Should Oregon fund college through equity?
marginalrevolution.com
marginalrevolution.com
A program like this makes sense if the school has skin in the game. Ideally, the potential to lose its investment would make the school only extend this offer to students with a realistic chance of breaking even.
On the other hand, if the state extends this to all students without concern for ability to repay, it seems likely to be just another taxpayer subsidy for education - which may be good or bad, but it's not clear why a roundabout method like this is better than a direct tuition discount.
If I can calculate that my earnings over the next 20 years should be $2mm and 3% of that is $60k I can look at the $60k number and compare it with the amount of debt I'd have to go in to pay outright and do a calculation. If I only need to pay $10k/year in tuition that comes out to be $40k instead of $60k and I'd be foolish to accept the school's proposition.
This is the same problem with why insurance companies don't want to offer insurance for people with a pre-existing condition. Many conditions are expensive enough to substantially raise premiums. The people with those conditions are in a better place to know if they have higher than the premium costs or lower than premium costs. Those with higher than premium costs would like to purchase insurance because they get their care at a discount, since the insurance company only charge people for the premiums. Those with lower than premium costs won't pay because they know they're not getting their money's worth out of the premiums. So the pool of candidates for insurance that covers pre-existing conditions (at least under the premise that insurance companies are allowed to price as they have been) self-selects to only those folks who have a reasonable expectation of saving money. This happens no matter what level you set the premiums at.
If people have the option to either pay up-front or choose the 3% plan there will be a good correlation between people choosing the plan and paying less than they would up-front, and people choosing to pay up-front and paying less than they would on the plan. So the economics don't work.
If they're smart and anticipate this problem and say "this is just how it works at this school" they might be able to succeed if the school confers a substantial advantage relative to other alternative schools. Say Harvard or MIT or Stanford. But if not, nothing compels people to go to a school where they would pay more for their education than at another school and thus many of the people who anticipate being high earners would probably choose alternative and the economics don't work again.
The next evolution of the idea would probably come by way of saying "okay let's adjust the percentage based upon the actual cost of the degree and the expected future earnings" which would make the higher earning degree programs look like excellent deals and lower earning degree programs look like worse ones. This would be a refreshing bit of honesty from a university, helping students make wise decisions instead of simply pocketing their money without offering any real advice but I digress. This then puts the different degree programs in the position of trying to determine who to let in to the now more sought after programs and who to reject since they're going to have an increase in applications. They're going to have to speculate on the future earning potential of all their students because if they break the distribution they go broke.
That makes a college akin to an angel investor; putting a small amount of money into many, many deals and hoping that they end up bringing in enough after the 20 years is up to keep in business.
I am not optimistic that colleges will do a good job of managing this risk effectively and selecting properly.
Any program whose funding prospects rely on people being unable to game it without predicting the next 20 years of their personal economic history will do pretty damn well.
If you don't want "in" you can go to a different college.
The government of course loses money on this scheme, but the people would tear down any government that tried to revoke it. It's an important and fair middle ground between national free ride and a USA-style 'sins of the father' system. Also note that the repayment amount is nowhere near the true cost of the degree, due to Conmonwealth-supported places.
If you have time to work your way through school at current US tuition, you are probably taking courses below your level.
(Currently the amount you owe is indexed with inflation. At the moment the federal government is trying to change it to accrue interest at the bond rate (3.8%-6% rather than 2%-3%) and reduce the income level before you have to start making repayments, but it's unlikely they will be able to get the votes to get this through the senate.)
This captures my intuition. English and Sociology majors will choose this, not Math majors and Computer Science.
I had heard that Yale had experimented with a similar program. The problem is the distribution. It sounds great for the median student. The low end don't make enough to pay their way. The high end make a ton of money, and push back on paying. In Yale's case they may not have had all the forceful levers of the state. (And Yale wouldn't want to push too hard on the top 1%, alienating their best alums)
Coming from a country where education is funded by the government, I really have to chuckle at this.
Wouldn't it be revolutionary to simply pay for education with taxes (say, 3% of people's income), and let people go to university for free? Guess what - that system already works in several countries to good effects.
Granted, a tiny difference is that apparently in Oregon only people who actually study pay the tax. But in general, the state collects taxes from everybody and invests in things that don't benefit everybody, and it works out OK.
On the other hand if they could work out how to only tax people for things they actually consume, it would be interesting, too (VAT maybe?).
This is actually a very big difference because it completely changes the incentive structure. With normal taxes the college has no monetary incentive to improve the education they offer. Because the only things that can get them more money are things outside their control such as increasing the tax rate or increasing the taxable population. On the other hand in this scheme if the college has a better offering they can attract better students and better equip them to earn money. Both of which ultimately help them make more money.
Furthermore the thing I like best about this idea is that it switches around the risk. In a system where students pay tuition the students put in a big chunk of capital up front hoping that it will increase their future earnings. If it doesn't they bear the loss which isn't necessarily bad but given how big the risk is (at least in the US which is what I'm familiar with) it's not great. In a normal tax system everyone bears the risk which also has some upside but when everyone bears the risk sometimes capital doesn't get distributed that well. In this system the college bears the risk which I like a lot because it makes them really evaluate how they're educating people.
One problem I do see with this is that if it's not the only option you might wind up with a selection bias wherein students who don't think they'll have a high income will take the deal while others won't.
Really, the headline makes me cringe, the idea that some people consider this a good idea makes me cry and the domain name ("marginalrevolution") is a joke in this setup.
What a sad idea..
Edit: The state/the country already HAS equity (Ignoring the bullshit and that I think that this link only made HN because of this trigger word). It's called 'taxes'. If you flip burgers, the state gets little money. If you work for Google, FB, Apple, MS (yeah, all not in Oregon. But stay with me) the state makes quite a nice sum, every year, for ~40 years that you're supposed to work (k, feel free to reduce that number).
I haven't seen so many bullshit alarms related to a HN story going off for for quite some time. I would love to sit down and talk to someone that seriously considers this 'cool' and 'a nice idea' and try to understand how that is even possible.
He's willing to see the Oregon proposal tried to observe the results, but seems doubtful it will work well, for reasons nearly opposite to your objections: he sees it as likely subsidizing student and educator errors via adverse selection and other malincentives.
Against that, you provide a series of emotional poses – "cringe" "cry" "joke" "bullshit" "bullshit alarms" – and total confidence that this isn't even worth trying. That doesn't add any new information other than, "darklajid doesn't like the headline". (Is darklajid a name I should recognize on educational and public policy issues?)
The problem with "taxes" as the solution is if the grad leaves the state, they wouldn't get the money. "Taxes" is not a solution.
The only way "taxes" would work if this was a national plan since the number of people that leave the country is small enough to be safely accounted for.
And just to head it off before it starts, no, the private sector won't fund universities, not the kind we need. The private sector will pay for job training, yes, but not real education (the kind that teaches the sorts of literacy necessary for a successful free and democratic society). Look up the difference between specific and general human capital to see why (at least partially) this is the case.
1) There is a cost to go to college, someone has to pay. 2) That cost needs to be borne by those people whose incomes are enhanced by going to college. 3) Simply producing "more college graduates" isn't a net positive when 60% can't find jobs in their field.
If you think any of these shouldn't be true, we aren't going to agree on anything and you should stop trying.
http://www.oregonlive.com/education/index.ssf/2013/10/univer...
It isn't like I'm saying to cut state funding to the school. I'm saying if you want to raise state funding, the college graduates should pay for it. They utilize the service.
Why wouldn't Oregon simply make a condition of the free education be that you have to work in Oregon for X number of years ???
Wait, what? Can I get a source on that, bub?
If you discount England's outsize performance, you go a long way before you leave American dominance.
Given English's dominance in academia and business it's no wonder that english-speaking universities take the first 11 places.
It's also not that important to prospective students outside English speaking countries - of course they'll need the skills eventually, but there's really no need to hold intro courses in English elsewhere.
The other alternative would be to tax other Oregonians more... for the benefit of students who might not stay in Oregon. If an opt-in levy on the direct beneficiary strikes you as 'indentured servitude', a compulsory tax on third parties would be what? Outright slavery?
edit:
https://en.wikipedia.org/wiki/Indentured_servitude
"Farmers, planters, merchants, and shopkeepers in the American colonies found it very difficult to hire free workers, primarily because it was so easy for potential workers to set up their own farms. Consequently, a common solution was to transport a young worker from Britain or a German state, who would work for several years to pay off the debt of their travel costs. During the indenture period the servants were not paid cash wages, but were provided with food, accommodation, clothing and training. The indenture document specified how many years the servant would be required to work, after which they would be free. Terms of indenture ranged from one to seven years with typical terms of four or five years"
That threat seems awfully weak I'd like to think that most employers would be willing to accept even though the website took my name down I still had the education in my brain and would still be the same employee even though my name wasn't up on the site?
I am concerned that making it all the way through a degree program has already started to indicate you aren't world-class, and things like this will only accelerate this trend.
I worked part-time during school and full-time during summer and put myself through college at Western, graduating with no debt. I lived with my parents and commuted to school. I don't see why this program is necessary.
Certainly, but I haven't met many people who didn't have parents, and very few who couldn't live with them (or other relatives) while working and attending college. I have, however, met a great many people who took on significant debt (or used their parents' money) in order to attend distant colleges.
You should like one of those Paul Ryan-types who believes anyone can just stop being poor by trying harder.
Absolutely nothing I wrote indicates anything of the sort. In the future, I suggest that you form a response using something other than personal insults built on assumptions. All I did was post two examples of the (extremely affordable, imo) Oregon state university tuition.
I could go on to point out that a huge part of rising costs are related to cost of living, due to supposedly increased expectations of students, and provide a counter example of how a friend of mine (the eldest daughter of a poor, single, Mexican-American mother, who was in the ROTC program) lived very cheaply in Corvallis in a commune-style arrangement, also working part-time, but then you'd probably want to talk trash about her, too.