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New York’s “Free College” Plan

Free college tuition.

It became famous as one of Bernie Sanders’ biggest campaign promises.

He didn’t get into the White House. But some state and local governments are still pushing ahead with the idea on a smaller scale.

Take New York. The state’s Assembly and Senate just approved a new budget that includes free college tuition for a wide swath of students attending two- and four-year programs.

Here’s the deal in a nutshell:

Starting this fall, undergraduate students can receive "Excelsior Scholarships" to attend any State University of New York or any City University of New York … as long as their families earn less than $100,000. (That number will go up to $110,000 for 2018 and $125,000 for 2019.)

Are there are any other catches?


  It only covers annual tuition, which runs about $6,470 at state schools and $4,350 at community colleges. Room and board are not included in the scholarships.

  It obviously does NOT cover tuition at private schools.

  In addition, students must take at least 30 credits a year.

  And after they graduate, students must live and work in New York for the same number of years they received scholarship money.

Governor Cuomo applauded the approval of this new measure. He said, "Today, college is what high school was. It should always be an option even if you can’t afford it."

Of course, there are a lot of things to unpack below that surface idea.

Let’s Start with the Affordability Problem Itself …

You probably know college costs have been going through the roof for quite some time now.

According to the College Board, tuition and fees at a public four-year college averaged $9,648 for an in-state student during the 2016-’17 academic year.

Ten years earlier, they averaged $5,804.

That’s a 66% increase over a single decade.

Using the same academic years and student groups, the average room and board costs went from $12,837 to $20,092. That’s a 56% jump.

Looking at individual annual tuition increases over the last few years — which are the SLOWEST experienced since the 1970s — we still see 2.9% in 2014-’15, 3% in 2015-’16, and 2.4% in 2016-’17.

And if we start talking about out-of-state students or private universities, the numbers just get bigger.

11 states saw tuition/fee hikes of 20% or more between 2011 and 2016. Data source: The College Board, Annual Survey of Colleges

Even if we try to factor in inflation and adjust all the numbers to 2016 dollars, the College Board says average published tuition and fees at public schools rose 9% between 2011 and 2016, following a 29% increase between 2006 and 2011.

Please remember that these periods include a major real estate collapse … the largest financial crisis since the Great Depression … and very slow overall inflation in many other parts of the U.S. economy.

So Let’s Ask WHAT Has Been Sending College Costs Soaring in the First Place …

Your typical family doesn’t have $30,000 or $40,000 saved for each of their kids to go to a public New York college. Or any other college, for that matter.

Nor do they have hundreds of thousands for private colleges and universities.

That much we all agree on.

Yet we are also living in a world where every child is told, as Gov. Cuomo put it, "College is what high school was."

Enter the huge market for student loans, which aim to make college "more affordable."

You know, kind of how a 10-year car loan makes a Mercedes more affordable.

Or how zero-money-down, adjustable-rate mortgages made McMansions way more affordable during the last housing boom.

If I’m getting a little snarky, you’ll have to forgive me.

It’s just that the similarities are so glaringly obvious that I can’t understand why more Americans don’t see them.

Sure, it’s true that a college education may be a better long-term investment than a luxury car. But it certainly isn’t a guarantee.

Yet that idea hasn’t prevented lawmakers from perpetuating the myth that a college education is a surefire way to a better lot in life … and finding new ways to subsidize the costs. In most cases, thrusting them on taxpayers either directly (as is now happening in New York) or indirectly (as has already been happening through various federal student loan programs and guarantees).

At this point, we now have 44 million Americans who owe money on student loans, for a grand total of $1.4 trillion. Moreover, the average 2016 graduate walked away with $37,172 in outstanding debt. That’s a 6% increase from the year earlier.

For the record, I am not saying private lenders are blameless. Far from it!

But as with any other bubble, this process has become self-fulfilling: Money gets easier. Prices go higher. As prices go higher, people need to borrow more money. Or other "affordability" measures are put in place. And then the cycle continues until it bursts.

So yes, higher education is still a noble pursuit that can be a good investment for many students.

Academically qualified Americans should be able to attend universities regardless of their current financial situations.

And the more we can make the student loan market similar to other lending models, the better — including giving borrowers the ability to refinance.

At the same time, let’s recognize that schools squander plenty of money on outrageous athletic programs … grandiose buildings and facilities … and bloated administrative salaries, which are then passed along via cost hikes.

Let’s also acknowledge that plenty of students use their easy-money loans to rent luxury apartments and eat at nice restaurants rather than pay for tuition and books.

Heck, let’s even imagine that many families earning $100,000 a year will now look at their savings from New York’s tuition program as "free money" to use for a vacation or some other discretionary spend.

My ultimate point is that there is actually no such thing as "free college tuition" … someone is paying for it somewhere, now or in the future.

When my father was considering college in the 1960s, his family didn’t have the money for it. So he worked his way through school. It took longer than the usual four years, but he did it.

Meanwhile, perhaps because of that, my dad always impressed upon me the importance of good grades and hard work throughout my school days. And that ultimately paid off for me in the form of an academic merit scholarship to attend a private university.

So from my perspective, the idea of "free college" for all — or at least for every family making less than a hundred grand — raises a number of serious questions and may very well be fanning an already-large fire.

But I would love to hear your thoughts on this topic as well …

Best wishes,
Nilus Mattive


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