Here’s how every college student can graduate debt-free

For decades, free high-school education helped strengthen the middle class and generate prosperity. So isn’t it time to extend the same thinking to college?

The idea might seem impractical, since college costs more than high school and higher education isn’t for everybody in the first place. Yet it’s also obvious that a high school education alone isn’t nearly as valuable as it used to be, which is why some researchers and policymakers are now studying ways to make college as accessible as high school for those who want it. College is free in Scandinavian countries and highly subsidized in much of Europe, including Belgium, France, Italy and Spain. In Germany, an eight-year test of new university fees ended recently with the last state abolishing them, making college free throughout the country, as it was prior to 2006.

Attending a U.S. public university costs an average of $16,000 per year, and a new proposal from Demos, a left-leaning think tank, outlines a way for students to graduate debt-free in four years while working a limited number of hours. The poorest students would receive grants that cover 75% of tuition and living expenses, with subsidized loans and work-study jobs covering the rest. Grants would phase out for wealthier students, yet the plan would still help reduce or eliminate student-debt burdens that for some graduates are becoming a ruinous liability.

There have long been subsidized funding options such as Pell grants and scholarships, plus all states cover at least a portion of the cost of state universities. But subsidized funding has fallen far behind the rising cost of college, especially with budget shortfalls in many states that have led to cuts in university funding and spikes in tuition. State and local college funding per student, adjusted for inflation, has fallen by 23% during the last five years, according to the State Higher Education Executive Officers Association. During the same time, tuition per student has risen by 25%.

To make up the difference, students have been taking out record levels of loans, with the total amount of student debt now topping $1 trillion. The average amount of debt per borrower is approaching $30,000, and nearly one-third of borrowers don’t even finish college, leaving them saddled with the cost of a degree but not the benefit. “While the value of a college degree has become more important, we’ve erected more financial barriers to a college education,” says Mark Huelsman, who authored the Demos study.

The goal of the Demos proposal is to allow any student to pay for college by working a minimum-wage job during the summer and 10 hours or so per week during the school year—and graduate with little or no debt. That would make college roughly as affordable today as it was 30 years ago.

To accomplish that, Demos would set up a federal-state partnership in which states get federal grants based on how much of total education costs they cover for low- and middle-income students; the higher the portion, the larger the federal grant. The zero-debt plan would only involve public universities, because they're the ones meant to bring higher education to the masses. Grants would cover 40% to 75% of college costs, depending on income, but states could set up the program in other ways, as long as the goal was a zero-debt degree. Wealthier families wouldn't qualify—Demos sets the threshold at $100,000 in family income--though such students could still apply for loans and any other funding available.

Demos estimates the total cost for its zero-debt degree, if implemented in every state, would range from $9 billion to $30 billion. Some states might have to spend more on higher ed, but others would qualify for federal grants based on current spending levels. In a perfect world, with enlightened leaders, it might be possible to reorganize more than $100 billion in federal education spending each year to fund such a program, without harming other priorities. But that would probably benefit some institutions at the expense of others, assuring a huge fight over any such education reform.

Congress is in no mood to raise taxes to pay for much of anything, yet some economists argue that even with higher taxes, a well-administered boost in higher-ed spending would pay for itself through a more productive workforce, greater economic output and higher tax revenue.

Sen. Tom Harkin (D-Iowa) has proposed legislation similar to the Demos proposal, and other members of Congress (mostly Democrats) support new programs to make college more affordable. Sen. Elizabeth Warren (D-Mass.) is on a related crusade to make student borrowing less burdensome. Nobody awaits salvation from Washington anymore, yet the soaring cost of college is a top pocketbook issue for Main Street voters who send politicians to Washington. If Germany can make college free, the United States can at least make it cheaper.

Should a college education be free? If so, who should fund it? Join Rick Newman and Demos's Mark Heulsman live on Facebook at 1 p.m. ET on Wednesday to talk about free college in other countries, the rising cost of a U.S. education and possible solutions. The chat will take place at www.facebook.com/yahoofinance. 

Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.