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A New Funding Idea (Sort of)

A University of California student group advocates funding the system with student payments after they graduate.

By George Leef

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February 12, 2012

California is a fiscal basket-case. Trying to plug their prodigious budget hole, legislators have increased tuition substantially in the last few years. Naturally, some students are upset.

Rather than merely denouncing the politicians, however, a group of students at UC-Riverside has put forth a proposal for radically changing the way students pay for their education.

The group, called FixUC, wants to “make it possible for students to attend the UC without paying any upfront costs whatsoever.” Instead of charging students tuition while they are enrolled, FixUC wants to require students to pay the state back once they’re in the workforce.

Most graduates would pay 5 percent of their salaries (whether that’s pre-tax or after-tax isn’t made clear) for 20 years after becoming employed. There would, however, be lower rates for those individuals who remain in California (they get a half percentage point break) and those who go into “public service” get a full percentage point break, reflecting the widespread but faulty notion that people who go to work for government are making some noble sacrifice.

There are more details in the proposal, but let’s cut to the chase. What are the pros and cons of this idea?

One thing to be said in favor of this approach is that the students themselves would be paying (in part, anyway) for their education. As matters now stand, many students enjoy a free ride through college because their parents pay their way. If they don’t have to take out student loans, they never bear any of the cost themselves. This plan would require all graduates to pay once they are gainfully employed.

Since it’s the students themselves who do (or at least might) benefit from going to college, there is an element of justice in having them pay for it.

I can’t find much more to praise in this idea, though. It bears a superficial resemblance to college financing through human capital contracts, an idea discussed in this Cato paper, but is fundamentally different.  Under the human capital contract idea, investors (not taxpayers) front the student the funds needed for his or her education and hope to recoup their investment later through payments based on the student’s earnings.

The fact that investors can decline to invest in a would-be college student puts the test of the market into human capital contracts. Students who don’t seem likely to find good employment following graduation would have a hard time getting investors to front them the money for school.

The FixUC proposal does not have a market test in it.  Students with weak academic backgrounds (at one time, the schools of the UC system were supposedly elite, but now a large percentage of UC students need remedial courses) or little motivation will continue to gain admittance. Graduates who can only obtain low-paying jobs, as is the case with many, won’t pay anything remotely close to the costs of their years in school. Instead of catalyzing a costs versus benefits calculation in the minds of prospective students, the FixUC approach simply reinforces the “college good, pay later” mentality.

Another problem would be the difficulty of collecting the money owed after students have graduated. The proposal assigns this task to a new government agency, but not even the Internal Revenue Service, with its vast national authority, collects all the money that taxpayers owe.

Certainly a lot of money would be collected under this plan, but probably not nearly as much as expected. The claim that Fix UC’s payment system would bring in more money than is currently paid in through tuition is very questionable.

The students who advocate this proposal say it would “reestablish the UC as an affordable option for all qualified California students.” It probably would make UC schools more affordable for many students, but unfortunately it does nothing to make the system more affordable to California taxpayers. The payment stream from students writing checks for 5 percent or so of their income isn’t meant to replace taxpayer funding. In fact, the plan permits no reduction in the state’s “investment” in the system for ten years and only tiny, incremental reductions afterward.

If the FixUC plan put a ceiling on the money the system can spend, it would lead to budget-cutting efficiencies, but that’s not the case. UC administrators have no incentive to stop spending on unnecessary personnel and programs. If I were a California taxpayer, that’s what I’d want to see.

Finally, the central premise of the plan, that UC has become unaffordable, is dubious. Even with the recent “egregious” tuition increases, UC students are still getting their education at a low price.

Tuition and fees for California residents at UC-Riverside this year are set at $12,923. That is in the same range as most other state universities. At the University of Michigan, residents pay $12,634; at Penn State, $15,124; at the University of Virginia, $11, 794.  And if you compare UC-Riverside with a nearly private university, Pepperdine, which charges $40,752, you see that UC students don’t have an argument that California is unduly burdening them.

I would love to see a truly innovative, radical, and feasible plan to change the way students pay for college. FixUC isn’t that, but the students behind it should not stop trying to find one.

 

 

 

 


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