The Real Cost of Free Higher Education

In Politics

The increase in exposure that the NY phenom politician Alexandria Ocasio-Cortez has been getting, I was curious about the cost of one of the tenets of her candidacy.  I wanted to do some quick arithmetic (it’s not really math) to see just how much this is going to cost the average American.  Yes, I do understand that the way that she is thinking about this is that Corporations and Rich People (i.e. not her) will pay “their fair share” and that will be the end of it.  I personally believe that there is only 1 source of money to pay taxes and that is the wallet of the individual.  First, a corporation does not create money out of nothing – they create products and services that at the end of the day, individuals pay for.  Second, we all know that rich people hire very expensive tax accountants and lawyers to minimize their exposure to taxes, so the burden falls to the average citizen.

So I’ve done a few really basic searches to get some of the assumptions that I am using to make my estimates:

  • The number of graduates in 2016-17 education year were 1.29 million associates degrees and 2.03 million bachelor’s degrees.  This according to a post on Quora
  • The average cost of a 2-year public school was $11,970, for a Public Four-year school (in state) was $20,770 and for a Publich four-year school (out of state) was $36,420.  This was according to a post on CollegeRaptor.
  • The average graduation rate for someone starting a 4-year college education: 59% of those starting, graduate within 6 years according to the National Center of Education Statistics.  This same post indicates that the average amount of time it takes to graduate with a 4-year Bachelor’s degree is 5.1 years.

Before moving on, I do want to point out one thing that you may or may not agree with.  For the average costs associated with a 4-year degree, I’m averaging out the cost of the in-state and out-of-state educations to an average tuition of $28,595.  The reason that I’m doing this is that I am making the presumption that if the Federal Government has involvement that the differentiation between in and out of state will begin to disappear.  If the degree that an individual wants is not offered at a school in their state, there will be allowances made.  This is my rationale and you can dispute it, but it’s what I’m going with.

Now, there are some very fast stats that can be derived from the bullets above:

  • The cost for the graduation year of those receiving Associates Degrees are: 1,290,000 * 11,970 = $15,441,300,000
  • The cost for the graduation year of those receiving a Bachelor’s Degree are: 2,030,000 * 28,595 = $58,047,850,000

So the total amount or cost of the final year of education for graduates will total $73.5 Billion.  This is just looking at the costs for 1 year of education.  This doesn’t take into consideration the fact that 41% of people that start a 4-year Bachelor’s program, don’t complete the program.  It doesn’t take into consideration the fact that it takes, on average, 5.1 years to complete a program.

From here on, things will get a little bit complicated to understand, but I will do my best to present this in a way that it is understandable.  First, let’s look at the Bachelor’s degree crew.  The bullets up above that I use to make this assessment includes a couple of key things that I will in creating the table below.  The table below illustrates the number of people in a four-year bachelor’s program in a given year.  The main thing that you need to understand is that every year roughly 10% of the people drop out of the program, AND, the program takes a total of 5.1 years to complete:

  • There will be 3.44 million students in their first year, 3.03 million students in their second year, 2.66 million students in their third year, 2.34 million students in their fourth year and the 2.03 million students in their final year.
  • The first year will cost $28,595, the second year will cost $29,424, the third year will cost $30,227, the fourth year will cost $31,155 and the final year will cost $35,358 (which actually includes an extra tenth of year given that the average student completes the program in 5.1 years),
  • The total cost to be footed by the tax payer will be $154,810 for this 5.1 year education.
  • Taking into consideration the fact that only 59% of people actually graduate in this timeframe, the cost for each graduate increases to $262,391.

 

Making similar assumptions for the Associates degree students, the cost for each person graduating is $30,624 and taking into consideration the people that start and do not finish the program, the cost increases to $51,906.

I’d like to make another note at this point.  We all know that the tax code has been designed to penalize the higher income people, but what I am presenting here makes the presumption that everyone will get the full value of this free education in some way.  So, what I am presenting here is what the POTENTIAL cost of free higher education for all will look like.  We all know that government programs, once implemented never get smaller.  They only get bigger.

Taking all of the information in the excel spreadsheet into consideration, my model takes into consideration the fact there are roughly 15.6 million students enrolled in a 4-year Bachelor’s degree program and an additional 5.2 million in an Associated degree program in a given year.  Taking in all of the factors above, I’m estimating the total cost of tuition for all of these students for their entire program from start to finish will have an annual cost of roughly $469,804,290,441.  In laymen’s terms this if $470 Billion a year.

This by any measure is a truly rediculous amount of money.  The politician that I mention at the very beginning of this assessment (Ocasio-Cortez) has indicated that we can make cuts to the defense budget and increase taxes on corporations and rich people to pay for this program.  There are not a lot of things within the Federal budget that cost a half-a-trillion dollars a year.  According to the charts on this page, there are only three items in the entire federal budget that come close to this:

  • $600B for the military
  • $985B for Medicare and Health
  • $1.25T for Social Security

Maybe Ocasio-Cortez is right, maybe we can eliminate 78% of our military budget to pay for this and not increase anyone’s taxes.  The reality is that in order to pay for this, there will be brand new taxes on the 126.22 million households in the US.  Based on the rough estimate of $470B per year, the average US household will have to pay out an additional $3,722.11 per year in taxes.  Given that the average household made $59,039 as of 2016, that’s an additional 6.3% annual tax.  That’s the same as the FICA deduction that we are all hit with.

I can put in all of the caveats that I want to with how I came up with these estimates.  Those of you that actually made it down to here will never believe any of this, because these numbers are so high.  Keep in mind that across the US we are already spending over $634B a year for elementary and secondary schools in the US, so my very high level arithmetic actually feels about right.

My only goal here is to present some numbers and put some of the rhetoric into context so that the idealistic dreams of some people are equated to the real dollars and sense that the promissory note will cost us.

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