April 12, 2107--Free Tuition

In cost-benefit terms the best social policy investment the United States could make would not be to spend a trillion dollars on infrastructure (though we need to do that too) but to deploy that $1.0 trillion to wipe out all outstanding student loans.

There are 44 million who borrowed money to help pay the cost of their college educations and they owe on average about $37,000. Of these borrowers, more than nine million are in default.

Those in default and those struggling to pay back what they owe are trapped in a tsunami of debt and collapsed FICO scores at a time when it is difficult for young people to find employment that pays enough to make repaying manageable. As a result record numbers continue to live with their parents well into their 30s or are reluctant to take chances to switch career paths or start their own businesses. This in turn, in macroeconomic terms, dampens growth and interferes with the traditional churn of the free market.

There are no direct correlates, no lessons from history that we can turn to as models of federal fiscal policy that would be helpful in making the case for this radical suggestion. And, to balance the debate, there are no large-scale examples on the other side of the argument that have credibility.

That is except for those times in America's history when the government stepped in to prop up or even bail out imperiled institutions. We did this in the 1930s during the Great Depression to help rescue the country from a a precarious economy and dramatically, more recently, when we did a version of the same thing to help get us through the Great Recession.

On a less dire note there was the GI Bill that was passed in 1944, toward the end of the Second World War, to provide various sorts of assistance to men and women who volunteered or were drafted to serve in the military.

The GI bill is best known for the support it provided to veterans who enrolled in various forms of education, from vocational training to college and university studies. It paid the full cost of tuition and even offered a monthly subside to help offset living expenses.

It was a massive program: 8.8 million GIs used the educational benefits with a full quarter of them (2.2 million) enrolling in post-secondary education. This not only benefitted those attending but contributed to the dramatic expansion of educational opportunities and facilities that served the nation well in subsequent decades, even after veterans completed their studies. By 1960, only 15 years after the end of the war, a new community college was founded each week, fully 50 a year for over a decade. Now there are 1,200 two-year colleges serving 7.4 million degree-seeking students.

Even those fiscal conservatives who resisted the federal government's involvement in education funding could not help but be impressed. The die was cast--higher education became a virtual right as a result of the GI Bill and its longer-term reverberations. For the first time in world history higher education became fully democratized. Not perfect, but impressive.

And those who study these matters have retrospectively found that the accrued benefits to the nation, in monetary terms, more than offset the direct costs of subsidizing this expansion of educational opportunities. There was unprecedented economic growth between 1947 and 1975 and a significant narrowing of economic inequality. The poorest 20 percent of the population saw their incomes rise at a rate higher than that of any other population cohort.

In other words there was no better engine for economic growth than offsetting the cost of offering these higher-educational opportunities.

To put it simply--better educated people, college graduates especially, earn more over their lifetimes than people with only a high school education and as a result pay more in taxes. Enough in taxes to more than cover the subsidized costs of tuition and even the monthly stipends.

Thus it is exciting to note that the New York State Legislature, pressed by 2020 presidential candidate Governor Andrew Cuomo, just this past week passed a bill to make all public colleges in the state for families earning less than $250,000 a year tuition free.

"Tuition free" is a wonderful oxymoron and one can expect to see over time some of the same economic benefits that were the result of the GI Bill.

Think, then, what a positive jolt to the nation's economy would result from wiping out all accrued student debt. This obviously would be complicated to do (forget for the moment what conservatives would say!) but it is worth thinking about and running the numbers to quantify what a benefit it would be. Increased tax revenues, among other things, would be sufficient to pay for the renewal of much of out failing infrastructure.

Governor Andrew Cuomo