Does Free Community College Make Sense?
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During the President’s recent State of the Union address this week, he proposed sweeping reforms of nearly everything from government spending to the tax code to higher education.
Not surprisingly, he also released details on a program that would offer free community college for all – or at least some of us. Here’s what he said:
“By the end of this decade, two in three job openings will require some higher education — two in three. And yet, we still live in a country where too many bright, striving Americans are priced out of the education they need. It’s not fair to them, and it’s sure not smart for our future. That’s why I’m sending this Congress a bold new plan to lower the cost of community college — to zero. Â
Keep in mind 40 percent of our college students choose community college. Some are young and starting out. Some are older and looking for a better job. Some are veterans and single parents trying to transition back into the job market. Whoever you are, this plan is your chance to graduate ready for the new economy without a load of debt. Understand, you’ve got to earn it. You’ve got to keep your grades up and graduate on time. “
Of course, my initial thought was, “Yay! Free community college.” After all, I love free stuff!
The Problem with Free Stuff
But then I remembered an unfortunate truth I learned years ago – that nothing is free. Everything that is given to someone must be taken from someone else first and redistributed in some way, shape or form. Like it or not, that’s the cold, hard truth.
And after some simple research, I also learned just how the administration plans to pay for the free community college – by taxing distributions on College 529 plans. An excerpt from Time Magazine:
“The president proposed ending a key tax break on state 529 college savings plans. Today, the money you invest in a 529 plan isn’t deductible on your federal taxes (34 states and the District of Columbia give you a break on state taxes), but your savings grow tax-deferred, and you won’t owe any taxes on your earnings when you withdraw that money to pay for higher education expenses, including tuition, room and board, and books. Under Obama’s plan, those investment profits would be taxable, even if the money went toward college.”
Taking a Closer Look at the Fine Print
My initial reaction was complete and utter outrage. I mean, you want to make college more affordable by….taxing college savings? Riddle me that.
But it’s not as bad as it seems. For starters, the proposed taxes would only be levied on earnings accrued in 529 funds, not contributions. Further, the change would only apply to new monies contributed to 529 accounts, and not on funds people have already saved.
Still, it seems like a strange idea to me. If you plan to tax 529 distribution earnings as income, it’s likely that you’ll see a lot fewer people using 529s altogether. My state (Indiana) offers a 20 percent tax credit on the first $5,000 we contribute each calendar year, which sweetens the deal, but most states don’t. And if you take away the tax advantages that 529 plans offer, why would people use them?
All Two-Year Degrees Aren’t Created Equal
I think it’s also important to realize that not all two-year degrees are created equal. Sometimes all I can do is shake my head at the college degrees people actually pursue and pay for. For example, you can get an Associate’s degree in General Studies, Liberal Arts, or even History. You can also get an Associate’s degree in Pre-Law (Say what?), Dance, Music Therapy, or even Latin.
What kind of jobs can those degrees help you get? I have no idea. But I do know that community colleges will gladly take your hard-earned dollars in exchange for that diploma.  And I’m sure schools, drunk with greed, would come up with all kinds of new Associate’s programs if taxpayers were ultimately footing the bill for their new customers. For example, we would probably see Associate degrees in things like Arts & Crafts, Scrapbooking, and Breathing. Sounds like a fun way to spend a Saturday, but will that really help anyone?
Let’s Focus on Job Training or Technical Education Instead
While I’m not thrilled about the idea of the government (who has no money, by the way) financing free community college for the masses, I think it makes a lot more sense if you apply those funds to degrees or job training that could lead to an actual career. For example, fields like health care and information technology have exploded over the last decade, and there are plenty of entry level jobs in those fields that require an Associate’s degree. According to the U.S. Department of Labor, the following Associate degree careers have some of the brightest job prospects:
| # | Occupation | Employment |  Percent  * Change |
Earnings | Typical Education | |
|---|---|---|---|---|---|---|
| Â Â 2012 | Â Â 2022 | |||||
| 1 | Diagnostic Medical Sonographers | 58,800 | 85,900 | 46% |  |
Associate’s degree |
| 2 | Occupational Therapy Assistants | 30,300 | 43,200 | 43% |  |
Associate’s degree |
| 3 | Physical Therapist Assistants | 71,400 | 100,700 | 41% | |
Associate’s degree |
| 4 | Dental Hygienists | 192,800 | 256,900 | 33% | |
Associate’s degree |
| 5 | Cardiovascular Technologists and Technicians | 51,600 | 67,300 | 30% | |
Associate’s degree |
| 6 | Medical Equipment Repairers | 42,300 | 55,100 | 30% | |
Associate’s degree |
| 7 | Medical and Clinical Laboratory Technicians | 161,500 | 209,400 | 30% | |
Associate’s degree |
| 8 | Veterinary Technologists and Technicians | 84,800 | 109,800 | 30% |  |
Associate’s degree |
| 9 | Magnetic Resonance Imaging Technologists | 30,100 | 37,200 | 24% | |
Associate’s degree |
| 10 | Radiation Therapists | 19,100 | 23,600 | 24% | |
Associate’s degree |
| 11 | Radiologic Technologists | 199,200 | 240,800 | 21% | |
Associate’s degree |
| 12 | Nuclear Medicine Technologists | 20,900 | 25,100 | 20% | |
Associate’s degree |
| 13 | Web Developers | 141,400 | 169,900 | 20% | |
Associate’s degree |
| 14 | Registered Nurses | 2,711,500 | 3,238,400 | 19% | |
Associate’s degree |
| 15 | Respiratory Therapists | 119,300 | 142,100 | 19% | |
Associate’s degree |
If we’re offering people hope and the opportunity to get ahead, we should at least steer them towards options that can actually help them get a job. Because, as we all know, that Associate of Arts in Women’s Studies probably isn’t going to help.
In the meantime, I’m going to keep saving for my kid’ s college education in their 529 plans. Because nothing is free.Â
And even if it is, someone has to pay for it.
What are your thoughts on free community college? Do you think it makes sense for every degree?Â
Additional reading:
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- The Best College Advice to Give Your Kids
- Can You Refinance a Parent PLUS Student Loan?
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- A Freshman’s Guide to Saving Money at College
- Top 3 Money Tips for Recent College Graduates
- Is the Cost of College Worth It?
I think what also needs to be part of the discussion is the shockingly high number of students who enroll in pre-degree programs (ie remedial math and reading/writing) at Community Colleges because they don’t test high enough to even get into a basic college-level course. These students are so much more likely to incur debt and drop out before getting any college credit. Would they be excluded from this type of aid? Included? At what restrictions?
Yeah, that’s another good question. I guess we would need a lot more details before any of it made sense.
Agree with you Holly, technical training must be included. Overall I wonder if something like this would put pressure on the entire system to lower their fees. If that happens then it definitely has a huge benefit outside of just some free courses. If prices come down, or decrease more slowly, then everyone benefits.
But community college isn’t expensive to begin with. That’s part of what I don’t understand about this proposal. And with federal aid, many low-income students already go to community college for free.
Yeah that’s what I don’t get. I went to community college for free when I was married. We were low income but not that low. In my mind community college is already free for many Americans.
And also, if everyone and their brother now has a college degree then employers have a major advantage. They can pay people considerably lower salaries seeing as job competition is so tough.
I personally don’t think the republican-controlled Congress is going to go for it. One because it involves taxing investments and two because Obama came up with it. I hope that this starts some good discussion about what to do about the student loan crisis though.
Something needs to be done, just not sure what it is.
“But it’s not as bad as it seems. For starters, the proposed taxes would only be levied on earnings accrued in 529 funds, not contributions”
Yeah, but I could just put my money in a mutual fund (or ETF) in a taxable account and only pay long term capital gains tax when I sell it, which would also only be a tax on the earns and not the contribution. Since the long term capital gains tax rate is most likely still going to be lower than the ordinary tax rate this would be a better situation. If you do it right you could even get your long term capital gains at 0%.
Since only 3% (I think that is what I read in another article) of the people use a 529, I don’t see how taxing that money is going to pay for basically everyone to get free community college. I think the idea is noble (much like the ACA), but at this point I don’t trust the federal government to get a massive program like this done correctly. I think free community college would be better left to the states to figure out if they want to do it.
In the end, I don’t see either of these ideas actually making it out of committee.
That’s my point. If you take away the tax advantages, why would anyone use a Health Savings Account? I’m not sure I would.
I think this is a pretty overt effort by the administration to get people who perhaps wouldn’t go onto 4-year undergrad into vocational training which, as you said, many community colleges offer. And I’m totally fine with that. I think it would need to be matched by a concerted effort by guidance counselors to steer students away from liberal arts associates they probably won’t use or to start “tracking” (as in, putting on a track) students who, like Mrs. PoP mentioned would be going into 101 classes for reading/writing/match basics (who might be better served by pursuing more hands-on job fields).
Vocational training- maybe. Associate’s degrees? Any associate degree? Bad idea.
My initial thought on this was also, “Great idea!”, especially since I have a senior in high school trying to make a decision on colleges. The more I thought about it though, the more I think it’s not been well though out. The community colleges in our area already have class sizes that are overflowing. I don’t think they’d be able to handle even more students if everyone flocked there to get their free educations.
YES! My guess is that community colleges aren’t equipped to handle millions of new customers. I mean, do they have empty classrooms and extra teachers sitting around or something? I think not.
I laughed when I first heard about it, because I agreed nothing is free, someone has to pay for it in the end. In general I like the overall concept if it gives students opportunity to attend college, but think there must be some strict guidelines on what degrees meet the free criteria and what grades you need to maintain to keep receiving college for free. I think it would be irresponsible to open the flood gates for everyone and anyone to get a associated degree in basket weaving for free.
Yes, I agree with you. Although I have my eye on an Associate’s degree in interpretive dance if it ever becomes free.
My issue with this proposal has nothing to do with taxing or not taxing 529s (though if they are to be taxed I will not contribute any more). The overwhelming rhetoric I hear is that education leads to open doors for success, but education is such a small piece of the success equation. I think that experience, hustle and character trump education.
I will personally try to emphasize hustle, character and work ethic above education for my own son, even as I save some money (in a 529 for now though, I should really rethink that) to help him launch into adulthood.
I share your feelings. I write for a living and have never had a single client ask for my resume. It probably wouldn’t matter anyway, but I think that’s very telling. Hard work and hustle are far more important than a degree!
I can envision a multitude of ways that this program will be filled with corruption and graft. Even in my corruption-free home state of Illinois (cough, cough, choke) they are prosecuting 12 or more people who siphoned community grant money for a variety of reasons. Can you imagine how high the enrollments will be at these CCs? I suspect the official enrollment will be hundreds if not thousands more students than are actually there, just so the college will receive more funds. Again, the administration wants to change the rules in the middle of the game. You invest under one set of rules but then they change and you get taxed under another. And when they first say just 529 plans will be taxed, you just know that it will again be changed to include everyone because people will stop paying into 529s and that money source will dry up. BTW, on our real estate tax bill, I already pay a portion of that tax to support our local community college. I guess my rant boils down to this….I paid my own way through college and hubby and I paid for our son’s college. At some point in time I expect people to start paying their own way also.
I worry about corruption, yes. I also worry about the logistics of it all. He said something about students having to keep their grades up to qualify. Does that mean we will need a new government agency to track that and approve people for the free courses too? Tell me it isn’t so.
You can bet that those students in that program are guaranteed to get whatever grade is required for the school to get reimbursement.
I definitely understand some of your points, but I really don’t agree with the idea that if you had to do something then everyone should. Parents in the ’70s and ’80s could have said that since they ended up being drafted and actually fighting, the army shouldn’t fret about looking for volunteers. Leoe in the ’50s could tell their kids that they had to suffer through rations, so its the kids’ turn. Or what about parents who have to work two jobs? The point is that we want better for the next generation.
A much bigger issue, though, is that it’s getting harder and harder to work your way through school. So that parallel is becoming untenable.
My hope is that drawing students to CCs would mean that regular universities feel the pinch of fewer students. Meaning they’d have to consider dropping prices. Maybe then we can start talking about kids working their way through school again.
I think the proposal is destined to fail, or at the very best, result in more deficit spending. The proposed source of funding for this project is going to shrivel to nothing. Why would I continue to save my hard earned money, so that I can pay to educate my children myself, into a program that will take my money to educate others for free? I don’t think so.
It’s a noble cause on paper. Most ideas have the best intentions. The sticky part comes when it’s time to put it into practice. Nothing comes for free. Everything takes hard work. Perhaps we could get further by emphasizing that idea instead of continuing misconceptions by making it easier for people. It’s a vicious cycle.
I do think it is a noble causes. Misguided, but noble. But there are many unintended consequences for any intervention like this, and we should never penalize people who save.
This whole thing is just an absolute cluster – and you’re absolutely right – nothing is free though too many politicians like to make us think otherwise. Beyond that, I highly doubt the Republicans would work to actually work with Obama to get something like this passed.
All that said, you bring up an excellent point about some sort of job training or tech education so people can pursue actual careers. We’ve given into the belief that everyone must go to college. Yes, it’s a good thing for many, but it’s not for everyone and some on the job training/tech ed could go a long way to provide solid options for those that don’t choose to go to college. Unfortunately I don’t see that coming for a variety of reasons. My youngest brother is a high school tech ed teacher and the number of programs they’re cutting like what he teaches is crazy.
Having a bachelor’s in History myself the thought of someone getting a job with an Associate’s in it is a bit laughable. 🙂
Hey, one of Greg’s Bachelor’s degrees is in Theatre Arts, lol! We don’t have any room to talk over here!
I’m a Canadian, so I’m not sure exactly what community college compares to up here, I’m thinking College for us, which has several trade options, so maybe now. Regardless, I think free education is a good idea. Maybe I’m in the minority. Hasn’t Germany just switched over to free University?
No idea at all- I’m sorry!
I’m with you with technical degrees. I don’t know why so many people like to put those degrees down while touting college degrees. Some people just aren’t meant to go to college and would have more success with technical degrees which often times are more practical. I agree with you on “free” community college, while I do think more can be done to help those who can’t afford education…I do feel that when something is free people don’t value it and aren’t motivated to work for it. They take it for granted.
I would agree with that- in some cases!
I had a post in the works about this very topic. I don’t think it will ever pass because they also want to raise capital gains tax for the wealthy. If it does I think it will be just like Obamacare, great for the poor, irrelevant to the rich, and crappy for the middle class who directly or indirectly end up supporting bills like this.
Our local Votech offers cosmetology for free to high school students, which is great. But we have so many budding beauticians that they can’t find jobs and most have no desire or resources to move.
A degree is worthless without a job so just giving those away will not solve very much.
That is exactly my point. Giving a million people an Associate’s in General Studies will do nothing but cost a bazillion dollars. None of those people will likely be much better off unless they then transfer to a four-year school and pursue something relevant.
So what would they call the 529s now? A “tax advantaged but now slightly less advantaged” fund?
Sounds about right!
I know someone who has an associate’s in womens studies and is doing rather well.
But is their job in women’s studies?
Find someone- anyone- who has an associate’s degree in women’s studies AND a job in women’s studies and I personally give them $100!
There is already a program to help college costs, called FAFSA, that offers Grants to Students based on income. https://fafsa.ed.gov/index.htm If the Student’s Parents make too much income to qualify, and the Student has means to self sustain, independent from the Parents, they will most likely qualify.
Well, there we go!
Good point to make, but with every discussion always two sides. I think the schools are at fault as well for offering those courses, because many kids are misguided and take the easiest route towards the end. If college administrators are real academics, and they understand the downfall of giving a liber arts degree, why offer it in the first place. Because we live in a free society, well I believe there’s an ethics/ morale issue with that thinking. The most in demand programs for job growth should be given a higher priority for free education, because the demand will allow it and it will be a positive result to the economy. Having millions of kids unemployed is never a good, thing, and if a free education program is a solution then I would not reject the idea. I believe California is already under a free community college education system, where students pay a nominal $46 per credit fee, compared to $700 per credit for a private school.
But colleges want to make money and will gladly sell 1 million Associates in General Studies to line their pockets. It’s not a perfect world. And nothing is free, ever!
In response to Emily above about Germany Universities-
Germany WAS free and is now starting to charge (albiet at a small fraction of the cost in the US) for University. However the German High School and University system are set up differently than in the US. In Germany, there are different kinds of High Schools that will prepare you for either going to University OR that focus on getting people training and into a trade. So when you finish High School in Germany, you aren’t starting from nothing in terms of finding a job without a college degree, like here in the US. The also have more companies that do on the job training.
Personally, I think that maybe “free” community college isn’t the solution, but rather we should try to support more companies creating paid on the job training. Even if people go to community college for a trade, that doesn’t mean they will be training on the correct software or equipment that a company is looking for.
I like your ideas- and thanks for the info about the state of German higher ed. I had no idea!
I’m a big fan of vocational and technical school too. Learning a trade is hard work! And not everyone is meant to go to college.
Agreed!
The taxing of 529s really annoys me. Why would he want to punish the few families that are thing to save for college?? It makes no sense to me. He won’t address the real issue-why colleg tuition is crazy expensive and why we allow kids to graduate with six figures of debt. its a crazy political world we live in and it just seems to be getting worse.
Yep, kind’ve like Obamacare. Don’t address the rising costs that are crushing our system- just make a big mess of rules that complicate matters further!
I grew up in Alaska. The state has a great student loan program. There use to be a rule that if you worked in the state of Alaska for five years after you graduated your student loan was forgiven. That was revoked before I went to university because too many people were “gaming” the system and there wasn’t adequate funds to police it (guaranteed people will take advantage of a free federal system). Still I took out a bit of a student loan…the interest rates were decent, I didn’t abuse it, only took out the minimum I needed, and I easily paid it back. Granted I didn’t become a doctor or lawyer, so I’m SHOCKED when I hear the amount of debt people get into after college. It doesn’t have to be that way. My parents didn’t give me a dime for school…I worked! They did cover groceries and other minor living expenses from time to time. College doesn’t need to be free…people can pay for it. Try going some place you can afford and nobody said you couldn’t work (and do it successfully…I was on the dean’s or chancellor’s list every semester) while doing it (classes before work, classes at lunch, classes after work, and classes on the weekend). Giving people a free ride is not the answer…it makes people dependent. I did well in school partly because I’m motivated and partly because I knew I was paying for it. I’m so incredibly grateful that my parents let us work it out ourselves. It made me the successful person I am today.
I don’t think a free ride will make everyone dependent, but I think it will certainly make some of them dependent. Also, why save for college if it’s free and there are no tax benefits for using a 529 anyway? I think we’re sending the wrong message to people with this proposal.
Nothing is free, if it’s free you’ll most likely have to pay it through taxes. That’s exactly what they’re planning to do. My wife is from Denmark and in Denmark university is free and student actually get money from government. How do they do it? Extremely high tax rates.
People are getting taxed more in Denmark but for some reason Danish people have been rated as happiest people year over year. Maybe happiness and social benefits are directly related somehow…
I need to visit Denmark and see all these happy people one of these days. People always say they are the happiest on Earth- why?
Danish people are happy because they are well educated, healthy and don’t have to worry about the negative implications of social inequity.
Taxes should be used for the common good, like education, health and social support because, ultimately it benefits the entire society, not just those who are the immediate recipients. Too often, taxes are used for corporate welfare and not the welfare of the people, where the money ends up in a profit and loss statement and not circulating in the economy, enriching people’s lives.
In Australia, we WERE more like Denmark than America but our current conservative government is doing it’s best to take us down the same path as America. I’d rather we replicated Denmark.
It absolutely does … the trades are undersupplied in today’s economy and our young generations are crushed by debt with degrees they can’t hope to use … tired of greedy rethug arguments against it!
The biggest part of the rising tuition issue in colleges is the big elephant that never gets discussed – why are tuition rates continuously going up drastically? What are the colleges doing (except adding unrelated expenses such as fancy gyms, resort like amenities) to curb the rising cost? What they’ve relied on is student loans and our love for taking on debt to pay for most things. I don’t know of many places where an Associates will help kickstart your career but it may expose millions of people to new expertise but the courses are general. Maybe providing one year (in this case) 2 years will make people decide if college is right for them (although I think there should be stringent requirements) before taking on student debt load.
It is discussed. The answer is known. Although there are many reasons contributing to the dramatic increase in tuition, the biggest reason is that states have been dramatically cutting back support for schools.
You’re right, nothing in this world is free, the money has to come from somewhere.
I do like the idea of trying to promote education to as many people as possible, creating a smarter country in a world where manufacturing is outsourced to toe cheapest country possible.
Down the road, there will surely be budget cuts in these institutions like those we are experiencing today in many four-year schools when state authorities decide that they are spending too much on public community college education. Do you agree?
Good follow up read:
http://www.nytimes.com/2015/01/29/upshot/why-obamas-proposal-for-529s-had-no-chance.html?rref=upshot&abt=0002&abg=0