- Oregon deserves kudos for thinking outside the box. But the "study now, pay later" idea has limitations as well.
- The cost of college is rising faster than earnings of graduates.
- No financial scheme can overcome the reality that the cost of college is not an economically sustainable long-term trend.
Editor's note: This article originally appeared in The New York Times' Room for Debate feature "Study now, pay later" in response to the question: Is it worth it for state college graduates to repay a portion of their future incomes to the state if they get to attend college for free?
Oregon’s proposal for students paying for their college education after graduation is intriguing. I have long advocated “human capital contracts” where students sell “equity” in themselves, giving up a share of future income in return for college financing. Oregon deserves kudos for thinking outside the box. But the idea has limitations as well.
First, as proposed, students who anticipate receiving high paying jobs would steer away from this financing, leaving a pool of individuals with relatively low earnings prospects. It would be popular among prospective social workers, and dance and anthropology majors, but not those in electrical engineering or math -- is this desirable?
Second, since funds repaying Oregon for the education would not begin flowing in for many years, the cost of funding such a proposal would be substantial. For example, if 200,000 of Oregon’s 320,000 public college students signed up for the program in its first five years and used on average $20,000 on education, some $4 billion would have to be committed before payback began, over $1,000 for every resident of the state. That probably explains Oregon’s cautious approach, starting with a pilot project.
A more successful approach would vary the percent and length of the payback on the investment with the student prospects for financial success, as measured by probability of, say, successfully completing a degree (as predicted by high school grades and ACT/SAT test scores) and the earnings experience of the student’s major. While less politically popular, this would make the program more financially viable.
Still, long term, this novel approach ducks the real problem: the cost of college is rising faster than earnings of graduates. No financial scheme -- no matter how innovative -- can overcome the ultimate reality that this is not an economically sustainable long-term trend. We are currently overinvested in higher education.
Richard Vedder is the director of the Center for College Affordability and Productivity and teaches economics at Ohio University. He is an adjunct scholar at the American Enterprise Institute.