Freedom Implies Responsibility, College Edition

Senator Elizabeth Warren, a top-tier Democratic presidential candidate, is out with a proposal that would forgive most of the $1.5 trillion in higher-education student debt now outstanding. She and a number of other presidential hopefuls are also proposing “free” or heavily subsidized tuition at public colleges and universities.

These plans are, of course, anathema to libertarians because they impermissibly use the coercive power of the state to benefit some individuals at the expense of others. In this case, tax dollars are taken from those who elect not to pursue college degrees in order to first make, then forgive, student loans for those who do. And now, if these candidates get their way, to pay this tuition outright. Eighteen-year-olds are sufficiently mature to decide for themselves, without interference by the state, whether or not to pursue higher education, and to live with the consequences.

Although, as a rights-based libertarian this is not my primary objection, these proposals are also terrible from an economic perspective. The moral case against the welfare/regulatory state is made in Chapter 1 of my Libertarian Philosophy in the Real World, while some of its negative practical implications for higher education are addressed in Chapter 8, a near-final portion of which is excerpted below.

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Our elite colleges and universities are generally considered to be the finest in the world. Many tens of thousands of foreign born applicants from around the globe vie for admission to U.S. schools. Private schools–from major universities to small colleges–occupy most of the top spots in the popular rankings of our institutions of higher learning, e.g. Harvard, Yale, Princeton, Caltech, M.I.T., Amherst, Swarthmore, etc. The self-evident success of privately funded and administered institutions invites the question of what role if any remains for state involvement in higher education.  

   Because the coercion of innocent persons is justified only in extreme situations, the answer is “none.” There are a wide variety of employment opportunities available to individuals with a high school degree, including self-employment or starting a business. Moreover, they can pursue further academic studies or vocational training on their own. Accordingly, the absence of publicly-funded colleges will not destroy the life prospects of high school graduates who cannot afford to immediately pay for higher education.

    Federal undergraduate student aid totaled almost $131 billion in the 2012-13 fiscal year, while state level aid added another  $9.7 billion.[1] In addition, a recent study by Illinois State University estimates that in 2014 the various states will spent $72.1 billion on general operating expenses for their colleges and universities.[2] This largess is provided on a nonconsensual basis, and is thus morally illegitimate.

   While there is every reason to believe that these subsidies enable many students to attend college who wouldn’t otherwise, this fact should not be celebrated. First, just as in the case of our state-run K-12 system, a large percentage of students drop out before graduation–only 56% of those who enroll in four-year college ever earn a bachelor’s degree.[3]  Clearly, these students either were not prepared to do college level work or finally realized that their tuition represented a poor investment of their and/or their parents’ resources.

   In fact, we now face a shortage of workers with key vocational skills, and this training is not available in traditional four-year colleges.[4] It can either be acquired on the job or through specialized instruction at community colleges and for-profit schools. The overall welfare of our society will be enhanced if we graduate fewer individuals with B.A. degrees of questionable relevance to gainful employment, and replace them with more small business owners, skilled trades people, machinists, health-care workers, and so on. In short, the status quo has encouraged a huge misallocation of resources.

   Moreover, it is reasonable to infer that the easy availability of government grants and loans is partially responsible for the astronomical rate of increase in college tuition and fees, which for the last three decades is running at least three times general price inflation.[5] As then Secretary of Education William Bennett wrote in 1987: “increases in financial aid…have enabled colleges and universities blithely to raise tuition, confident that Federal loan subsidies would help cushion the increase.[6]  This inflation harms everyone who must pay for higher education.

   As tuition rises, so too must the level of student debt required to pay it. As of late 2011 there was over $1 trillion in outstanding student debt, the vast majority of which was financed by the federal government (rather than from private sources).[7] For the sixty percent of students who had to assume loans in order to pay for their college education, the average balance upon graduation was $26,500 (as of 2012).[8]

   Since this is an average, there are clearly millions of graduates with much higher levels of debt, and their career options are limited to those that will enable them to service it. Here again, the unwelcome side effects of our educational policies fall disproportionately on students from middle and working class families, whose parents lack the means to simply pay tuition out of savings.   

   In light of the above, the rights-based libertarian prescription for higher education is simple. The supply of educational services should be allocated by the intersection of the supply and demand curves in a free market. The federal government and the states should end all taxpayer-financed support of post-secondary education, including all grants, loans, guarantees, tax credits and direct assistance. 

   I understand that this prescription is wildly unrealistic in the present political environment, so that all this is left to us is to chip away at the edges of this monstrosity. However, this effort may prove more efficacious than seems possible at first sight, since in my judgment we will eventually be forced to undergo fiscal austerity as a result of out-of-control governmental spending and borrowing.  In such circumstances, the political class may be amenable to budget cuts that were unthinkable in more affluent (and profligate) times.


[1] Federal aid to undergraduates consisted of grants ($45 billion), loans ($68 billion), and work-study/tax benefits ($18 billion), while aid to graduate students totaled almost $39 billion (mostly in the form of loans). See College Board (2013), “Trends in Student Aid 2013,” 12-3, //trends.collegeboard.org/student-aid. The figures are based on preliminary data.

[2] Douglas Belkin, Wall Street Journal, January 21, 2014, A2 (quoting a report prepared by Illinois State University).

[3] See Fiscal Times, October 28, 2010, “High College Dropout Rate Threatens U.S. Growth,” //www.thefiscaltimes.com/Articles/2010/10/28/High-College-Dropout-Rate-Threatens-US-Growth.aspx

[4] See Michael G. Morris, “Wanted: Ten Million Skilled Workers,” Washington Examiner, November 13, 2011,//www.washingtontimes.com/news/2011/nov/9/wanted-10-million-skilled-workers/.

[5] See Steve Forbes, Forbes, “Dinosaur U.,” February 28, 2011, 13.

[6] See Cato Handbook for Policymakers, 7th ed (2009), Chapter 21 (“Higher Education Policy”), prepared by Neal McCluskey, 231, //www.cato.org/pubs/handbook/hb111/hb111-21.pdf.

[7] See Rohit Chopra, “Too Big to Fail: Student Debt Hits a Trillion,” Consumer Finance Protection Bureau, March 21, 2012, //www.consumerfinance.gov/blog/too-big-to-fail-student-debt-hits-a-trillion/ .

[8] See College Board, “Trends in Student Aid,” 21.

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