Sunday, April 27, 2014


The First Time as Tragedy...

I’m just old enough to have seen ideas I had thought long dead come back to life.  They’re typically about as attractive as the undead can be expected to be.  During the 90’s and early 00’s, an idea originally floated by Barry Goldwater and considered wacky -- turning Social Security over to the stock market -- had a brief and scary second life.  (Perhaps predictably, it was felled by a long bear market.)  Now, we’re starting to see variations on indentured servitude come back.

In the earlier version of indentured servitude, people in other countries would agree to work for specific employers for shockingly low pay for a set number of years upon arrival in the new world, in exchange for passage to the new world.  The idea was that they would pay off their travel through underpaid labor for an extended period.  In the 1980’s and 1990’s, I was taught that this was a form of barbarism that had been consigned to the past.

It’s returning, but this time with application to college tuition rather than seafare.  

In some cases, the patron is a state.  For example, Oregon is considering a bill whereby students could enroll without any upfront tuition, but would have to pledge three percent of their earnings for the first twenty years after graduation.  

It’s a peculiar conceit on a number of levels.  First, and most obviously, it would require the state to front the lost revenue to the college or university for many years before any sort of payback would kick in.  I haven’t noticed a trend of states suddenly wanting to double or triple their appropriations.

Second, by taking federal student aid off the table, it would effectively displace federal dollars with state dollars.  That means that states would have to increase their appropriations by even more, just to keep the colleges even.  And the taxpayers of, say, Oregon, would pay federal taxes to support student aid in other states that students in Oregon wouldn’t get.  That would be on top of the support they’d have to increase for Oregon itself.  Conceptually, it’s possible, but politically, I’d consider it astonishing.

Third, it’s not obvious to me how Oregon would enforce collection across state lines.

Fourth, “the first twenty years” doesn’t necessarily mean the first twenty years.  Students who immediately go to grad school, say, wouldn’t generate much payback.  Given the realities of “adverse selection,” I’d expect to see students who are targeting graduate school to enroll in this plan, and students majoring in, say, computer science avoiding it like the plague.

That’s because -- fifth -- some students would wind up paying back far more than they ever would have owed.  The students to whom that would apply would probably figure that out early on, and avoid the plan.  That would leave the plan with the most “expensive” students, setting in motion a death spiral.

Sixth, though -- and I’m a little surprised that few commentaries mention this one -- it would cap college and university revenues at the level of entry-level wage growth.  Given that any labor-intensive enterprise will inevitably see costs increase faster than the economy as a whole, this is a recipe for long-term austerity.  (And that’s before factoring in any sort of tax revolt by high earners.)  If we want higher education to remain more than MOOCs, we’ll need to come to terms with the fact of it being labor-intensive.  We haven’t done a good job of that so far -- the trend towards adjunctification being the most spectacular example -- but simply denying it altogether will only lead to collapse.  Transformation isn’t cheap.

Predictably enough, states aren’t the only patrons interested in this model.  Some private investors are putting up tuition money in exchange for cuts of future earnings of students who are likely to make big money.

The private model is at least immune to the objection of displacing federal money with state money.  But it replaces the “adverse selection” death spiral with a pure focus on high potential earners.  If you’re a future hedge fund trader, you’re appealing; if you’re a future social worker, they want no part of you.  From an ROI perspective, I get that, but in terms of the public good, it’s catastrophic.  

Indentured servitude collapsed for some good reasons.  I’d like to see it crawl back under the historical rock from which it crawled, to be replaced instead by funding mechanisms that reflect both the reality of labor-intensive industries and the necessity of paying attention to the social good.  Let’s not replace a flawed system with a dead one.

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