Sunday, July 14, 2013

Building the Best Possible "Pay It Forward" Model for Higher Ed Finance

The last week was swept away by Hurricane "Pay It Forward," a new bill advanced by progressives in Oregon. Starting last Saturday I began engaging via Twitter with folks interested in debating its merits, by Sunday night I was knee-deep in a full analysis, and by Wednesday morning that analysis was published by the Century Foundation and NPR gave me an opportunity to discuss the issues On Point. In between, I was fortunate enough to be introduced to both Barbara Dudley and John Burbank, key architects of the plan. I thoroughly enjoyed getting to know both of these incredible activists, and thrilled that they share many of my concerns and end goals.

The number of legislators and members of the media who are continuing to express interest in learning more and building on this plan is amazing.  In a key respect, it's also wonderful: people really want to do something NOW to make college more affordable and reduce student debt.  It's about time!

With that in mind, I strongly suspect that some version of Pay It Forward will be enacted not only in Oregon, but in other states as well, and potentially with federal support.  Thus, setting aside for now my continuing philosophic and political problems with the plan, I'd like to make the following suggestions for making it as effective and progressive as possible.

1. Ensure that it is universal and guarantees repayment.  The only way to make it financially feasible and prevent it from furthering inequality is to reduce the fraction of free-riders.  Allowing wealthier students to pay upfront perpetuates a two-tiered system and likely increases the percent of future earnings that participants will have to pay.

2. Provide the first year of community college for free. This plan could have a really wonderful effect of helping the most financially-constrained students gain a foothold in higher education, but in order to do this the first year must require no repayment whatsoever.  Coupled with the federal Pell Grant, students could make the first year work with no debt and minimal working.  That's worth trying- if we cannot significantly boost enrollment rates with a policy like that, it will teach us something.  It facilitates the creation of advertising campaigns with a real chance of competing with for-profits' effective overtures to the same students.

3. Vary the percentage paid on future income.  Asking the same percentage of income from students with vastly different future income profiles creates a large distortion.  At bare minimum, students attending community colleges and public comprehensives should face a different percentage than those attending selective institutions.  I would go a bit further and increase the percentage paid by people whose incomes fall above the 80th percentile (or something like that) for their age range in the state.

4. Provide incentives for institutions to make better uses of resources. It is imperative that institutions commit to keeping costs down and tuition low. It is not enough to count on student reactions to hold them accountable.

5. Commit the state to increasing per-FTE appropriations over the implementation period.  Tuition must decline in order for Pay It Forward to really increase college completion rates.  States should be required to appropriate additional resources that explicitly require institutions to make better use of resources (see above).

These five changes should help improve the model, but I still view it as inferior to one that utilizes redirected Title IV federal aid and progressive taxation to support a free public option.  There are simply too many free-riders in the Pay It Forward model, affecting both its sustainability and creating some really negative consequences for those in the public sector.  Note that yes, I think higher education generates large positive externalities that compel this country to invest in public higher education.  Reasonable people may disagree- and more research is needed-- but that's at the core of my argument.  I hope when you weigh in, you make your own assumptions just as clear.

Much thanks to Matt Bruenig, Susannah Tahk, Miguel Palacios, and many others for conversations over the last week that have helped me clarify and advance my thinking.  This has been quite a start to my sabbatical!