"An investment in knowledge pays the best interest"

7/3/2013: Benjamin Franklin was a failure as an apprentice chandler and a runaway from his first apprenticeship as a printer. Eventually he figured out what to do with his life, and in the end donated L1,000 in his will to start a revolving fund to lend money to Boston students. (In 1908 Andrew Carnegie chipped in too, creating this technical college, which appropriately specializes in electrical technology and HVAC engineering.) Oregon now has two innovative programs under consideration to do something similar. The NYT reports today on one, which would tie repayment to future income:

This week, the Oregon Legislature approved a plan that could allow students to attend state colleges without paying tuition or taking out traditional loans. Instead, they would commit a small percentage of their future incomes to repaying the state; those who earn very little would pay very little. 

The proposal faces a series of procedural and practical hurdles and will not go into effect for at least a few years, but it could point to a new direction in the long-running debate over how to cope with the rising cost of higher education. While the approach has been used in Australia, national education groups say they do not know of any university in the United States trying it. 

The Oregon plan had an unusual, and unusually swift, gestation. Less than a year ago, neither elected officials nor advocacy groups there had even considered it.
It began last fall in a class at Portland State University called “Student Debt: Economics, Policy and Advocacy,” taught by Barbara Dudley, a longtime political activist who teaches in the school of urban and public affairs, and Mary C. King, a professor of economics. Ms. Dudley was referred to John R. Burbank, executive director of the Economic Opportunity Institute, a liberal policy group based in Seattle, who had studied the no-tuition approach. She, in turn, referred the students to him, and they adopted the idea as their group project for the semester. 

The students and Ms. Dudley later made a presentation to state lawmakers, including state Representative Michael Dembrow, Democrat of Portland and chairman of the higher education committee. The Working Families Party of Oregon — of which Ms. Dudley was a co-founder — put the proposal at the top of its legislative agenda, and Mr. Dembrow and others ran with it.

State Treasurer Ted Wheeler’s idea originates with the fact that, even if you ignore the benefits to society, the private return to education in terms of higher wages is far higher than the government’s cost of borrowing. Betsy Hammond explained the plan in the Oregonian last year:

Oregon currently awards about $50 million a year worth of “opportunity grants” — enough for just a fraction of eligible students who apply. More than 80 percent of students who qualify are turned down because the state runs out of money.
If lawmakers agree, voters would be asked to approve the plan in fall 2013 or spring 2014, said Wheeler’s policy director, Michael Selvaggio. The state would then sell $500 million in bonds to start the fund, which would be projected to grow to $6 billion in 30 years.

UO’s PathwaysOregon program uses these opportunity grants, private money, and federal aid to put together tuition free packages for to low income students – but it’s also underfunded and turns away many students.

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6 Responses to "An investment in knowledge pays the best interest"

  1. Awesome0 says:

    Although this sounds cool on the surface, what sort of substitution effects do expect to see? In essence, it increases the relative real wage of low-wage college degrees while decreasing the relative real wage of high wage college degrees. More literature majors and less economics majors?

  2. Anonymous says:

    Assuming the repayment rate is based on family income, there could be some interesting consequences in the marriage market.

    • UO Matters says:

      Yes, this should reduce assortative mating matches based on income, and increase the number of marriages between economists and literature professors. Ceteribus paribus, of course.

  3. Anonymous says:

    A group called Fix UC in California has proposed something similar for the UC system:

    http://www.npr.org/2012/02/07/146479925/uc-students-propose-alternative-to-tuition-increases

    Yudof raises a couple of interesting issues. One is the problem of collection/enforcement, especially for people who move overseas — and would this lead to well-off alumni setting up weird offshore income sheltering schemes? The other issue is encouraging further state disinvestment in higher education. Call me old-fashioned, but I’m not quite ready to give up on the public kicking in for a share of higher education.

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