As I understand it, the idea is that students will be advanced the cost of tuition, fees, room, living expenses, and books. In return, the students will be “taxed” five percent of their post-graduation income for twenty years. It’s being sold as a win-win for students and universities. The students will benefit because the tax is based on income, so if you graduate into a recession, you aren’t saddled with high fixed payments. The university benefits because it essentially declares independence from the legislature, which has a history of fickle support.
I like the spirit of the idea. It’s innovative, certainly, and it addresses some real issues. But I don’t buy it, at least in its present form.
First, the obvious: if the students don’t pay now, but the faculty and staff don’t want to wait twenty years to get paid, what bridges the gap? In the absence of tuition income, how, exactly, does the university meet its payroll and other expenses? If the answer is “other financial aid,” then I’m not sure how this amounts to declaring independence from the whims of the legislature.
And that assumes that everyone gets full aid, which simply isn’t true. Many students only get partial aid -- with the rest coming from the student and/or the student’s family -- and some pay their own way entirely. In those cases, the temporal gap between the service and the tax has to be filled by something. I just don’t expect that asking the faculty to wait twenty -- actually twenty-four -- years for their money will fly.
Second, shifting the entire cost to students lets the state off the hook. That would be fine, at least in theory, if that meant that the university could govern itself as a private institution. But I have no illusions of that. As any exhausted administrator can tell you, the past few decades have involved a pincer movement of reduced funding with increased unfunded mandates. Just because the state is off the hook for funding -- although I honestly don’t see how that would work, but just for the sake of the argument -- doesn’t mean that it’ll stop trying to get something for nothing.
Third, what’s to stop the percentage of the tax from changing? Tuition increases that hit right now at least generate some painful awareness. But telling an eighteen year old that she’ll pay more when she’s thirty-five is unlikely to generate meaningful cost discipline. If anything, the history of consumer credit in America suggests that people spend more when the moment of payment is separated temporally from the purchase decision. No payments for 90 days!
Fourth, new graduates’ salaries are notoriously subject to the whims of the economic cycle. Replacing (purported) independence from the whims of the legislature with severe dependence on the whims of the business cycle doesn’t promise much stability. At least when there’s a significant subvention by the legislature, it’s possible to spend counter-cyclically. But good luck with long-term financial commitments -- like, say, tenure -- in years when new grads’ underemployment rates are unusually high.
Fifth, there’s non-compliance. How would this work with international students? What about dropouts? Transfers? Scholarship recipients? (Why apply for scholarships if you still have to pay the same tax rate eventually anyway?) You’d have to build in enough slack to account for unemployment, incarceration, untimely deaths, graduate school, military service, illness, and folks who drop out of the labor force to have kids. TW is a stay-at-home Mom. If she were charged five percent of her income, would that mean she wouldn’t be charged at all? Or am I suddenly on the hook?
And that’s before we get into the shenanigans that people already pull to minimize their taxable income. The people who make a lot of money -- cough Mitt Romney cough -- are alarmingly good at that. Charging five percent of “income” means both defining and verifying “income.” The administrative requirements for this would make the FAFSA look like child’s play.
Finally, there’s the sheer heterogeneity of students. What about those who live off-campus? Who attend part-time? Who drop out? Who change majors and stick around longer than four years?
Like so many policy ideas from high achievers, it assumes that everyone is a high achiever. If everyone started at 18 and graduated at 22, then went straight to well-paying work and stayed there, it could almost start to make a lick of sense. But here on Earth, it’s a non-starter. A fascinating, well-intended non-starter, but a non-starter.