The Answer to Free College

Bernie Sanders fired up Millennials for a lot of reasons, but one of his key buzz topics was making college free for everyone. I don’t think anyone is against this idea, but of course the question always comes down to WHO is going to pay for this especially considering that it lasts in perpetuity. Bernie’s answer was that the 1% should pay for it, which sounds simple, but with our political system and lobbyists, I promise it would not happen. I have an obvious solution that I have not heard a single person in the media discuss and it is shocking to me.

The United States government should create a free online college for all its citizens. 

But before I get into why I think it is a good idea, let’s talk about how much it would cost to make the current college system free. Public universities collected $58 Billion in tuition in 2014, so hypothetically BOOM, let’s say college is free – no one pays anything anymore, it costs the US $58 annually (adjusted for inflation) in perpetuity for free college. But we have to tack on another $31 Billion to account for all of the work-studies/miscellaneous programs, which the US government subsidizes for public universities. Not all of the $31 Billion is material, but thankfully the Sanders campaign told us in 2016 that free college would cost the US $75 Billion, so this is the number we can use moving forward. This number reflects around 17 million students in public undergraduate 2-year and 4-year institutions in the US.

How much will a free online university cost?

Well, I’ll be honest – I don’t know anything about the cost of operating an online university. Thankfully there are a few publicly traded online universities, so I can steal their numbers and for this example and I’ll use Apollo Education Group (APOL). I looked through competitors including Devry (DV), Career Education Corp (CECO), Strayer Education Inc (STRA) and a few others, but APOL most closely represents a traditional public university. To give you a clear understanding of APOL, I have included its description from Reuters:

“Apollo Education Group, Inc. is a private education provider. The Company offers undergraduate, graduate, certificate and non-degree educational programs and services, online and on-campus, principally to working learners in the United States and abroad. The Company’s segments are University of Phoenix, Apollo Global and Other. The Company’s University of Phoenix segment offers undergraduate and graduate degrees through its nine colleges in a range of program areas, as well as various non-degree programs. The Company’s Apollo Global segment includes its institutions based outside the United States and its corporate operations. The Company’s Other segment primarily includes Apollo Professional Development, which provides relevant programs for employers to help them recruit, develop and retain a workforce, and the Company’s corporate activities.”

Now lets get into the numbers, which I am pulling from APOL’s 10k 2015 financial statements. APOL has net revenue of $2.5 Billion, with costs and expenses of $2.4 Billion. This number reflects around 150,000 students. The company itself was actually purchased in May 2016 by a group of investors, led by the Vistria Group LLC for the price of about $1 Billion.

Economies of Scale

Now you might be thinking that the lack of strong profitability shows that APOL is a failure and could not work, but you would be under-estimating the power of economies of scale, which is the most significant benefit of an online university. A study done by U.S. Sen. Tom Harkin, a Democrat from Iowa found that the APOL spends $892 per student as compared to traditional schools, which spend between $3,344 and $11,128.

$892*17 million (students) = $15.1 Billion

Simple math shows that APOL could educate the entire current population of public universities for a cost of only $15.1 Billion. This is compared to the $75 Billion it would cost to use the current system. It’s also important to keep in mind that this figure is assuming that APOL was still acting as a for-profit entity and would continue to be subject to its current tax situation while generating a return for shareholders. But ignore all that because this figure simply shows the feasibility of such a plan and how much of a difference is created.

How is it Free?

Well, “Each year, an estimated $46 billion in grants and scholarship money is awarded by the U.S. Department of Education and the nation’s colleges and universities.” So let’s shave off $15.1 Billion of that toward operating this online university and we are in business.

Start a Dialogue

I believe the US government should just buy APOL for a little over a billion (which it was recently sold for) and make it more efficient through tax reduction. Now this isn’t likely going to happen for a lot of reasons, but I hope this article at least starts a dialogue of some way it could happen. In 2016, with so much tech innovation happening, it is crazy to me that it is not more utilized by the government. It is shocking to me that no presidential candidate or celebrity billionaire (Mark Cuban) has suggested this. So someone please leave in the comments why this wouldn’t work and don’t give me the BS excuse that online college isn’t a “real college experience” because the majority of Americans don’t want that experience, but want the education and a job.