“Free” College is Destroying the Value of a Diploma – Eccentric Economics

0
776
school, freedom

Of the many initiatives activists are fiercely advocating for in today’s political environment, the call for “free” college has certainly been among the most controversial proposals.

Like their cousin propositions — such as a living wage and universal healthcare — there are extensive concepts that make these propositions absurd at a mere glance. For instance, the term free is not fitting, as somebody must be paying the bill. Setting aside the brief observation that an investment such as universal college should be paid for at the expense of many taxpayers, the proposition attempts to defy unwavering economic fundamentals that render the outcomes of these goals not only inefficient, but, like many other politically-expedient propositions, also inflict unintended repercussions on the intended beneficiaries of those proposals.

We will begin this critique with the simple, yet commonly ignored principle of supply and demand.

Naturally, the demand for college education is restricted due to the high cost of tuition and materials, thus only a limited amount of college educated individuals enter the career market with the potential to obtain high earnings. In many fields, this concept no longer applies. In this analysis we will be observing the increased supply of college educated individuals in the market. All other things being equal, this ultimately decreases both the demand for individuals with diplomas, and decreases the wages of the graduate.

With an increase of a unit supplied, each additional unit will have a decrease in utility, which is known as the law of diminishing marginal utility. Therefore, each additional student with a degree in a particular field will decrease the value of the diploma itself. Additionally, all other things being equal, if there is an increase in the supply of a particular good or service that is not met with an increase in demand, there will be a surplus of the supply.

For example, the government subsidizes a large number of students who desire to enter the field of finance. Upon graduation, there is now an increased supply of graduates with a finance degree.

Employers now have an extensive pool of supply to procure labor from. This excessive supply creates a saturated market, and grants the employer the ability to, for lack of better words, bargain with the potential employees for their labor at lower wage rates. Like any savvy businessman, they will opt to hire those offering to sell their labor at the lowest price, thus a decrease in wages in that particular industry. This is not to say a surplus of graduates is the only cause of the recently devaluing college degree, as there are multiple origins, however this is undoubtedly an influential factor. There simply may not be enough market demand in that particular industry for the degree to fulfill employment, which in turn creates the earlier mentioned situations.

Another observation on the notion of “free” college is that with taxpayers subsidizing these students and the expansion of cheap credit, the cost of tuition inflates. This was shown in a study by the New York Federal Reserve. In practice, when the government guarantees they will foot the bill for tuition through taxpayer funds or loosely given credit, the universities are to raise their tuition prices.

Naturally, the demand for higher education is limited due to the high cost of the investment. However cheap credit and taxpayer subsidies incentivize individuals to enroll in university which spurs an artificial demand, since in normal conditions they otherwise may not make the expensive venture.

Unfortunately, many do not realize that college just isn’t their forte until tuition has already been paid for through multiple semesters. This is reflected by the 46% dropout rate. This frankly becomes a malinvestment, and the loss falls on the taxpayer and further expands the unstable credit supply. This concept of “free” university schooling causes mass distortions in the market, creating financially destabilizing consequences for both the individual and the credit market as a whole.

Although “free” college may hold merit in some instances, it is simply not the answer. Like other noble proposals introduced by politicians and activists alike, they simply overlook fundamental laws of reality that do not cease because of one’s heartfelt intentions. There are real consequences when acting against economic forces.  A decrease in the value of the degree or inflated tuition prices are few of the many economic reality checks that put a halt to this proposal. The proposition to grant a free college level education to each and every student is simply not an efficient means of maintaining both an educated and productive society, it is rather one that benefits very few at the expense of many.

The following two tabs change content below.

Logan Davies

Logan Davies is a Regional Manager in the Banking Services industry, and the director of the non-profit organization, Voluntaryism in Action. He graduated from Middle Georgia State University with a degree in Business Administration. He is the father of a loving son, an avid outdoorsman, firearm enthusiast, and unwavering supporter of liberty.