Saturday, April 15, 2017

Should you decline free tuition from New York State?

April’s budget agreement brought something new to New York – “free” tuition for New York State residents. As could be expected, politicians were quick to take credit and pundits were quick to complain. Among the criticisms is that this provision is for tuition only (currently around $6,000 or so) and does not include books or room and board. A second criticism is the stipulation that the student work in New York after graduation for the number of years that they received free tuition – if they do not, then the free tuition is converted to a loan.

For most who are eligible for the program, I’d be inclined to advise them to stop complaining and take the money and worry about the free versus loan calculus later as this is easily something that can be considered as part of the job offer (e.g. should I take this job in New York that pays $40,000 OR should I take this job outside New York that pays $45,000).  I would venture to guess that in many instances the potential for loan conversion will not be the most pressing determinate.

While I’ve stated above that for most, the best choice is to take the money and run, I do envision that there may be some cases where the student may be better served to pull a Nancy Reagan and “just say no.”  Specifically, it would be my position that if a student plans to attend a New York state college and qualifies for the “free” tuition program but knows that they will almost surely work outside of New York state then they may be wise to decline the free tuition program.  My rationale here is largely based on the American Opportunity credit which provides up to $2500 back when you spend $5000 in a year.  So, let’s say you receive $6,000 per year free tuition for 4 years. Assume that you then take a job outside of New York so the total of $24,000 becomes a loan.  In comparison, say you pay $6,000 per year tuition for 4 years; yes, that is also $24,000 BUT also assume that you use the American Opportunity tax credit for these 4 years ($2,500 x 4 = $10,000) so your net cost is $14,000.  (It should be noted that there is also a credit available for tuition expenses for New York income tax so your savings assuming that you land an out of state job would be $10,000 plus what you save on NY income tax).

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