The blog of the Urban Institute
September 9, 2021

Making Free Community College Work in Every State

September 9, 2021

The House Education and Labor Committee’s draft budget bill (PDF) details a plan for free community college that, if enacted, would mean every state that opts in would get the same funding amount per student, leaving some states with a gap to fill to get to free and leaving others with excess federal funding.

Under the proposed plan, the federal government would make per student payments to states that agree to set tuition at $0. Those payments would start at 100 percent of the median community college tuition nationally and would scale down to 80 percent over five years. States that opt in would contribute nothing in the first year and would pay 20 percent of the national median tuition price per student by the fifth year. If the combined investment is still not enough to cover tuition, states would need to invest the additional funds needed to get tuition to $0. 

The challenge is that community college tuition prices vary widely across states. A per student payment equal to the national median would cover tuition in 29 states but would fall short by at least $1,000 per student in 6 states.

Equal payments, unequal impact

We estimate that the national median community college tuition in 2017–18, the most recent year for which data are available, was $4,128. Using the committee’s formula for the fifth year of payments, that price means each state that opts into the program receives federal funds totaling $3,302 (80 percent of the national median) per student.

In California, tuition averages $1,268, meaning the federal payment offsets tuition more than twice. California would still be required to kick in its share—$826 per student—and must spend the extra funds on higher education, though not necessarily on community colleges.

The opposite is true in Minnesota, where tuition averages $5,381. The 80 percent federal payment falls $2,079 short of financing free tuition, so Minnesota would need to contribute both its 20 percent requirement—$826 per student—and an additional $1,253 per student.

The advantage of this approach is that federal funding per student is the same regardless of where that student lives, but the downside is that using the national median as a benchmark often does not line up well with what it would cost to fund free community college in each state. A spreadsheet with funding and tuition data for the 48 states with community college systems is available here.

A horizontal bar chart comparing current tuition prices and what proposed free community college funding would provide on a per-student basis in California, Tennessee, and Minnesota.

Adjusting payments by state

An alternative to the committee’s approach would be to vary the federal payment depending on a state’s tuition. The federal government could, for example, pay 80 percent of tuition in each state’s system, rather than a fixed payment, with each state covering the remaining 20 percent of its own tuition prices. Senator Bernie Sanders (I-VT) proposed a similar model, and though it does not seem to be the model legislators favor, it provides a useful comparison point.

A state-specific policy like the one Sanders proposed ensures no state receives more or less money than it needs to make tuition free. But this approach introduces a new problem: the size of the payment varies inversely to how much states have funded their community colleges, and perversely, states that have funded community colleges the most—those with the lowest tuition—receive the smallest payments. 

The mismatch the committee’s formula creates between federal payments and tuition prices is a function of states having different prices, which is partly a function of how generously they’ve funded their colleges. States that must pay more to finance free tuition are asked to catch up to what other states have already committed. And states (e.g., California) with the most generous policies, that end up receiving more than enough federal funds to cover free tuition, effectively receive a bonus. 

The two policies highlight a trade-off inherent in a federal program for free community college. If payments are distributed consistently across states, they won’t match actual prices in every state; if payments match actual prices, they won’t be distributed consistently. 

A middle-ground approach

One way to bridge the gap between these two approaches would be for the federal government to offer a higher fixed payment that covers a greater share of costs in high-tuition states. Though similar to the committee’s bill, the key advantage here is that more states would see their tuition fully covered, potentially increasing the odds that they opt in. States that already have low tuition, however, would not be penalized with lower payments like they would be under the Sanders plan.

A middle-ground approach could offer a consistent per student federal payment that is $1,000 higher than what’s in the committee’s bill, or roughly $4,302. We estimate that under the committee’s proposed formula, state and federal payments would fully cover tuition in 29 states in the fifth year, enrolling 71 percent of community college students nationally. But an additional $1,000 federal payment would fully cover tuition in 42 states, enrolling 90 percent of students.

To be sure, the higher federal payment increases overpayments relative to tuition in many states. To counteract that effect, the policy could limit federal payments to an amount above current tuition, such as $400 per student. That still leaves low-tuition states with higher federal payments than if payments were set to a share of their own tuition prices like in the Sanders plan. Moreover, capping payments means the annual federal cost of this proposal should be about the same as the committee’s bill, assuming full state participation. (The annual cost to the federal government of a proposal like the Sanders plan is slightly less, but very similar.)

Legislators could also further reward low-tuition states by abandoning the 20 percent payment requirement for states and simply require that they set tuition at $0. In California, for example, where tuition is low enough that the federal payment fully covers it, the state would not need to provide additional funding like it would under the committee’s bill. We estimate that this cuts the combined annual opt-in cost to states from $3.9 billion in the committee’s bill to just $0.6 billion. Lower costs might make joining the program more attractive to low-tuition states. (Under the committee’s bill, states could repurpose financial aid programs to meet their spending requirement, but our estimates do not account for how states might respond to this option.)

Finding the right combination of parameters to fund free community college can maximize participation among states and avoid penalizing states that already have low tuition. As the plan for free community college moves forward, there is still time to consider changes that increase the number of students who can benefit. 

(Klaus Vedfelt/Getty Images)

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