The higher-education bubble has touched off a scramble among politicians to come up with solutions to make college more affordable. So far, "affordable" higher education has meant pretty much the same thing as "affordable housing": encouraging people to pile up unsustainable government-subsidized loans.
To avoid the rise of these ruinous student loans, the state of Oregon has come up with its own highly touted plan.
Oregon's state legislature voted unanimously last week to begin a pilot program aiming to ultimately switch its public universities to a tuition-free system called Pay It Forward, Pay It Back. Under such a system, students would pay no particular tuition upon entering university but would instead pay 3% of their paychecks for the next 24 years after graduation. Two-year college grads would pay 1.5%, and people who attend but don't graduate would pay a prorated portion. Such a system would be an immense relief to students struggling to find any jobs at all, never mind ones that pay the amount necessary to pay back student loans plus interest.
So we're going to eliminate those evil student loans by replacing them with 25 years of indentured servitude? The good thing about a student loan, after all, is that at some point, if you work hard and do well for yourself, you can actually pay it all down and be done with it.
I'm thinking that maybe it's the Oregon state legislature that needs a free college course, in this case Economics 101, because the central flaw in this program is obvious.
Bloomberg's Zac Bissonnette surveys all of the problems with the Oregon plan but lays out the most glaring one first.
For the program to work, it will have to be mandatory. Otherwise students who planned to major in engineering and finance—fields with high-income potential—would be more likely to pay for their education through traditional means. Without those students in the no-tuition plan, there won't be enough income generated among graduates to cover future students' tuition bills—certainly not with a required payment of just 3 percent of annual income (1.5 percent for graduates at two-year colleges)....
Motivated students wishing to major in engineering or finance will, quite rationally, opt for private colleges or out-of-state public colleges where they won't have to subsidize liberal arts majors.
Ah, but remember the Law of Intended Consequences. Subsidizing liberal arts majors is the whole point, isn't it? The purpose of this Oregon law is not to help students, since it fleeces the majority of them in order to subsidize the minority who go into the humanities. The actual goal is to keep the professors in the humanities, and the multiple layers of university administrators, insulated from economic reality and from the necessity of justifying the lavish cost of hiring them.
I have argued before that the universities are basically Medieval institutions whose basic structure and business model hasn't changed much since they were spun off from the monasteries 1,000 years ago. So it's fitting that this is basically a Medieval solution, in which the academic clerisy is to be supported by a 3% tithe imposed on the educated middle class.
The stupidity of this program is that it attempts to fleece the one group of students who are most likely to notice they are being taken advantage of: the engineers and finance majors, who understand what numbers mean and are capable of actually calculating what 3% of their income for 25 years will add up to.
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