This week the New York legislature announced a budget deal that will make them the first state to provide free college tuition. The proposal covers tuition expenses at four-year and two-year public colleges, for students from families earning under $125,000. But a subtle detail means that for some of these students, their degrees might not be free after all: if students don’t work and live in New York after college, their grant covering tuition converts to a loan. New York is not alone. Arkansas recently passed a bill that provides free community college for students who enroll in a STEM program and agree to work in their home state after graduation for at least three years.
These “gotcha” provisions risk undermining the point of calling something free. One of the most promising aspects of “free college” is it will signal to low-income students that college really can be affordable. But if students catch on that there are additional hurdles to clear, that incentive disappears. For middle-class students who would have borrowed anyway, the residency requirement simply gives students the ability to opt out after graduation, effectively swapping out a state loan for a federal one. But for the low-income New Yorkers deliberating over whether college is really affordable, uncertain employment prospects in the state combined with debt aversion mean enrolling in college will remain risky business.
In fact, the federal government has tried a similar policy: providing TEACH Grants to students to enroll in teaching programs, in the hopes of recruiting teachers into hard-to-staff roles by providing additional scholarship money. With that goal in mind, the program includes a seemingly innocuous requirement that recipients teach in a high-need field at a low-income school. After leaving school, if recipients fail to meet the necessary service requirements within 8 years, the grants convert to a federal unsubsidized loan, along with the interest that would have accumulated over that time. The results have been an unmitigated disaster: three of every four of these “grants” are expected to convert to a loan. While providing additional money to future teaching candidates may or may not be warranted, calling these dollars grants misleads students at a time when critical decisions about their education and careers must be made.
Staying in your home state is not as restrictive as the work requirements in TEACH grants, but the risk of saddling students with loans they did not take out remains. It also creates risks for students when unforeseeable economic factors are not properly accounted for. According to the Economic Policy Institute, unemployment among recent college graduates is low today - around 5.6% - but remains higher than the national average. For recent college graduates, unemployment peaked at just under 10% during the recession. And for African American college graduates, unemployment today remains around 9%, falling from a peak of nearly 20% during the recession. In a scenario where one in ten college graduates is unable to find employment, creating additional financial repercussions for those who leave the state to do so is extremely damaging.
And the work requirements will be difficult to enforce. Neither New Yorknor Arkansas currently operates a state-based student loan program. The logistical hurdles of managing repayment and collections on student loans should not be underestimated, particularly for state agencies that don’t currently have such an apparatus in place. Each state will need to determine the appropriate loan terms, and whether to include borrower protections such as income-based repayment or forbearance options and contract with (or directly provide) servicing and collections for these new “borrowers.” Most importantly, they’ll need to decide what type of loan collector they want to be: the federal government still struggles to collect from defaulted borrowers, and includes many generous provisions that make operating the loan program more costly. On the flipside, New Jersey’s student loan program includes none of these borrower protections and has recently come under fire for being too strict with borrowers. Only recently did the state announce that families borrowers who had died could be relieved of their loan burden.
If New York and Arkansas hope to design policies that improve their workforce, providing new scholarships for higher education could be a great place to start. But asking students to repay later fails to live up to the promise of free.