The College Graduate as Collateral
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  • Ash

    Don’t remember the author, but the book is “The Unincorpated Man”.

  • Just think, only a step away from servitude.

  • Scott

    Human capital contracts were proposed by Adam Smith, and more recently by Milton Friedman.

  • Jonathan

    “often dysfunctional higher education system”?? The U.S. dominates any global ranking of universities. Also, the entire U.S. system was recently ranked #1 in the world (by a long shot)

  • Jacksonian Libertarian

    This is just flailing around to try to keep the system the way it is.

    Education costs too much, so what is needed is massive cuts in the cost of education, not new ways of financing the present unjustifiable cost of education.

  • Walter Sobchak

    I think the Colleges should spend more time thinking about how to provide more people with more knowledge for less money, and less time trying to figure out how to squeeze another dollar out the already squeezed out students.

  • Douglas Levene

    Yale at one time had a loan program where loan repayments were calculated with reference to how much you made. Payments stopped not when your loan was paid off, but when all the loans from your class were paid off. This was supposed to share the risk and make the program more equitable. However, it turned out to be wildly unpopular once some graduates figured out that they were paying some large multiple of the amount they borrowed.

  • Jim.

    I wonder how long it would take colleges to see their enrollment collapse, if every single student were socked with a permanent financial handicap to go along with a degree.

    At least today you have the option of paying for your education up front and not getting slapped with an indenture.

    If you don’t like taxpayers getting overburdened with student loan obligations, here’s a hint: stop giving out student loans. Colleges would have to economize and become more efficient, but that’s not a bad thing. The quality of education would probably not drop at all, only the price.

  • Boritz

    This is our relationship with the federal government, and it isn’t voluntary.

  • Kris

    “Although many would balk at a system that brings to mind indentured servitude (despite the author’s statements to the contrary)”

    If anyone argues that this is indentured servitude, I’ll respond that taxation is slavery. We will then hopefully move on to a more constructive discussion.

  • Stuart

    Sorry, I don’t think this is correct. Specifically, this premise is wrong: “They charge the average student less than the average cost of educating each student, while financing the shortfall with donations from the wealthiest alumni.”

    No. That’s not right. They report costs that exceed charges per student, but that’s an artifact of categorization. If you regard the college as an enterprise that is run by and for the faculty and administration — which functionally is what it is, they are taking out profits and perks, and building empires just the same way as middle managers on the make did in large corporations. There’s just less of a check on them. If there was any transparency or real competition (meaning that the massive subsidies were taken away), those “costs” would magically disappear. Administration and other overhead would shrink, and faculty comp would start diverging more, with superstars making a lot more and drones making decent but not stellar pay, and all faculty would end up working more hours.

  • JOS

    Zingales writes “This is not a modern form of indentured servitude, but a voluntary form of taxation, one that would make only the beneficiaries of a college education — not all taxpayers — pay for the costs of it.”

    But he ignores the fact that there are positive externalities to an education that aren’t captured by the student. “All taxpayers” benefit when a person goes to college, implying that all taxpayers should help pay for it. Enrico Morretti in his recent book “The New Geography of Jobs” writes:

    The existence of human capital externalities is good news for less educated workers in highly educated cities, because it means that they end up earning more than they would otherwise. But it also implies that well-educated individuals are not fully compensated for the social benefits that their education generates. This is an important example of a market failure. Essentially, education has a private benefit, in the form of higher earnings for the individual who acquires it, and an additional benefit for all other individuals who live in the same city. In fact, the full return on education for society – sometimes called the social return – is larger than its private return. Since college graduates are not compensated for the benefit that they bestow on everyone around them, there are fewer college graduates than we as a society would ideally like. To put it differently, if the salary of college graduates reflected its full social value, more people would go to college. One way to correct for this market failure is to provide public subsidies for college education. Indeed, this is the reason that state and local governments pick up much of the cost of educating their residents. There are certainly other reasons to justify public investment in higher education – political and ethical – but I know of none more powerful than this one. It is in our own interest to subsidize other people’s education, as it ends up indirectly benefitting us.

  • Marc

    The fastest way to address this problem is to have the school co-sign for every loan. This would very quickly focus the schools on risk-adjusted returns and provide valuable information to parents, teachers, and students.

  • Jim.

    @Marc –

    That’s the way to go. Schools, right now, have insufficient motivation to deliver a quality education. (As opposed to a quality footbal team. Think about it.)

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