A free college plan that pays for itself

As the national debt soars with pandemic bailouts, ideas like free college drift further from the headlines. Meanwhile, the effects of the economic carnage mean that college goers and student loan payers are falling further into debt. But what if there were a way to pay for college that didn’t boost federal debt or further burden taxpayers?  

Here’s an idea that just might work.

Let’s say the federal government offered $10,000 each year to students to pay for college — or to pay off their student loan debt — in exchange for postponing by one year the age they become eligible for Social Security and Medicare benefits. Those who choose to could exercise this offer for up to four years, for a total of $40,000; in doing so, they accept that they may have to work four years longer at the end of their careers. (Americans born after 1960 are eligible for full Social Security benefits at age 67, while Medicare currently starts at age 65.)

Here’s why this could work. A person in retirement draws average Social Security and Medicare benefits that cost the federal government over $30,000 each year ($18,036 in Social Security and $13,431 in Medicare). So, every year of $10,000 paid for college costs would reduce future obligations by over $30,000, in today’s dollars. For every year of delaying eligibility, the federal government nets a savings well in excess of its up-front investment. (Notably, the federal government already administers most student loans, and Treasury considers accounts payable as federal assets, so it wouldn’t be a radical departure to shift to this set-up.)

Critically, this model is entirely voluntary. No one would be forced to take dollars now in lieu of dollars later; every American could make their own choice.

Equally critical: Americans who don’t participate don’t get stuck paying for those who do.

Non-participants would still be eligible to claim their retirement benefits at the current age thresholds. But this opt-in approach would put Social Security and Medicare on a more financially sustainable path. Those who end up being unable for health reasons to work beyond their mid-sixties would still have access to disability programs.

In essence, this model frees up federal funds parked at the end of life (in retirement) to be invested earlier in peoples’ lives. Frontloading federal investment in American lives may well have a powerful multiplier effect. It could pay dividends for individuals — altering their own life trajectories — and the economy as a whole. Those with college debt could also take the deal and use it as a way to pay off up to $40,000 in current loans.

We already know that college graduates earn more and live longer. On average, Americans with bachelor’s degrees earn 84 percent more over their lifetime than those who didn’t pursue higher education, which is why it never seemed quite fair to ask non-college goers to chip in via taxes to pay the college fees for those who do attend.

College graduates’ life expectancy is seven years longer than those who hold a high school diploma or less. (In light of this statistic, Americans may see as practical the decision to delay retirement in order to go to college or shed the burden of college loans.)

And with the jobless rate estimated to be higher than at any point since the Great Depression, many Americans may well see college as a welcome refuge — and a good investment in their own future.

Colleges too would benefit, since students of all income levels would have more tuition dollars available to them now and on an ongoing basis — without a direct gift from taxpayers via the federal government. Funding students makes more sense all around than funding universities directly. (Harvard and elite peers found that out this month as they reversed their decisions and opted out of taking federal stimulus funds.) 

The model could function like the GI Bill, where in exchange for military service, veterans are offered federal financial support to pursue educational opportunities for life. In the GI Bill, it’s veterans who control what institution they want to attend as a way to invest in themselves. Similarly, in the idea outlined here, Americans of any age could use the money for any public or private college for which the federal government will currently issue a federally backed student loan. The $10,000 virtually covers the U.S. average annual in-state tuition and fees at public four-year institutions. Want to go to a college that costs more than that $10,000? Done. But you bear the added cost.

Bottom line: That $10,000 each year could help make college more affordable for all Americans — and more universally accessible to those who aren’t wealthy — and would pay dividends for the economy. The Bureau of Labor Statistics in 2018 found that Americans with college degrees accounted for all the net new jobs created in the decade after the Great Recession.

Why not help more people get those degrees when there’s a way to do it that pays for itself?

Dr. Marguerite Roza is research professor at Georgetown University and director of the Edunomics Lab, which explores and models complex education finance decisions to inform policy and practice.