Overlooked Consequences of President Obama’s Free Community College Plan

Recently, President Obama has been promoting an unlikely plan to make two-year community college free for all Americans. Not long ago, he pitched his plan to a group of graduates during a commencement speech at Lake Area Technical Institute in Watertown, South Dakota. Though the speech was masterfully written and well received, the words carry little weight when exposed to the constraints of reality. As with most lofty political rhetoric, the President touted all the proposed benefits of his plan with no mention of the costs. From this naive position his plan appears much more laudable than how the results would likely shake out in the real world. Three specific assertions made at the commencement speech have provoked my interest. Firstly, the President said that he would like to lower the cost of community college in America to zero. Secondly, he said that we cannot afford to let striving Americans be priced out of the education they need to get ahead. Thirdly, the President made the claim that it’s the right thing to do. This sort of obfuscation is exactly the type of speech that gets politicians elected, but it’s also the type of speech that misleads the public into believing the government is an omnipotent entity and is somehow immune to the bounds of reality.

The first thing that should sound the alarm bells of any mindful observer is that in a world of scarcity, it is somehow possible to bring the cost of any good or service down to zero. By the administration’s own estimates, the plan would cost $6 billion dollars per year over the first ten years. It is important to realize that the money must actually come from somewhere in order for it to end up in the pockets of contractors, teachers, and the massive bureaucracy that would be required to facilitate the expansion of public education from K-12 to basically K-14. Though the government employs thousands of Americans and provides numerous services in all 50 states, it doesn’t itself produce anything or make a profit. The government pays the salaries of its employees and provides services with the funds we as citizens relegate to their discretion. Even if the administration intends to pay for the plan out of the current budget, implying funding without spending cuts or tax increases, the funds would have to be redirected from some other possibly more productive use. So instead of claiming to be able to bring the cost of community college to zero for all Americans, perhaps the President could have more accurately stated that he proposes to shift the cost of all future community college education to all taxpayers, indefinitely.

With minimal investigation one can find that in the traditional four year college setting, easy money financing options have become increasingly available to prospective students. Subsequently, this has led to increased enrollment and skyrocketing tuition costs. As a result, an ever increasing number of Americans have graduated with exorbitant amounts of student loan debt. Recent reports show total U.S. student loan debt to be in excess of $1.2 trillion dollars. What is more alarming is the speed at which the debt has accumulated, and how there is no indication of a trend reversal anytime soon. Some argue that a subpar job market combined with easy access to large federal loans has incentivized many to enter college arbitrarily and to stay in college longer. This has led to delayed entry into the work force, diminished value of the bachelor’s degree, and levels of public debt that evoke horrifying memories of the 2008 housing bubble. The negative effects of easy money in the traditional four year college system are likely to be exacerbated if the costs of the first two years are shifted to the taxpayer. By shifting the cost from consumers to taxpayers, you are removing an important financial incentive for the student to succeed. By bringing the cost of consumption to zero you are incentivizing the consumer to consume with indiscretion at the expense of the whole country. That hardly seems like the right thing to do.

Let’s forget the cost of the plan for a minute and assume that the government can somehow provide this service at no real cost. Let’s further assume that the plan is extremely successful and the present rate of success for those entering community college doubles. Currently about 20% of students entering community college graduate in three years or less, and approximately 15% earn a bachelor’s degree in six years. Therefore, even at an implausibly high rate of success, less than half of all students entering the community college system would receive a two year degree in three years, and only 30% would attain a bachelor’s degree within six years. Increasing the number of job seekers with degrees would further diminish the value of two year degrees, bachelor’s degrees, and even Ph.Ds. in some fields. This is likely to have the worst effect on the poorest, least educated members of society. High school dropouts and those with only high school diplomas will become even less desirable to employers. It would be dishonest to argue that if this plan were allowed to move forward, no one would benefit. We could generously assume that thousands of students would take advantage of the plan and succeed. If this were the case, the plan would indeed produce positive economic returns for many people. However, the effects on the poorest Americans could be devastating.

It is important to admit that some people are raised in circumstances which render them unprepared for college, and there are even some individuals with no desire to attend college at all. Research has consistently shown a positive relationship between years of education and future earnings. Research also shows that those with the least education are more likely to be poor, and poor people are less likely to attend college. For those in the poorest communities illegal employment opportunities are often more prevalent than opportunities in legal professions. As the least educated individuals become even less valuable in the legal job market, especially as the minimum wage increases, they will be more inclined to seek employment outside of the law. Meanwhile, members of the middle and upper income groups, where individuals are more likely to attend college in the first place, will be able to get ahead at an even lower cost. Therefore, even if this plan were “free” and successful, this initiative is likely to produce a result starkly opposite of the policy’s intention. It actually seems more likely that the plan will price the most desperate Americans out of the education they need to get ahead.

Now, reapplying the constraints of reality, where everything has a cost, we can review some pertinent information. There have been quite a few articles written recently about the abysmal record of academic success in the current community college system, as well as the potentially devastating consequences of easy money in the traditional four year college model. The President’s new plan would effectively shift a portion of all future student debt to all Americans; even those who can least afford it. If the plan was to succeed in any meaningful way, then it logically follows that those with the least education would be harmed the most. This plan would inadvertently serve to further widen the gap between members of the lowest and highest socioeconomic classes. Again, to contradict the President’s words, this plan hardly seems like the right thing to do.

In the President’s closing remarks on the matter, he brings up a valid point about the origins of the American spirit. In reference to our forefathers who settled the plains and the far reaches of the west. President Obama reminds us that the nature of Americans is one of rugged individualism. He fails to mention that the pioneers of yesterday did not venture across the country at the expense of others, nor did they do it with the intention of lifting the poor from their current lot in life. They did it because they thought it to be the best option for themselves and their loved ones. Yet, to spite their self-interested motives, we as Americans are still reaping the benefits of their measured risks today. Another often overlooked fact of the westward expansion is the high levels of uncertainty and costs that the pioneers faced during the migration. Thousands of lives were lost to starvation, disease, and even murder during this period of history.

These Americans the President was referring to were operating without a safety net. They relied on careful economic calculations based on a strict profit and loss system. One poor decision could mean the extinction of an entire family name. This framework rewards success handsomely and punishes failure harshly, which incentivizes individuals to act responsibly and consider each decision carefully. History reveals a strong correlation between countries that operate under a profit and loss system and increased standards of living at all income levels. It is not uncommon for a homeless person in America to have a cell phone, a bus pass, a watch, or some other luxury item on their person. This is possible only because other Americans are able and willing to assume risk and pursue their own self-interest. This in turn produces massive positive spillover effects reaching even the poorest communities in America. So, instead of diverging from the rugged individualism of the American spirit, we should remove some of the taxpayer financed safety nets and give more Americans the proper framework and incentives necessary to succeed.

Please share this post with your friends on Twitter and Facebook. Follow me on Twitter @econeverywhere.

Comments

comments

Patrick Davis

Patrick Davis

Economics student in the DC area with a passion for sharing sound economic principles. Follow me @econeverywhere

Leave a Reply