I mean a generation ago, the US was a world leader in tertiary education and now that's no longer true. So I think actually a lot of places have not figured out ...

Thoko Moyo: Asia perhaps, or?

David Deming: Sorry.

Thoko Moyo: In Asia or [crosstalk 00:24:13].

David Deming: Yes. Asia. Countries in East Asia have had some of the largest increases in postsecondary education over a generation. Places like South Korea and China. And I do think those are places that are economically thriving, that are on an upward trajectory. And I mean there are a lot of differences between those places and the US over this generation. But a big one is investments in education for sure.

Thoko Moyo: Wonderful. Well, thank you very much for your time. This was really informational and educational for me. It was wonderful to have you here. Thanks so much.

David Deming: My pleasure. Thank you for having me.