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As noted in Reference 1, college costs continue to spiral out of control, largely as
a result of the government guaranteeing a continuous supply of customers (students) and an ever increasing
supply of money for the colleges (government grants, loan guarantees, and government financing).
“Over the past three decades, college tuition has increased at more than double the rate of inflation.
Outstanding student loan debt in the United States now exceeds $1 trillion, a national burden even greater
than that of credit cards.” (Ref. 1) While this is debt for students and
their parents, it is revenue for colleges and universities. Let me suggest one plan that would do away
with this dilemma and make a college education affordable. I call this plan the “Affordable
College Education (ACE) plan.
What I propose is to allow students and universities to enter into a contract which
would require a given percentage of the student’s future earnings to be paid to the university for a
specified number of years. The percentage to be taken from the student’s earnings and the amount of time
over which the earnings would be “taxed” would be negotiated between the student and the university. The
monies paid to the colleges and universities would be taken from earnings much as taxes are now
paid from one's earnings - witholding payments from each paycheck and/or with each quarterly estimated tax payment.
Conceivably, the percentage rates could be capped by law, much as loan rates are capped under usury laws.
Such a plan offers the following advantages:
- Parents would be off the hook of paying for their childrens’ college expenses. The full cost of the
college education would be borne by the students who benefit from the college degree(s).
- College graduates and their parents would no longer be burdened with fixed repayment loans that
required paybacks irrespective of whether or not the borrowers could afford the repayments at any given
point in time.
- The college students would only have to pay a percentage of their future incomes – what they could afford,
since they would pay less if their income was low and more if their income was high and nothing if they had
no income, i.e., if they were out of work.
- In the case of the highly successful, e.g., Bill Gates, both the college student and the university would
reap the rewards of the high income. In such cases, the college or university would receive significantly more
than the average cost of a college education.
- Colleges would share in the risks/benefits of a college education. If they turned out excellent students
who earned lots of money, the college would receive a large income stream. If the colleges bestowed degrees on
poor students who didn’t earn large amounts of money after matriculation, the colleges and universities would
receive a lower return on their “investment.”
- The cost to the government of financing and administering a federal student aid program would be eliminated.
The political ramifications of federal student aid programs would also be eliminated. There would no longer be
the periodic crisis associated with renewing or modifying the government program. Financing and administering
of ACE would be left to the colleges, universities and private 3rd parties. Government interference would be
eliminated.
- The ACE program would be totally flexible. The student could decide on what portion of his college costs
to finance under ACE, what portion to pay out of pocket (grants, scholarships, or his/her own or parents
earnings and savings), or what to pay with borrowed money (private student loan programs).
- The burden of filling out financial aid applications would be eliminated. Instead, the student and college
would simply sign a document akin to a mortgage agreement – the college would agree to provide the education
and the student, in order to pay for this education, would agree to have a fraction of his or her income
deducted and paid to the school for a specified period of time. The requirement to establish financial need
would be done away with.
ACE might work something like this. The university and the student would negotiate
from a payment schedule such as the one below.
| Number of Years | 10 | 15 |
20 | 25 |
| Percent of Income | 20 | 15 |
10 | 5 |
There are a number of other options that could be employed. For example, the
percent of salary paid to the college over a period of years could be variable so that the graduate would
keep a larger portion of his salary when he first enters the labor market and his family financial needs
might be high and then gradually increase the percentage as his salary level increases and his financial
needs, as a percentage of income, decrease.
It's time to think out of the box. A college education should not have to break
the bank. Simply pouring more money at the problem may be the government's way of doing business - it is
not, however, the way that the problem will ultimately be solved.
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References:
- Why Does it Cost So Much to go to College?, David Burton, www.sonofeliyahu.com,
7 May 2012.
- Why is college so expensive, , Paul Kix, Boston Sunday Globe, Pages K1 and K3,
25 March 2012.
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