College for Free: The Key to Strengthening the Economy?

College for Free: The Key to Strengthening the Economy?

In the United States, nearly one in five households are struggling to pay off student loans—the average sum of which is over $26,000, and more than one in ten defaulted on their federal loans last year.

For high school grads from Kalamazoo, Michigan, however, loans won’t ever be a problem they have to face. In 2005, the Kalamazoo Promise was announced: Unnamed donors had pledged to pay the college tuitions for public and in-state colleges, universities and community colleges for graduates of Kalamazoo’s public high schools. White, black, rich, poor, A-student or barely scraping by—as long as you graduate, you get to go to college … for free.

Extraordinarily generous? Yes. But the anonymous donors (suspects include Derek Jeter, a Kalamazoo success story, or the Stryker family, whose medical services company is based in the city) aren't solely altruistic. In fact, The New York Times reports that the scholarship program can be seen as a very smart economic investment—one that has the potential to jumpstart the Kalamazoo economy by investing in human capital.

Learn how investing in students and education could turn a depressed city into a thriving metropolis. But we also ask: Is it really as big of a boon as people believe it to be?

The Theory Behind the Kalamazoo Promise

In order to show the effect of the Kalamazoo Promise, we'll start by showing what the city was like before. Kalamazoo (population 74,000) is a manufacturing town, and like many industrial towns, it has weathered more than its fair share of unemployment in the past couple decades. In fact, more than 16,000 jobs have been lost since 2007.

In Kalamazoo, 39% of students are white, while 44% are black; the remaining students are Hispanic, Asian or American Indian. The statistics are depressing: 1/3 of students fall below the national poverty level, and one in twelve is homeless. Historically, the city has had the highest rate of pregnancy for black teenagers in the state, and only 44% of black male students graduate high school. Since desegregation in the 1970’s, affluent white families had been moving out of the district; the school system lost around 1% of affluent families every year for over three decades.

The school system needed to be revved into gear, or risk a continued slow decline, mirroring the economic status of the city as a whole. Basically, it needed the Kalamazoo Promise to jumpstart it.

Here's how the Kalamazoo promise will hopefully work: Graduates from Kalamazoo who couldn't otherwise afford to go to college, or weren't motivated enough to try to even graduate from high school, will earn their high school degree and attend a state school. Then, they'll return back to the city: One recent study showed that 60% of adults return to the region that they lived in at age 4.

Then, they'll begin to earn more money: A Georgetown University study reported that bachelor’s degree holders earn 74% more over their lifetimes than those with a high school degree, while a high school degree translates to 33% more in earnings than no degree at all. Even better? It won't just be the individuals with higher degrees who earn more.

Economist Enrico Moretti from the University of California Berkeley has shown that well-educated people also increase the incomes of everyone around them. In fact, The New York Times reports, “The biggest difference in salaries between highly and lesser-educated regions is not found in the salaries of the elite but in those earned by lower-skilled workers. The spillover effects energize the economy at every level.” So, more educated residents returning to Kalamazoo will actually improve the economic chances of those who didn’t personally benefit from the Promise.

How the Promise of Free College Can Boost the Economy

In the short term, however, the promise of free college can help the economy even before grads return to the city. Here's how:

1. Free college stops white flight and population decline in struggling cities.

Affluent families and white families who might consider leaving a failing district will be encouraged to stay in the city. Since the Promise was made in Kalamazoo in 2005, affluent families (the Promise is income-blind) have stopped leaving the district. The ratio of white to black students has remained the same. In fact, 1,000 new families moved into the district the year after the Promise was announced.

2. An increase in students will lead to more state funding, more education hiring and the renovation of school facilities, which, in turn will help the construction industry.

In Kalamazoo, the total growth in student size has been 24% over the past seven years since the Promise was announced. Every added student has meant an extra $7,250 from the state, and every additional 25 students has allowed the school to hire one new teacher (92 have since been hired). The new funding has meant that the school has been able to renovate its facilities, and new bonds have been passed for the first time in 30 years to build new schools. Thus, the Promise has already helped spark hiring and spending in both education and construction.

3. Better schools help attract businesses, and thriving businesses help support schools through taxes.

Bad schools, combined with unemployment, led to the population decline mentioned above, which hurt the city's ability to support local business and attract new businesses. As the population grows, and businesses spring up in response, more money will flow through the Kalamazoo community and be put back into the school system through taxes.

4. It boosts morale.

The Promise has helped morale and led to higher optimism for many in the Kalamazoo district. And, as we’ve noted before, increased optimism can actually help the economy and lead to weaker recessions.

But Will College Really Provide the Biggest Economic Payoff?

For long-term success, the Kalamazoo Promise obviously needs to succeed in producing college grads who actually return to their hometown. Seven classes have graduated since the Promise was first made, and $35 million has been paid out for secondary education for 2,500 students. However, fewer than 500 students have actually succeeded in graduating from college.

Why? For some, inadequate preparation is to blame. For many of the students from low-income families, however, the delayed wages and the cost of room and board (not covered by the Promise) have been too much to bear. Additionally, many do not even graduate to take advantage of the Promise: The dropout rate remains 33%.

In fact, economists and education policymakers actually agree that the best investments in education are made at the earliest level, as students who fall behind in lower grades rarely catch up. A study on the economic impact of early-childhood programs has shown that these programs, over the long term, raise the earnings of area residents, improve the finances of local governments and increase property values.

The Promise, however, sparked investment in early education in Kalamazoo, which may rectify these problems in the coming years. The Learning Network, an organization funded by $11 million from the Kalamazoo Community Foundation and the W. K. Kellogg foundation helps pay for early childhood literacy programs. The Kellogg Foundation became interested in investing in the children of Kalamazoo once it became clear that their investment would be capitalized on, thanks to the Promise.

So, Is It Worth It?

While dollars spent on early childhood education may be more effective in the long run, Kalamazoo has clearly seen the initial benefits of the Promise. And as students who were able to benefit from the work of the Learning Network approach high school, a much clearer sense of the role of early childhood education will develop. For now, though, the Promise is undoubtedly pretty appealing--especially for those currently paying off the $1 trillion in student loan debt owed in the United States.


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