Why Free College is not a Good Idea!

On Wednesday, January 3, the New York Times reported that Governor Cuomo was following the lead of Oregon and Tennessee and unveiling a proposal to make public college free to New York residents under a specific income level – with one twist. Unlike Oregon and Tennessee, which make a two-year education at the community college free, Governor Cuomo has expanded the concept to most four-year state schools in New York. Free college – How fortunate for New York residents. Or should I say, how unfortunate?

New York residents will now be able to flock in droves to institutions that are already overcrowded and produce dismal results. The default rate on student loans at New York public universities and colleges was 9.3% for the 2012 cohort. And the completion rate at New York community colleges is only 20.6%.

So let’s see how this will work. We will encourage students to attend a college where only a small amount of entering students earn a degree. And of course, we won’t be able to stop students from taking out a student loan. Nope! You see, the cost of attendance as calculated by the school and regulated by the U.S. Department of Education far outweighs tuition and includes room and board, transportation and more. And schools can’t prohibit students from borrowing more than the cost of tuition. The result? Students will enroll at a “free college” and borrow money for the cost of attendance. Then, they will drop out and have a student loan – but no skills. Brilliant.

Meanwhile, is the “free college” really free? Of course not. Public education is funded primarily by property tax. So taxes will go up and all property owners – whether they have college-age children or not – will, in fact, pay for the free college. No, let me reword that. They will pay for the free tuition while soon-to-be college dropouts use student loans. Then, when the students attending “free” college default on their student loan, the taxpayer will once again shoulder the burden.

Let’s back up a minute and explore one of the reasons Governor Cuomo states free college is necessary: “crippling student debt.” Why isn’t anyone addressing the primary contributor to student debt? Colleges and universities are not allowed to limit student loan amounts. If a student is eligible for a loan – whether they need it or not to cover tuition – they are allowed to borrow.

According to the New York Times article, “Current full-time tuition at four-year State University of New York schools for residents is $6,470. . . . The state also provides nearly $1 billion in support through its tuition assistance program, which has an adjusted gross income limit of just under $100,000. Those awards top out at $5,165; many grants are smaller.” So a student may only need to cover $1,305 of their tuition (and that’s assuming they are not using a Federal Pell Grant), but they can borrow up to $23,000 over four years. And the college can’t stop them from borrowing – even though when the student defaults on the loan, the college is held accountable. It also begs the question, is a college education worth it?

College student persistence and success will decrease

Free college has the potential to undermine persistence. Currently, most colleges charge tuition when a student repeats a course. Let’s talk for a minute about the dynamics on a college campus. When faced with challenging and rigorous classes, some students will realize they are in danger of failing and play the “W” card. As in withdrawing from the class. Depending on the grading system at the college/university, a “W” grade may not factor into the grade point average calculation. But withdrawing from a class has financial ramifications. At least until now. Once tuition becomes free, I predict increased abuse of withdrawing from classes. After all, the financial incentive to finish what you start has been removed.

How will students choose where to study?

In addition to the projections for student loan default increases and persistence decreases there are also economic and “choice” considerations. Currently, prospective college students select an institution of their choice and then fund tuition with grants, scholarships, loans, and savings. This allows private colleges and public colleges to compete for the same student, and students review financial aid awards and ultimately make decisions based on not just finances – but also fit.

For some students, being part of an entering freshman class of 8,000 students may be overwhelming, and sitting in a lecture hall with 200 may not be their preferred way of learning. These are the kinds of students who are currently attracted to smaller private institutions where crowds are smaller and instructor interaction is more personal. And most frequently, these are private colleges and universities that don’t receive direct support from the state or federal government.

So what happens when a high school senior and his or her parents compare a private college in New York with the annual tuition of $50,000, or even one where tuition is just $14,000, with Binghamton University–SUNY, where tuition is zero? Will the small private college merit any consideration? Probably not. But wait, where will the student flourish? What environment will fuel their success? What’s best for the student? Will any of that be considered once they have the option of “free college”?

And what is in the future of private colleges?

What happens to the private colleges? Will they become extinct? Did Governor Cuomo intend to issue a death sentence to private education in his quest to make education free at the public schools? What impact will “free college” have on his alma mater, Fordham University? Tuition at Fordham exceeds $47,000 a year – and that’s current tuition without fees. The four-year price of a Fordham education, with tuition increases and fees, will easily exceed $200,000. And that’s without housing costs.

According to the Fordham website, the university has 2,211 freshman students and an acceptance rate of 48%, making it a “more selective” university. And with students from 68 countries comprising the freshman class, Fordham may feel a little impact if public schools are made free. In fact, only 18% of the freshmen class comes from the five New York boroughs.

But how might free college impact the average private college? I will make a prediction: freshman enrollment will drop 10%. After all, a bachelor’s degree is somewhat of a commodity. I mean, if I can get a cheap or free bachelor’s – why not? I’m going to go on for a graduate degree anyway.

Let’s play out the impact of a 10%decline in student enrollment at an average private university that would normally enroll 500 new freshmen at $50,000 annual tuition revenue. The first year financial impact is $2.5 million. And that’s not even factoring in the discounting that will need to be done in order to remain attractive to the 450 entering freshmen. Fast-forward four years, and you are looking at $10 million less in revenues.

My question: What average nonprofit college can weather a $10 million decrease in revenue over a four-year period?

But back to Fordham for another thought. There are 12 CUNY or SUNY colleges with an acceptance rate that is lower than Fordham’s – meaning it’s harder to get in. And now we are going to make them free? That’s absurd. These are schools that students are desperately trying to get into. And now we will give it away?

Some may argue that the lower-income students who are admitted will be funded via merit scholarships. And if that’s true, then why is Cuomo changing anything? State and federal financial aid programs make higher education accessible and affordable to most entering freshmen. And if the prospective student excels academically, additional institutional scholarships will likely be available.

Shouldn’t we be focusing on vocational and trade schools?

Finally, why push more students to traditional college, when our country is suffering from a shortage of skilled workers? Vocational and trade schools should also be part of a master plan to incentivize education. Some specific jobs are experiencing exceptional growth rates – like occupational therapy assistants, a position with a projected national growth of 43% and a New York growth of 30% from 2014 to 2024, according to O*Net OnLine.

But most occupational therapy assistant programs are taught at vocational schools – not four-year universities. And occupational therapy isn’t the only high-growth career that is reached by an alternative to a college education. The need for electricians is projected to grow 23% in New York from 2014 to 2024.

 To summarize, here are the 7 reasons why free college is a bad idea:

1. Student loan defaults will increase
2. Completion rates will decrease
3. Property taxes will increase
4. Persistence among college students will decrease
5. Private colleges will suffer enrollment declines and financial hardships
6. Free college does not address occupational shortages
7. Free college will not help solve “crippling student loan debt”

Other stats you may find interesting:

• The four-year graduation rate averages 47.8% at SUNY colleges, with some locations as low as 20%. Source: https://nortonnorris.com//system.suny.edu/media/suny/content-assets/documents/institutional-research/2013_09_BOTAA_GradRates.pdf
• Another study has the New York public-college four-year graduation rates in New York at 37.8%. https://collegecompletion.chronicle.com/state/#state=ny&sector=public_four
• The same study shows New York private-college four-year graduation rates of 55.1%.   https://collegecompletion.chronicle.com/state/#state=ny&sector=private_four
• Student loan default rates at public colleges in New York are more than double those of private colleges: 4.2% vs. 9.3%. https://www.osc.state.ny.us/reports/highered/student_loan_debt.pdf

About Vince Norton
Managing Partner, Norton|Norris, Inc.

Since 1979, Vince Norton has worked in higher education administration, marketing, admissions, and enrollment management, for both not-for-profit and proprietary institutions. His 35-plus years of experience include 19 years in admissions, marketing, and administration at non-profit colleges, and three years with for-profit colleges. For the last 16 years, he has served as Managing Partner of Norton|Norris, Inc. Vince is regarded as an expert on college marketing and mystery shopping and has delivered presentations on this topic for numerous associations.