Why There’s No Such Thing As Free Tuition

NYU’s School of Medicine will no longer charge tuition…to anyone. Or, as their Med School Board Chair explained, “…the day they get their diploma, they owe nobody nothin’.”

Applause?

Not necessarily.

The Downside of Free Tuition

Background

The funding for free tuition initially came from Ken Langone’s $100 million gift. (He is the Med School’s Board Chair and a founder of Home Depot.) According to Planet Money’s “Indicator” podcast, gifts for the program now total more than $450 million.

All of this money is supposed to shift students to lower paying specialties. One goal is more primary care physicians and pediatricians. Another objective is more minority applicants.

As for who gets what. the answer is everyone. No one pays a $55,000 (or so) tuition tab. They will “just” have to cover $27,000, on average, for room, board, and fees.  In all, we are talking about 93 first-year students and 350 who have up to three years remaining.

The Economic Opinion

Interviewed by the “Indicator,” a Northwestern University scholar said the idea made economists “bristle.” He wondered if the program was structured to meet its goals, how other schools would respond, and whether it created an inappropriate federal subsidy.

More precisely:

1. Too many people will get money they don’t really need. Instead, gifts should target individuals and specialties.
2. The program upsets competition among medical schools. With free tuition, NYU will attract a deluge of applicants. As their acceptance rate drops, their U.S. News ranking rises. We could say we have an accelerating arms race among schools.
3. We can also ask if free tuition misuses the federal budget. Here, we are talking about the tax deduction for the charitable giving that funds these programs. You might respond that no matter where the money is donated, it will receive a tax break. However, other destinations could have greater social value.

Our Bottom Line: Misdirected Incentives

Many economists suggest that free tuition creates the “folly of rewarding A while hoping for B.” Instead incentives and goals should be directly aligned. If we want more primary care physicians, then provide a subsidy. To increase diversity, give free tuition to minority candidates.

Otherwise, free tuition can be too expensive.

My sources and more: Thanks to the “The Indicator“  for its free tuition podcast. From there, you might check an article that describes the NYU Med School proposal. And here is the tax bite in European countries that offer free tuition. Finally, in Germany and Chile, free tuition did not quite work out as they expected.

Our featured image is from the Department of Physics at the University of Oregon.