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Student Debt: How Far to Free?

How much would it cost make every single public two- and four-year college and university in the United States tuition free for all students? Probably less than you think.

By our estimates, after stripping off the amount that the government already spends to subsidize higher education — including at predatory for-profit institutions — the total amount of new money necessary is less than $13 billion a year.  Thirteen billion is a lot of money, to be sure, but within the scope of the Federal budget it is less than one tenth of one percent of yearly spending — merely a rounding error.

Here’s how we arrived at that astonishing figure.

In the 2011-2012 school year students spent $59.9 billion on tuition for public universities (source, page 7). It’s important to note that this is just tuition.  That’s our starting point.  But, as we said above, the government is already subsidizing that figure, via various programs which would no longer be relevant if tuition were simply free.  Additionally, predatory for-profit colleges receive billions in federal subsidies which simply transfer taxpayer money straight to Wall Street investors while saddling students with worthless degrees and a debt load so high many will never be able to pay it off. Here are some of the savings that we have found. [Note: The bulk of these figures were collected by Bob Samuels during his outstanding research on public education financing.]

In 2010 the government spent $35 billion in Pell grants (Bob Samuels). How much of this went to predatory for-profit schools? “In fact, during a 2012 Congressional investigation of for-profit colleges, it was discovered that up to a quarter of all federal Pell grant money is now going to these corporate schools that charge a high tuition and graduate very few students” (Bob Samuels, footnoote vi).

There is no reason to spend even a penny of public money on these predatory for-profit colleges. This money alone would go a long way towards lowering the cost of high quality public universities. One quarter of $35 billion would be $8.75 billion saved.

Similarly, predatory for-profit schools specifically target veterans for exploitation and took roughly $1.6 billion in public money from the GI Bill in 2011 (source).

That brings us to $10.35 billion in savings, subtracted from that $59.9 billion figure above, giving us a remaining cost of $49.55 billion for 2011.

But that’s not all.  Samuels identifies tens of billions in additional savings, based on current tax expenditures on education subsidies.  These include:

  • student interest rate exemption: $1.4 billion
  • exclusion of employer-provided educational assistance: $1.1 billion
  • exclusion of interest on student-loan bonds: $0.6 billion
  • exclusion of scholarship and fellowship income: $3 billion
  • exclusion of tax on earnings of qualified tuition programs including savings account programs: $0.6 billion
  • HOPE tax credit: $5.4 billion
  • Lifetime Learning tax credit: $5.5 billion
  • parental personal exemption for students age 19 or over: $3.4 billion
  • state prepaid tuition plans: $1.75 billion
  • American Opportunity Tax Credit (which is set to expire in Dec 2017): $14.4 billion


So, in the final accounting:

  • $37.15 billion in tax expenditures
  • $8.75 billion in Pell Grants to preditory for-profit schools
  • $1.6 billion in GI Bill money to preditory for-profit schools

TOTAL SAVINGS = $47.25 billion

This means that tuition-free education at all public two and four-year colleges could be achieved for just $12.4 billion in new money.

This is less money than we currently spend on vast array of government programs.  For instance, tax subsidies to just twelve corporations totaled about $20 billion per year from 2008-2010 (source).  For another, the federal government spends around $15 billion per year on the war on drugs (source).  Look around, and you’ll have little trouble finding programs that receive as much or more funding than would be required for universal, tuition-free public higher education.  It’s simply a matter of priorities.

So, when you hear Congress and political interest groups arguing about the intractability of the student debt crisis, cooking up complicated schemes that funnel money to Wall St banks and for-profit colleges, ask them where their priorities really are.

Researchers interested in following up on these figures are encouraged to read Bob Samuels’ January 2013 report ‘Making All Public Higher Education Free‘.

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