The hidden costs of free community college

Last week, President Barack Obama said the words “free” and “college” in the same sentence. To readers over the age of 50, this shouldn’t sound alien, but to a generation of American high schoolers the idea has been a pipe dream. America’s College Promise, the president’s new plan to be pitched to Congress during his State of the Union address, proposes two years of free community college for students who keep up their grades and make progress toward graduation. Putting aside questions such as whether the Republican House and Senate will pass the bill and whether states will opt in, the ad copy is great. But young people raised on the Internet know that “free” usually means “trap.” We need a fact check.

In 1975 economist Gary Becker published a theoretical and empirical investigation into the effects of education on earnings. He wanted to know the value of high school and college, which led to a much larger study of human capital. At the time, tuition was much lower, but Becker found the lion’s share of costs elsewhere: “The difference between what could have been and what is earned (including any value placed on foregone leisure) is an important indirect cost of schooling. Tuition, fees, books, supplies and unusual transportation and lodging expenses are other, more direct, costs.” Going to school takes time and effort, and time and effort are money. On a comprehensive accounting, equating free tuition and free college is like calling free gas a free car.

The president isn’t an economist, but he sure employs a lot of them, and they know quite well the actual costs of college. After all, the federal government makes most of the loans. In his speech previewing the proposal, Obama used a tricky phrase: He said that the two years of school should be “free for those willing to work for it.” It’s ostensibly a reference to the grade requirements, to good old American responsibility perhaps, but it also suggests the set of indirect costs. “Free for those willing to work” is a salesman’s slogan. The premise of capitalism is that everything is free if you’re willing to work for it; work is money too.

Truly free college would compensate students for their indirect as well as direct costs. The median annual earnings for a high school graduate are about $30,000, so the $3,800 Obama hopes average students could save each year doesn’t look so impressive. That $30,000 is what it takes to live like a low-income worker, which is what most students are, and you can’t live on tuition alone. Mandatory expenses such as food, rent and health care have increased above and beyond inflation over the past few decades, piling on cost increases for college students. The fantasy of free higher education doesn’t involve taking out loans to pay for a place to sleep, and the fact that it takes money to stay alive is a big asterisk on the president’s plan.

But why should young people be entitled to free college, never mind free food and lodging? Ignore that a lot of their parents got it; nothing in America is free anymore. Why should all of us pay to train kids for better jobs? Becker’s investigation into the economics of learning led him to think about the work that students actually do and where the fruits of their labor pop up. Education is an investment in human capital, an investment in workers’ future ability to do work. On the individual level it’s a no-brainer: A college degree is more or less a prerequisite to a good life in this economy. On a societal level, it’s good for employers and the national economy since workers with more human capital are more productive.

Higher education is a win-win, but over time the split of the proceeds has changed. Worker productivity has increased, thanks to all this human-capital accumulation, but wages haven’t followed. Real median earnings have barely moved for college graduates since the mid-1980s, and since 1979 the earnings of those with two-year degrees have decreased more than 20 percent. After-tax corporate profits, on the other hand, have hit an all-time high, passing 10 percent of GDP. Some people have reaped the benefits of the increased national investment in human capital over the recent decades, but not college-educated workers; labor compensation as percent of GDP has crashed to record lows. The more educated American workers are in aggregate, the smaller their slice of the pie gets.

One of the ways we talk about the value of education is in terms of a student’s future competitiveness. It sounds as if it should correlate directly with wages, but they’re competing against other workers like them. And from a worker’s perspective, a rising educational tide keeps wages under control for all boats. More schooling doesn’t necessarily mean better jobs, it means more competition for the same set of jobs. The so-called skills gap is a myth; if employers needed educated labor so badly, they would pay like it. Instead, the costs of training more productive workers have been passed to the kids who want to be them, while the profits go to employers and shareholders. For the state to assume some of those costs for some of those students doesn’t solve anyone’s problems. Rather, it’s another boon for the ownership class.