The Realistic ‘Free College’ Plan Biden Should Be Proposing
Joe Biden’s proposal to make public colleges free for families earning under $125,000 has received hardly any scrutiny. That’s surprising since it’s such a radical departure from the historical federal role in higher education in which the government subsidizes families with grants and tax credits. Up until this year, Biden himself believed in the successes of those programs. Today, he supports a different approach to promote college affordability: price controls.
Free college is, after all, a price cap of $0 for tuition at public universities. The problem with price controls is that they always result in less of whatever it is the government is trying to make affordable.
That’s been the case in other countries that have free college or mandate low tuition. Finland, for example, has free college, but most applicants to its free universities are rejected. There just aren’t enough seats. In Ireland, government price controls on tuition have helped starve the public higher education system of revenue. As a result, spending per student declines year after year. Some might call that efficiency, but the Irish argue it has diminished the quality of the education students receive.
Supporters of Biden’s free college plan surely don’t think that will happen in the U.S. But if universities can’t charge tuition, the only way policymakers can prevent such effects is to generously fund them and increase that funding year after year. That’s hardly reassuring when one considers that the main argument used by progressives for free college is that states and the federal government have underfunded public higher education for decades.
This isn’t the only breakdown in the free college logic. Few people will remember that Joe Biden supported a different solution for college affordability when he ran for vice president. During the 2008 campaign, the Obama-Biden team proposed a $4,000 American Opportunity Tax Credit for tuition that would, in their words, “make college affordable for all Americans.” Congress passed a slimmed down, $2,500 version of the AOTC in 2009, and Biden declared it a success in the following years. Now he never talks about it.
This creates an opening for policymakers who are looking for an alternative to free college. Why not expand the AOTC to what Obama and Biden originally proposed instead of pursuing a new free college program? That approach avoids the adverse effects from price controls and builds on the often overlooked successes of the existing system that funds students directly – successes Biden himself used to praise.
Department of Education data show that about 40% of students from families earning less than $125,000 already receive enough financial aid to fully offset their tuition at public universities. Expanding the AOTC to what Biden originally proposed ($4,900 in today’s dollars and fully available to families with no tax liabilities) would increase that figure to 61% of those students. In other words, the existing system of grants, scholarships and tax credits already provides de facto free college for many low- and middle-income students attending public universities. An expanded AOTC would provide it to a majority of them.
While the policy isn’t cheap, it costs just a fraction of Biden’s free college plan, which could easily top $50 billion a year given that it aims to finance two thirds of what students at public colleges now pay in tuition. (State governments would cover the rest.)
A tax credit also avoids the vast set of new federal rules and regulations, and the bureaucracy to enforce them, that would inevitably emerge as a result of Biden’s free college grants for states. Draft language for the free college plan lists enrollment and spending objectives that states and universities must achieve to qualify for the grants. There are even restrictions on how many adjunct faculty universities may hire. Tax benefits for tuition, in contrast, do not easily enable this type of meddling from Washington.
Nor does a tax credit require that lawmakers establish the elaborate new funding stream for states that Biden envisions, one that will inevitably create winners and losers among the states. Some progressives say this problem is enough to make the Biden plan totally unworkable, yet these warnings have so far done nothing to slow the support that Biden’s plan has been gaining among Democrats. By backing a tax credit instead, Democrats could simply sidestep the federalism problems inherent in their free college plan; a tax credit would provide the same benefit to families no matter what state they live in.
Skeptics of a larger tax credit will argue, of course, that it won’t work because colleges and universities are going to raise prices to capture the aid. The evidence on that is mixed. Some widely cited studies suggest colleges aren’t likely to hike tuition when tax benefits increase. Others find that selective colleges might reduce their own financial aid if students receive a larger tax credit. But even if there is a risk that students do not receive the full benefit from an expanded AOTC, it is still a better way to help families pay for college, considering everything that stands to go wrong with free college.