The state of Oregon has announced a new pilot program for funding higher education. Per the Wall Street Journal:
As lawmakers in Washington remain at loggerheads over the student-debt crisis, Oregon’s legislature is moving ahead with a plan to enable students to attend state schools with no money down. In return, under one proposal, the students would agree to pay into a special fund 3% of their salaries annually for 24 years.
The plan, called “Pay it Forward, Pay it Back,” would create a fund that students would draw from and eventually pay into–potentially bypassing traditional education lenders and the interest rates they charge. The state would likely borrow for the fund’s seed money, which could exceed $9 billion, but the program’s designers intend it to become self-sustaining.
This is not an idea without merit. In the first place, indebted recent graduates increasingly burdened with debt, and as a result are foregoing personally and economically entrepreneurial activities like buying homes and cars, getting married, or working the jobs they want. But is Oregon’s plan a superior alternative than the system currently in place?
My primary concern is one of perverse incentives. We already know that students whose parents pay more for college tend to perform worse in class. Why is this? Much like how welfare benefits can act as a disincentive for the recipient to find a job, students getting mom and dad’s help are not as dependent on their academic performance to secure future funds – the money will usually come, whether they perform well or not. The same study found that the same is not true for scholarship students, probably because they have a character disposed toward hard work, regardless of whether the money is coming or not. If someone else, especially the government, is paying the whole bill up front, there is less incentive to take learning seriously. I know this because my parents paid for most of my undergraduate schooling and I underperformed those peers whose parents I knew did not.
Moreover, a college education fully paid for up front could produce less incentive for students to major in in-demand subjects like STEM. If repayment is indexed to income, then a graduate might feel more comfortable taking up political science than chemistry. In 2013, personal “authenticity” in career choices is often much more of a consideration than earnings. He or she might be more willing to learn about Hegel but take up a career as a handcrafted canoe maker.
This is despite the fact that America needs more chemists. From 2000 to 2010, the number of American jobs in science and engineering declined from 5.3 to 4.9%. Considering the unchallenging and politicized nature of the humanities and social sciences these days, a swell of students into those disciplines might produce even more undereducated and ideologically misguided young people than ever.
Lastly, as the economist Tyler Cowen has noticed, there’s no defined measure of how to handle college dropouts under the plan. And Oregon’s plan also suggests to me an increase in enrollment that the system perhaps could not handle. And what happens in a budget crunch, when tax revenues decline?
All in all, however, I think the Oregon experiment is worth trying out. Its best for young people to start out without loads of debt, even if they don’t consider the implications of making higher payments years down the line. And as much as the plan has the potential to induce fewer people to major in economically necessary disciplines, one benefit could be a swinging of the pendulum back toward a view of higher education that sees it less as career preparation and more as the transmission of knowledge. That would be the real game changer in all of this.
