Increasing Higher Education Costs: Oregon's Plan

Here are some data for the United States regarding student loans that have been collected by the American Student Alliance:

• Nearly 20 million Americans attend college each year. (Source: Chronicle of Higher Education)
• Of that 20 million, close to 12 million – or 60% - borrow annually to help cover costs. (Source:Chronicle of Higher Education)
• There are approximately 37 million student loan borrowers with outstanding student loans today. (Source: Federal Reserve Board of New York)
• There is roughly somewhere between $902 billion and $1 trillion in total outstanding student loan debt in the United States today. The Federal Reserve Bank of New York reports $902B while the Consumer Finance Protection Bureau reports $1T.
• Of the 37 million borrowers who have outstanding student loan balances, 14%, or about 5.4 million borrowers, have at least one past due student loan account.
• Two out of five student loan borrowers – or 41%- are delinquent at some point in the first five years after entering repayment.
• As of 2012, only 700,000 borrowers had enrolled in Income-Based Repayment (Source:Project on Student Debt), but the Obama Administration estimates that IBR could reduce monthly payments for more than 1.6 million student borrowers. (Source: White House Fact Sheet)

In the US, college tuition fees continue to rise while state funding of higher education institutions falls. The Philippines faces the same challenge. The state of Oregon has recently approved a plan. Oregon House Bill (HB) 3472 passed the House (59 Yes, 0 No, 1 Not voting) and the Senate unanimously. "HB 3472 directs Higher Education Coordinating Commission to consider creation of Pay Forward, Pay Back pilot program to replace current system of tuition and fees required to attend institution of higher education." The idea was first proposed by the Economic Opportunity Institute (EOI). Some of the slides used by EOI in its presentation are the following:

The Problem

Figure downloaded from https://olis.leg.state.or.us/liz/2013R1/Downloads/CommitteeMeetingDocument/28090

 The Solution

Figure downloaded from https://olis.leg.state.or.us/liz/2013R1/Downloads/CommitteeMeetingDocument/28090

The following are estimates provided by Jason Gettel, a policy analyst from the Oregon Center for Public Policy showing that a student would be able to repay the costs of college education by contributing yearly 3% of his/her annual gross income throughout 24 years right after graduation:

Reading the comments on a Wall Street Journal article describing this bill one gets a feeling that there seem a lot of questions and concerns that need to be addressed. Here are two examples:

• WENDY MORRIS Wrote:

This approach raises a few questions: First, whether the annual payments are to be based upon "wages" which are earned through employment or "income" which could come from many sources such as rents, stock dividends, business ownership, etc. Second, whether the approach will penalize economic success because students who earn more will pay more for their education in absolute dollars than their less economically successful colleagues. Third, what will happen to the payments in the case of students who leave the workforce for a number of years, such as in the case of a disability or to raise children.

• Dom Fried Wrote:

All this accomplishes is to transfer risk to the taxpayers. It is neutral on influencing the price of tuition. The lower risk for students will only encourage more foolish decisions on majors, if that's even possible. Give away stuff today that will be magically paid for much later. This is standard fare for political thieves.

The problem is well known to be escalating cost. It is mainly driven by increasingly bloated and unnecessary administration. Basically, they're partying on all the money sloshing around. Administration dwarfs teacher salaries and facilities. High pay for executives and staff heading the most absurd offices one can imagine.

Ordinarily, the solution would be to end all subsidies and starve the useless administrators, but I think this would have the effect of creating a situation where we don't take full advantage of our human capital by shutting out perfectly capable but poor potential students.

I prefer less regulation in general, but there are places where everybody acknowledges that some regulation is necessary. Maybe universities need to be treated as utilities because the administrative bloat is runaway madness.