Andrew Szeri: An alternative funding model to support higher ed excellence:
The Nobel prize-winning economist Milton Friedman… he made the argument that fixed money loans are an inappropriate way to fund a higher education. He argued that an alternative device would be to:
’buy’ a share in an individual’s earning prospects: to advance him the funds needed to finance his training on condition that he agree to pay the lender a specified fraction of his future earnings. In this way, a lender would get back more than his initial investment from relatively successful individuals, which would compensate for the failure to recoup his original investment from the unsuccessful….
Friedman concludes the reason why things do not happen this way is because administrative costs would be too high, and collecting the funds too difficult….
So here is a modest, practical suggestion… enlist the… IRS to collect contributions from [post-graduate] alumni in lieu of [their paying] tuition/fees [as] students… allow an individual to enter into a contract with an IRS-approved entity, whereby the individual agrees to forgo a future fraction of his or her earnings… in return for something of perceived value… [like] some or all of an education….
- If many people chose contributing-as-alumni over paying-as-you-go, university finances would be much more stable in the long term.
- Individuals from modest means could choose to contribute as alumni in lieu of paying fees/tuition as students, thus enabling social mobility.
- The collection of funds would be extremely efficient, as it is transacted through the income tax return.
- The concept of contributing as alumni fits some peoples’ views that higher education—and certainly (in their view) graduate or professional school (Friedman 1955)—is a private good, and so should be financed in a manner consistent with that notion.
- Perhaps the idea of paying as alumni is too close to indentured servitude. (But then the individual gains from his or her education for many years…)
- Individuals who do their education and plan to pay as alumni and then resign their citizenship and move to another country could escape repayment. (Surely, this would not apply to many individuals.) Of course, the idea likely does not work for all, such as non-citizens.
- The changeover to this funding mechanism for many students would have to be managed carefully to ensure adequate cash flow to meet expenses during the transition….
What is really behind this idea is partly replacing the now-frayed social contract that has long existed between the taxpayers of the California and the students at UC…