While on the campaign trail, Senator Marco Rubio presented an interesting proposal to the nation’s crippling student loan problem: allow private investors to pay for students’ tuition in exchange for a proportion of their future earnings.
At first glance, it seems absurd. However, upon closer inspection, it has some serious advantages and pitfalls. Thus, it reflects the curious way we think about universities and education.
The advantages this plan holds over a government-sponsored plan warrant discussion. While existing programs such as loan forgiveness and government subsidies are certainly helpful for students, they don’t address the underlying issue of rapidly rising tuition.
The new plan pairs the economic needs of students with the interests of private individuals with capital and, as a result, the schools that turn out the greatest future salary (and the greatest returns for the investors) will be able to charge comparably more due to higher demand. This will allow for more differentiation between the good and the great colleges and will encourage universities to adjust their costs based on the quality of education they offer.
There are two potential problems with the private investment plan, however. First, the practice encourages good-but-not-great educations as well as the salaries that accompany them. A safe investor would rather pay half as much if it can guarantee 51 percent of the salary of a comparable education, even though students may not prefer that.
Second, the investments may not even be tenable. The high rates of interest on student loans reflect the fact that they are inherently risky propositions, even with the generous guarantees the government places on them. Students can drop out, pick a major that doesn’t bring in high salaries or simply not find a job after they graduate. The government already caps student loan payments at 10 percent of salary for around 20 to 30 years, so an investor cannot make much more than this, though there may be a market in asking for a higher proportion of the salary for a shorter period, or something similar. Whether there are enough investors willing to commit so much money to a risky investment remains to be seen.
Underlying all of this is a deeper question at the heart of university education itself: whether the purpose of going to college is to earn a high salary or to achieve more intangible outcomes. No matter what people think about higher education now, the number of people going to college solely to improve their position in the labor market will certainly rise in the very near future if this proposition is taken. Fields that tend to be less applicable to the labor market will consequently shrink and possibly even price themselves out of this new pool of applicants, relying instead on a smaller number of wealthier students. Those interested in learning about these areas of study for the inherent intellectual rewards will be left with few options to do so.
In fact, the role this model will play for the long-term future of academics is probably the most difficult to determine. Working for universities is rarely the most profitable use of a degree. Considering the commitment required to earn a position as a professor, it is hard to imagine any investor encouraging students to take on such a position. This leads to one of two results: either professor salary increases or the quality of professors hired by universities decreases. Neither choice is particularly appealing for schools, students or investors. The ability to conduct research will surely be hampered.
Ultimately, making these sort of partnerships will probably not fix the student loan system alone, but incentivizing universities to cut their costs is one of the smartest and most underappreciated ideas about the student debt crisis. Combine this sort of private investment with projects that aim more broadly at the higher education system as a whole, and a very promising solution will appear.
Andrew Langen is a junior majoring in economics and math.
Featured image courtesy Pixabay user denishiza