Free College: What “Free” Really Means

Money Sign Burning FREE

   The average person, in the course of a 20-30 year career, will pay anywhere from $24,000 to $87,000 more in taxes after receiving a “free” college education. And that’s not even the worst of it.

   Recently, I asked students if they would vote for someone who promised them free college and a resounding yes reverberated through the realm. Then I asked them a question they evidently hadn’t considered: Would you vote for free college if it cost you more in taxes than the actual student loans? The answer? “Who cares?? It’s free now!”

The “Younger Gen” Mindset

   Many students are not known for their fondness for planning ahead—nor, to be fair, are most people in their teens and twenties. So it’s not too terribly surprising that they really don’t know or care what “free” college will inevitably cost them. Many will say “nothing;” they don’t actually believe that candidates will really raise taxes to pay for free stuff. But when Bernie Saunders was specifically asked whether he would raise taxes, not just on the rich, but on the middle class to pay for free college and healthcare, his answer was a straightforward, “Yes, I will.” So, we know it’s going to happen. But just how much will that increase be and what does that mean in terms of costs for young folks who just want to get an education? Let’s break it down.

Current Tax Rates

   The first thing we need to realize is that tax rates are calculated in income steps. For example, after all deductions, your taxable income is currently calculated at the following rates:

  • your first $9700 is taxed at 10%;
  • your next $9701 to $38k is taxed at 12%;
  • your next $38,001 to $51k is taxed at 22%;
  • your remaining income above $51,000 is taxed at 24%.

   Now then, let’s take Jake, who has $40,000 in taxable income after all deductions have been calculated; Jake will owe $4606 in federal taxes at the current tax rates. Now, let’s say someone comes along and raises Jake’s middle class tax rates, even a little, perhaps at the following rates:

  • $9700 is taxed at 12%;
  • $9701 to $38k is taxed at 15%;
  • $38,001 to $51k is taxed at 25%;
  • remaining income above $51,000 is taxed at 28%.

   This is a conservative tax hike; real tax-increase rates could be higher. However, even at this small raise in rates, Jake will owe an additional $1103.00 per year in federal taxes. (Of course, when he gets a raise, he’ll owe more.) Furthermore, over the course of a 20-year career, Jake will pay $22,060 in extra taxes! If he works 30 years, he’ll pay an additional $30,090.

   And here’s the kicker: It doesn’t matter whether Jake ever went to college himself or not—he’ll still be paying for everyone else to go.

Get Real

   Many students take out loans to pay for college. And while no one particularly likes to have to do that, it’s better to do that and be debt-free in ten years than to get “free” college and pay twice what it costs in higher taxes. And that’s not all. No one should have to pay back their own student loans and pay back everyone else’s because higher tax rates kicked in after they graduated.

I hope that’s clear: If you’ve already graduated, you’re not only paying for your own college education, but every day of your 30-year working life, you’ll be paying for someone else’s “free” college education.

   Not convinced? Here are more numbers based on taxable income (after deductions), indicating how much of your hard-earned money will be going to pay for other people’s college education:

  • Making $50,000? You’ll pay $1403 more in federal taxes per year; $28,060 over 20 years; and $42,090 in the course of a 30-year career.
  • $60,000? $1703 more per year in taxes; $34,060 in 20 years; and $51,090 in 30 years.
  • $100,000? $2916 more per year in taxes; $58,320 in 20 years; and $87,480 in 30 years.

   The amount you’ll pay in additional taxes in the course of your working life will be enough to provide “free” college for two, three or even four students—far, far more than you would have paid for your one college education. And here’s more good news—if you’re married and your spouse is working, you’ll be paying for the “free” college education of five, six or seven other people.

The End Game

   Whether you’re still young enough to get “free” college or you’ve already graduated from school, you’ll still end up paying a great deal more in taxes during your working life than if you had simply paid for your own education, even if you had to take out student loans.

  The bottom line is this: At the end of your career when that extra money you forked out in higher taxes is not there for your retirement, you’ll realize that your “free” education cost far more than you’d ever imagined—and not just in terms of money—but in quality of life, security, and peace of mind.

   And there’s no freedom in that.