The big idea: Let college students buy drinking licenses

Underage drinking already happens. What if states could redirect it to supervised venues while funding the interstate highway system?

My greatest fear in college was getting a minor in possession (MIP) charge for underage drinking. In retrospect it wasn’t that big of a deal — the first offense was a fine, maybe a short alcohol class — but I really thought a drinking ticket at 19 would hang over me for the rest of my life. I stuck to house parties and only needed to dodge campus police a few times.

In retrospect, the students throwing house parties were pretty sophisticated in navigating local rules. The hosts often formed a sort of informal insurance system: when the police came, one person would come out and take the fall and MIP charge, while the rest hid or ran out the back. They got a first-time-offender exemption, and next time a different roommate took the fall.

The fact this was possible is a pretty good example of how current laws have gotten sort of silly. States know that underage drinking happens, but enforcement is selective because nobody really wants to give 19 year olds a criminal record for having a beer. The system is a series of bolted together exemptions, with halfhearted enforcement and light adherence.

NDI reader David Muccigrosso proposed a brilliant way to bring this grey market into the light: a license that lets 18-20 year olds drink underage.

There’s real logic to a licensing system

Despite what college students who like to drink will tell you, the research is pretty clear that increased access to alcohol usually means more drinking. There are negative health effects to underage drinking: brains don’t stop developing until 25 or so, and drinking is (you guessed it) bad for brain development. If you are young, you really should minimize if not eliminate alcohol.

But despite telling that to young people, they seem to keep drinking. Given our inability to stop 18 year olds from partying, it’s worth asking if there are harm reduction options through legalization.

A license system could work, as long as it clears some (pretty low) bars:

1. It shouldn’t facilitate underage drinking for even younger people (<18)

2. It should generally redirect drinking from unsafe environments to safer ones

3. Enforcement of alcohol laws should be redirected to the most dangerous drinking, and away from relatively less harmful drinking

So what might that look like?

Imagine an 18 year old named Josh, who just started his first semester at University of Maryland. In the past, his main experience with alcohol would be a mix of frat parties, hidden bottles of dorm room vodka, and sneaky beers picked up at football tailgates. With cheap alcohol and no supervision, he’s probably binge drinking regularly.

Instead, what if his first stop after getting to campus was a university-provided bus to the local Maryland DMV. Once there, he fills out his application for an underage drinking license (UDL). He gets his photo taken, puts down a credit card for a license fee, and walks out with a permit to drink.

The UDL is a distinct ID that’s usable at bars, restaurants, concerts, and other venues to purchase alcohol on premises. Josh can go watch the game at a bar, or have a beer with his burger. But a UDL does not permit the holder to buy from a liquor store; take-home booze needs to wait until he’s 21.

This totally changes the calculus of college students. House parties and bars are not complete substitutes, but they’re pretty close. Creating a legal alternative at bars relatively weakens the value of throwing a party at a frat house, where the police still might come by to issue MIPs. The frat social might move to a rented out bar, giving at least a little more supervision than exists today.

Channeling these drinks to venues could be better than the status quo. One study found that large groups drink significantly less at bars than at off-premises parties. This makes sense: it’s more expensive to drink in bars, and multiple studies have found that increases in alcohol prices decrease alcohol consumption. It sucks to pay $6 for a Bud Light, but it’s a much bigger constraint for cash-poor students than $12 for six.

That’s not to say that nobody will be throwing house parties. But college students already show a shift to bars as they get older; this implies that students have a revealed preference for bars that is currently constrained by legality. For the 19 year old that’s indifferent, a difference in enforcement risk could change behavior.

The behavioral impacts of the UDL

Bringing drunk teenagers into public spaces might be scary for the type of person who chooses to live in a college town while hating noise. But a license system actually gives much more flexibility in dealing with the negative social effects of drinking.

Buy alcohol for kids under 18? Lose your license. Get in a fight after drinking too much? Lose your license. Drive drunk? That UDL is going even faster than your license to drive is. The system could even adapt the points system from driver’s licenses, with relatively minor infractions like alcohol-driven noise violations eventually leading to a license suspension.

The incentives of the system might encourage better regulation, both individually and socially. Individually, the upfront fees for the license create a loss aversion: if you just paid the annual fee, you’re really going to want to avoid losing your license through public urination. Getting your UDL suspended means social isolation as your friends go to the bar without you, leaving you alone. Groups of friends might even begin regulating each other in recognition of the downstream impacts.

The pain of having your UDL suspended

There may be some equity concerns with the campus culture change towards bars, with wealthier students getting early access to bars while lower-income students are pushed to the cheaper grey market for house parties. But I think there will be some self-regulation with this; the bars I knew in college that targeted students had extremely cheap drink specials, and it wasn’t uncommon for student loans for living expenses to get siphoned to alcohol anyway.

You might be wondering: is it legal for a state to do something like this? The answer is complicated, going back to the history of alcohol laws in the United States, and the political battle over drunk driving in the 1980’s.

A brief history of the legal drinking age

After the end of prohibition in 1933, nearly all states implemented a minimum legal drinking age (MLDA) of 21. This only began to change after the ratification of the 26th Amendment, which lowered the voting age to 18 nationally. With new constituents who apparently liked drinking, 29 states lowered their drinking ages between 1970 and 1975.

This free-flow of booze coincided with a spike in drunk-driving deaths. Mothers Against Drunk Driving (MADD) became a major political force, driving policy changes around the country. It became conventional wisdom that lower drinking ages correlated with higher drunk driving deaths (although there’s some dispute on this question).

Whatever the connection, the 1984 National Minimum Drinking Age Act was signed and passed. The bill requires that the Federal Government withhold 8% of federal highway grants to states with a drinking age under 21 years old.¹ After some lawsuits, all 50 states gave in and raised their drinking age to 21.

The 8% cut to federal highway grants remains the biggest obstacle to lowering the drinking age. When Wisconsin briefly tried to lower the drinking age to 19, it was contingent on not losing federal highway funding, which made it a nonstarter.

If we were just legalizing underage drinking, the idea would have to end here. But states charge fees for licenses all the time; what if we could replace federal highway funds with the fees paid by underage drinkers?

Replacing federal highway revenue with state-based fees

In 2023, federal highway grants to states were nearly $55 billion; an 8% cut equates to $4.4b in withheld funds nationally, or tens of millions of dollars per state. That’s a lot of money to ask young people to cough up.

Let’s assume that 50% of eligible 18-20 year olds would opt to get a drinking license. That might seem high, but nearly 70% of 19 year olds bothered to get a driver’s license despite overall declines in drivers. For the sake of argument, let’s say the first batch would come with enough excitement that there’d be meaningful adoption.

Using a combination of census and DOT data, we can estimate the implied license fee to 100% offset an 8% loss in federal highway funds.

While some states are outliers — sorry young Alaskans, your implied fee is over $2,300 annually² — most states actually have fairly low breakeven prices. 25 states have fees under $360 annually, and 43 states have implied fees under $500.

That might feel like a lot for a young person, but it’s only $30-$40 per month. Even if the state requires a lump sum upfront for the license, I imagine some enterprising financiers will see the opportunity to finance it to a monthly plan. You could even imagine it as a customer acquisition play for local banks targeting students — open a checking account and a credit card, get your first year of UDL free.

Beyond replacing highway funds, this redirects alcohol spending from liquor stores to bars, nightclubs, and restaurants. Not only does higher individual alcohol prices likely mean less overall drinking per session, the downstream benefits of redirecting drinking are massive. More foot traffic could revitalize downtown areas. Alcohol tax surcharges could bring even more overall tax revenue.

There’s even an economic argument. U.S. Bureau of Economic Analysis (BEA) data shows that restaurants and bars create more than twice the economic value per dollar than retail food and beverage retailers. Holding everything else constant, shifting $100M in alcohol spending from retail to on-premises consumption could generate tens of millions of dollars in additional value added to GDP.³

Maybe if enough states adopted this, the federal government would stop punishing states that lower their drinking age. But even if that happens, states that started with an underage drinking license would be likely to keep it — it’s hard to imagine them giving up this kind of revenue stream. Maybe they can at least redirect the proceeds to alcohol harm reduction.

The long-term public policy of a UDL system

With budgets aligned, state policy could begin to shift. States might start competing to get more 18-20 year olds by expanding class sizes at their biggest and best universities. Economic revitalization plans will take the addition of underage drinkers into account as part of plans to revive the nation’s restaurants and bars.

While states generally recognize each others’ driver’s licenses, it’s questionable that they would do the same for a UDL. That doesn’t mean the youth are out of luck though.

States like Florida might recognize that thousands of visitors come and drink illegally on their beaches. Rather than spend millions on blanket law enforcement, these states could issue short-term visitor UDLs for out-of-state spring breakers and gamblers for $200 a week. Lots of places with youth tourism could lean into this — think a gambling UDL for Vegas, or a Mardi Gras pass for New Orleans.

Of course, drinking is extremely unhealthy. It’s likely that in the long term, an increase in underage drinking will add indirect costs to medical and social systems for the states that opt in. But if we’re already legalizing marijuana and casinos, expanding alcohol access certainly seems in the window of possibility.

The first state to pass this would face a lot of pushback. MADD still exists and would absolutely freak out about this. But in the era of rideshare, I don’t know if “push drinking to licensed venues” is as scary as it used to be. Once the trend starts, it might be too hard for them to stop.

The first mover advantage

The biggest risk to this plan is demographics and cultural changes from the phones. We’re just about at peak 18 year old right now, and the number of young people will start to decline rapidly over the next decade. At the same time, drinking is in decline among young people. Only about 50% of under 34s report drinking alcohol, and that number is likely to keep declining over time.

These numbers work today, but to continue breaking even states will have to keep increasing fees on the college students of tomorrow.

That means that UDLs aren’t necessarily viable as a long-term replacement for highway funds. But they are viable as a 10–15 year bridge loan to boost the alcohol economy. That’s not necessarily an argument against doing it: it’s an argument to be the first mover.

The first state to adopt a UDL will get a bump in young people wanting to live there. Their universities will get more competitive, youth spending will increase, and their demographic pyramids will get progressively healthier. The money from UDL can even be redirected towards infrastructure to keep young people in state long term.

States that move late — say 2030 — will have to charge high fees to make the UDL math work, driving out even young people and making their universities less competitive. That means that late adopters might never adopt at all, further calcifying the approaches over time.

Official idea rating

4/5 today, 2/5 in 2030. The demographic window is closing fast, but I’d be interested to see a state try this! It may have some negative long-term effects, but it really does seem both financially feasible and (maybe) even politically popular.

Massachusetts, New York, Colorado, and California could all break even on highway funds by charging about $20/month ($240/year) per underage drinker. The first mover for any of these states — all with excellent universities and young people who want to live there — will get a huge leg up.

If they don’t do it first, Wisconsin is a good choice. Big drinking culture, established college towns, and a required fee of only around $30/mo. If you know a Wisconsin state legislator who wants to get national news coverage, send this their way. It could be their chance to reshape their state.

A special thanks again to reader David Muccigrosso for an excellent idea. I love getting pitches from readers: if you have a great (or terrible) idea, send it to me at nodumbideas1@gmail.com or via Substack DM.

1. The original bill withheld 10% of highway funds, but it was lowered to 8% in 2012

2. Alaska has the fun combination of lots of highways and not that many people, meaning we’d have to really go after license holders to make it work.

3. This is based on the Gross value added (GVA) difference between Food and Beverage Stores (NAICS 445) and Food Services and Drinking Places (NAICS 722) from the Bureau of Economic Analysis. Unfortunately liquor stores and bars aren’t explicitly broken out, but given liquor stores are similar low-margin businesses, the broader retail vs service pattern should apply