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Privatizing Free Tuition Will Help Relieve Our Nation’s Fiscal Overreach

Within 24 hours of writing about the new online startup, I heard about two other private efforts to offer free tuition via online education. First, I learned of the philanthropy Modern States Education Alliance, whose Freshman Year for Free program has attracted 60,000 students in less than a year. It has a neat, innovative approach: help prepare kids to receive college credit through AP courses offered at the high school level, with testing done by the College Board, or directly through the College Board’s College Level Examination Program (CLEP), which exams students on numerous subjects, with some 2,900 participating college offering college credit according to whatever criteria they wish to establish. Many of the courses were developed by the open source edX, a cooperative venture of Harvard and MIT. The group is even helping many students pay the $85 fee to take the examinations of the College Board.

Then Wal-Mart announced that, working with three colleges, it was going to heavily subsidize courses in supply-chain management and business for its employees, with the employee only having to pay one dollar daily towards the program’s cost. Wal-Mart is not alone in moving towards employer-funded higher education: for several years, Starbuck’s has paid the full tuition costs of the online degree program of Arizona State University for many employees working at least 20 hours weekly. McDonald’s has a program too, paying up to $2,500 annually ($3,000 for managers) towards tuition costs of employees working as little as 15 hours weekly, likely often covering tuition fees entirely for students attending community college part-time. Many companies help their college educated managers obtain master’s degrees or other skill-enhancing degrees.

Are these private firms acting out a desire to further social justice, enhance economic opportunities, and promote egalitarian income goals, seemingly the motives behind government funded free tuition efforts of politicians such as Bernie Sanders? Not really. I suspect the impetus for this was suggested by Adam Smith over 240 years ago in the Wealth of Nations when he talked about the “invisible hand” of the market allowing entrepreneurs to increase their own prosperity by making their customers (or, in this case, employees) happy.

The tight labor market has created shortages of workers in many fields. It is difficult to get new workers, who then have to be trained. Free (or very low cost) tuition is a very attractive fringe benefit. It is a way that low paid workers can invest in their own future without major cash outlays. It provides incentives for workers to stay employed, reducing the heavy costs associated with high worker turnover. And this fringe benefit is largely non-taxable to the worker. It also has considerable public relations value: beginning nearly two decades ago, Wal-Mart was roundly criticized (I think mostly unfairly) for allegedly unfair or exploitative labor practices. In this tight labor market, Wal-Mart has now moved to a $11 hourly wage—and is now offering near-free college as well.

Even amidst an economic upswing that has lasted over eight years, the United States cannot begin to cover the costs of all its collective entitlement commitments; the federal government is running a deficit approaching $2 billion a day. That is simply not sustainable in the long run if the U.S. is going to have a vibrant, growing economy providing greater opportunities to future generations of Americans.

In that fiscal environment, our nation must look to find ways to reduce entitlements and increase fiscal responsibility. More people need to have skin in the game—a consequential stake regarding the resources they use. A majority of the people attending college come from relatively affluent backgrounds. Free tuition for them makes little sense: they would go to college even with high tuition fees, and most (some would say “almost all”) of the financial benefits of college accrue directly to them, not to society. In this fiscal environment, privatizing low tuition efforts is highly desirable. State universities were supposed to be cheap, but as they become ever more inefficient and bureaucratic, and as governmental subsidies to them decline as they lose public support, the free college efforts of both private philanthropic groups and profit-making firms like Wal-Mart are a means of assuring that even low-income persons can achieve a college education.

Richard K. Vedder is a Senior Fellow at the Independent Institute, Distinguished Emeritus Professor of Economics at Ohio University, and co-author (with Lowell Gallaway) of the award-winning Independent Institute book, Out of Work: Unemployment and Government in Twentieth-Century America.

From Richard K. Vedder
CAN TEACHERS OWN THEIR OWN SCHOOLS?: New Strategies for Educational Excellence
In Can Teachers Own Their Own Schools?, Richard Vedder examines the economics, history, and politics of education and argues that public schools should be privatized. Privatized public schools would benefit from competition, market discipline, and the incentives essential to produce cost-effective, educational quality, and attract the additional funding and expertise needed to revolutionize school systems.