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AEIdeas

If college is so necessary (college grads and higher have just a 3.3% jobless rate) and so expensive (published tuition has more than doubled in real terms since 1980) and student debt is so out-of-control (it now stands at $1.2 trillion), then why not make college free for everyone? Why not make taxpayers pick up the cost for this important public good?

It’s an idea that pops up every now and then. But expect lots more talk if Tennessee makes good on a proposal to offer two years of community college or technical school free for all students with a high school diploma or equivalency degree.

But government should think twice before creating a public option for higher education. First, strong evidence that student outcomes will improve is lacking. As AEI’s Andrew Kelly points out, retention and completion rates at California’s community colleges — which have the nation’s lowest published tuition and are free to many because of Pell grants — were above the national average but below those at some schools with tuition several times higher.

Second, Tennessee’s focus is misplaced. The problem isn’t how much students have to pay. It’s how much education costs. As economist and college president Howard Bowen described the inflationary dynamic: colleges raise and then spend all the money can. And why not? Students are at an information disadvantage. They equate higher prices with higher quality and are unable to accurately gauge the value of specific institutions or programs.

Third, the adverse though unintended side effects could be quite large. Significantly reducing costs and increasing value will require more cost-benefit transparency for students, as well as “unbundling” what colleges do. We need to rethink the delivery of knowledge and credentials, explains AEI’s Daniel K. Lautzenheiser, with reforms such as massive open online courses and competency-based education. And these disruptive innovations are best generated by outside competitors who might be crowded by a public option. It’s also worth noting a 2004 New York Fed study that found a “high-subsidy, low-tuition policies have disincentive effects on students’ study time and adversely affect human capital accumulation.”

Finally, why exactly should taxpayers subsidize the higher education of kids who can afford it and will reap huge lifetime gains from more schooling? They shouldn’t. While the Tennessee proposal is correct in signalling the importance of increasing education levels, it distracts from more fundamental reform.

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.