[4/19/17]  A new program just passed by New York’s state government promises “free tuition” for middle-class students to attend a public college or university in the state. While there are similar programs elsewhere in the US, this is the first to include four-year schools.

All of the headlines include some variation of the term free college, which makes this a great opportunity to discuss what actually happens when a government provides something for “free.” Let us consider this program from three different perspectives.

From the student’s perspective, this is another scholarship program. Indeed, it is called the “Excelsior Scholarship,” and students may apply for it to cover any tuition not already covered by other forms of financial aid. It does not cover other fees, room and board, or books, so any headline advertising “free college” is misleading. One estimate based on the cost of attending a State University of New York campus says that the new program would pay about $26,000, leaving $60,000 for the students and their families to pay.

Nevertheless, before any further increases in non-tuition prices, this may encourage more students to apply and attend. SUNY has seen enrollment increases every year at least since 2002, which is the earliest data at data.ny.gov. The question, however, is whether using government policy to funnel even more students into four years of public education is a good idea. Nationwide, enrollment has recently dropped, but this has mainly been in for-profit and community colleges. Public schools have seen steady increases in enrollment, tuition, and borrowing.

From the university’s perspective, the Excelsior program is a large third-party payer. In a 2016 NBER paper, Grey Gordon and Aaron Hedlund found strong evidence for the Bennett hypothesis: increases in financial aid lead to increases in college tuitions. The authors’ quantitative model showed that increases in financial aid accounted for 102% of the 106% total increase in tuition.

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