MOSELEY: A new way to finance college

We need a fundamentally new approach to financing college education. Price resistance and over-reliance on student loans are not going away. What about income-contingent loans that rely on private capital rather than government funding? All the pieces fit together in ways that would be good for students, their parents, colleges and universities, state governments, and the federal government.

As with cell phones, the lasting value of a college education is not in the thing itself (whether a mobile phone or a wonderful four-year experience). The real value of a phone is the connections we make with it; the real value of a college education comes after graduation. In addition to a more meaningful life, the unemployment rate for college grads is half what it is for those without degrees, and the average college graduate’s lifetime income doubles that of high school grads.

The years after graduation are also where the money is. Before or during college, it’s hard to scrape together the money to pay for those great four years. But in the years after graduation, it’s much more likely that there is additional money and probably twice as much of it. So let’s pay for it then.

Everyone should pay something—perhaps $2,500—per year for college. The federal and/or state government would advance an additional amount—perhaps $12,500—for students who maintain satisfactory progress toward graduating on time from a college or university where at least half of new students graduate in four years. Individuals could pay their own way at any school they wished to attend, but students could use public funding only at schools where they have at least half a chance of graduating.

The funds from the state or federal government would come from higher education bonds sold to large, long-term investors. Three percent or 4 percent of each graduate’s annual income would be collected by the government through individual income taxes until the individual college graduate’s obligation was met. Do the math: After 12 or 15 years of such a program, the government would be collecting enough money to pay handsome dividends on the bonds.

Under this system, everyone who is admitted to a qualifying institution receives a real college education for $2,500 per year, making college no longer dependent on socio-economic standing. Employment in selected professions can be encouraged by forgiving some of the repayment. The funds that generate the dividends for investors are collected through income tax returns—which, unlike student loans, have an extremely low default rate.

The government gets completely out of the business of grants and loans to students, as well as being out of the loan collection business—with corresponding reductions in state and federal budgets. Holders of long-term higher education bonds earn good dividends. And our well-educated work force enhances state and national competitiveness in the knowledge-based economy of the future.

No doubt this idea needs refinement and improvement, but it looks like a win for everyone and therefore merits broad discussion. Instead of tinkering, let’s change the game plan.•

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Moseley is president of Franklin College. Send comments on this column to ibjedit@ibj.com.