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“Free” College Education – Not Cheep, but not expensive either.

October 6, 2014

Germany has decided to have their Federal Government pay 100% of the tuition for their citizens to go to college (to include the fees and books, but not housing). This has several people getting all worked up (Senator Bernie Sanders i’m looking at you…) saying “Why can’t the US do this?”

Simple answer, we could. Just as we could pay off everyones credit card this year. The question is not could we, but if we did, what would the cost be and is this a good use of tax money?

Lets start with some simple facts that “strike debt” won’t talk about (they claim the US could do this for $13 billion a year).
1) Colleges and Universities in the US spent $531 billion in 2013 according to the Department of Education. (this is what they spent, to include the “for profit” colleges like University of Phoenix)
2) Much of that was funded by the State and Federal government (about 67%), the rest made up from donations (22%) and the remaining from tuition.
3) Labor cost is the highest single % of cost for Public/State Colleges (28%), Second highest for private Colleges (24%) and fourth highest cost at “for profit” schools (19%).
4) The Federal and State government also helps cover the cost of tuition with direct payments (Pell Grants, GI Bill, Work-Study) and indirect payments (tax credits for tuition) This works out to about 14% of the total spending by colleges, leaving the student paying the remaining 5% of tuition cost. (not counting meals and housing).

So, out of the $531 billion, state and federal is currently paying for $431 billion directly or indirectly. Students paying $27 billion, and private donations covering the $73 billion.

IF the Fed took over all tuition for students, I don’t see donations staying at the same level. After all most are “sold” to donors as helping lower the cost to needy students who won’t be needy any more.

Lets guess they will be cut by 2/3rds. So $46 billion not being donated any more. This also assumes that states won’t reduce their current share either.

To cover the cost, over $74 billion would be needed. Do able, yes. But would it be a good use of tax money?  I’m not thinking we are getting value currently with the for profit colleges that suck up a lot of GI Bill funds and never graduate vets.  This would be in addition to the current Department of Education budget and would move total spending by the DoED to just under the Department of Ag (the fourth largest part of the Federal budget).

What is of concern, is an accounting trick the Fed Gov uses.  Every loan that is made to students by the Feds is counted as an “asset” of the Fed’s, and subtracted from the “debts” to get the total balance or what is known as the “deficit”.  Stop adding $26 to $30 billion in student loans to the Fed’s “asset” list and we see the deficit growing by both $76 billion in new spending and $26 billion in “lost assets”.

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