Earlier this month, the House Education and Labor Committee advanced a key part of President Biden’s policy agenda: a new program that would provide billions of dollars to states that agree to make community college tuition free. Free tuition seems like a simple idea, but because of its interaction with existing grant programs, the policy’s biggest effect will be more aid for living expenses. (We explain how the state and federal funding for this program would work in an earlier post.)
A large share of community college students already receive de facto free tuition, which mostly explains this counterintuitive result. Though there is considerable geographic variation within this figure, national data show that in the 2015–16 academic year, 46 percent of community college students attending at least half time (and 52 percent attending full time) received what is effectively free tuition through a combination of financial aid sources, like state grants and the federal Pell grant. These students would see no reduction in their net tuition under the proposed program, but they would still benefit. A key feature of the new program would automatically shift their existing grant aid to cover their living expenses.
A “first-dollar” program
The program under consideration (PDF) in Congress is a so-called first-dollar program, meaning participating states would have to set tuition to $0 without using a student's financial aid. This design contrasts several state programs, like Tennessee Promise, in which the student uses her grant aid for tuition with any remaining amount then financed by the state (i.e., her last dollar). In states that opt into the proposed federal program, a student’s financial aid could no longer be used for tuition, and as a result, it would be entirely reserved for living expenses.
Among students who already receive free tuition, we estimate this effect would, on average, shift $3,468 in grant aid from their tuition expenses to living expenses (cost and aid statistics in this post are for full-time students only). So the total effect of the policy for these students is to reduce their out-of-pocket living expenses while enrolled from $10,661 to $7,193, a 33 percent decrease. Data on living expenses are estimates provided by institutions and may not reflect actual costs students incurred.
These estimates assume all existing grant aid can be used for living expenses. Though this is the case for Pell grants, it may not be for state and institutional grants, which average $1,049 and $819, respectively. Institutions and states often restrict grants to tuition or limit them to a share of a student’s out-of-pocket costs, meaning they would not automatically shift to living expenses. Additionally, grants may not remain available if states redirect those funds to finance their required portion of the new federal program—an allowable response under the House proposal. As such, our estimates likely overstate the actual amount of grant aid available for living expenses.
Another way to see how the new federal program would affect how much students pay to attend community college is to look at these students’ current tuition and grant aid. Currently, students who already have free tuition receive $7,258 in annual grant aid on average. The first $3,468 of this aid is used to pay tuition and fees, leaving a little more than half to help cover living expenses (grant aid is typically first allocated to tuition, then to living expenses in the form of a refund check issued to the student).
Under the proposed free college program, the grant aid funding their $3,468 in tuition now becomes available for living expenses because the state must provide free tuition without using any of the student’s aid. So the student’s full $7,258 grant package is available for living expenses as a result of the proposed free college program.
Community college students who do not currently receive enough grant aid to cover their tuition pay, on average, $4,866 in annual tuition, but they also receive some grant aid ($1,275), making the tuition they must pay out of pocket (or with loans) $3,590.
The proposed free community college program would have two effects for these students. First, they would no longer have to pay the $3,590 in net tuition out of pocket or with loans. Second, the $1,275 in grant aid they had been using for tuition would instead become available for their living expenses. Ultimately, these students would see a 30 percent decrease in their out-of-pocket costs.
If we combine these two groups, we can see the overall effect of the policy, assuming every state opted in. On average, community college students would see their out-of-pocket costs drop by $4,143 for a full year of enrollment, a 31 percent decrease. Only $1,735 of that amount would be from reduced tuition. Most ($2,408) would come in the form of offset living expenses because students could now use all their grant aid for such costs.
Overall, whether students already have free tuition through grant aid or pay tuition out of pocket does not change how much the proposed free community college program cuts their costs. The first-dollar design ensures they all receive similar benefits and that any existing grant aid can be preserved to cover students’ living expenses.