Promise Zones Provide Free College in MI and Now TN!

Promise ZoneMichigan Promise Zones:

In 2005 A group of anonymous wealthy donors made a promise to the city of Kalamazoo: Children who  graduate from the Kalamazoo public school system will be able to earn a 4 year degree with no tuition cost to them.

In 2007 legislation was passed in Michigan to support similar endeavors to the Kalamazoo Promise.  Governor Granholm announced 10 Promise Zones, which had to secure donors, and finance it for 2 years, at which point state funds through tax increment financing would be made available to the Promise Zones.  Most of these Promise Zones extend tuition free college for a 2 year associates degree at a community college.  Students must submit a FAFSA form for financial aid. Regardless or wether a student is eligible for financial aid or not, the schooling will be tuition free. The financial aid received from the pell grant is used first, then the promise funds fill in the rest.  Promise Zones are funded by private donors and tax increment financing. We live in the Benton Harbor promise zone.

Promise Zone Math:

Currently, tuition and fees for a 60 credit hour associates degree at Lake Michigan Community College are $7,860. This is much less than 60 credit hours at a state school (Michigan State University is $25,816).  In addition to a promise zone eliminating the $7,860 cost of an associates degree, it also allows for a student to be in a much better position to seek further education and maximize tax credits after earning a 2 year degree.

The American Opportunity Tax Credit is good for a total of 4 years, and is a great tool in planning and paying for college.  Most people who earn a bachelors degree take more than 4 years to do so. With a Promise Zone taking the full cost for the first two years, the student still has 4 years available to take the credit.  He could take 3 calendar years to complete his degree and receive an extra $2,500 total tax credit. Another option would be to take 4 years and receive $5,000 total in tax credits from the American Opportunity Tax Credit.

These Promise Zones also provide more encouragement to complete the first 2 years of a degree at a local community college.  By Spending a maximum of roughly $8,000 ($4,000 average), the Promise Zone helps a student save $18,000 in tuition and $17,700 in Room and Board for about $36,000 Total. This helps students graduate with no debt, or at least substantially less debt.  During the two years that are being covered by the scholarship the student can work and save money, making a debt free graduation much more likely. This also builds Social Security credits, and allows for the student to contribute to a Roth IRA.

Tennessee Promise:

The State of Tennessee just announced that students graduating from Tennesse public schools will be able to earn a 2 year degree tuition free. The system in Tennessee will go into effect in 2015.  Students will be required to perform some community service and will be required to have a mentor assist them in the college application process.  The Tennessee promise works on last dollar financing, so students will be required to fill out a FAFSA form. The scholarships will be funded with money from the State Lottery Fund, the projected yearly cost is $34 million, and the lottery fund has a current surplus of over $300 million.  No new taxes will need to be levied in order to fund this initiative.

Who will be next? Will more states follow suite?  These programs encourage young adults to seek further education, but at a responsible level.  4 year degrees are expensive and have been overly produced in recent decades.   Two year degrees and trade certificate programs will be of more use to a larger segment of our population. The Governor of Tennessee is also proposing initiatives to increase the use of dual enrollment for high school students to be able to take college courses, another idea I love!

I Love incentives on top of incentives. The number one rule of economics is that people respond to incentives.  With deals like the Promise Zone, it makes these options that are encouraged almost impossible to refuse.

What do you think about Promise Zones? Could these work in more states, more communities?

John C. started Action Economics in 2013 as a way to gain more knowledge on personal financial planning and to share that knowledge with others. Action Economics focuses on paying off the house, reducing taxes, and building wealth. John uses the free tool Personal Capital to track his net worth and posts quarterly updates on his finances. Check out the Action Economics archives section for all past posts.

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