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The Lose-Lose of Pay it Forward Tuition

[Speaking specifically of Pay it Forward educational plans being proposed in 17 or so states, not the moral philosophy (which I have no objections to).]

Here’s the basics of this program: instead of paying tuition up front for educational opportunities, students would agree to pay a small percentage of their income for the decades following their graduation. College would be “free” to start; if the education didn’t deliver a good job, you wouldn’t pay much for it. similarly, if you got a great job, you would “fairly” pay more for your degree. I have a number of objections to the program, which I’ll list. Let’s start out with the big problem: it doesn’t properly price education. It hides the price of education somewhere off in the future. Think of it this way, if you go to college and make a lot of money, you win, except now you pay more than what college would have cost you if you had paid regular tuition.

And if you lose, while you pay less than what regular tuition would have cost, you still lose because your education didn’t result in a better lifestyle or higher earnings. You wasted four years of your life, your big chance at bettering yourself, and you still owe extra taxes if you ever drag yourself out of the funk. It’s a major opportunity cost.

To summarize,

If you lose, you lose (you’re poor and wasted four years of life)
If you win, you lose (a lot of money through bad ROI)

Mathematically, almost no one pays what the education would cost under normal tuition.

In theory, we can say people are paying what their education is actually worth. In this case, I suppose we’re saying there is a “real” or, how Adam Smith would put it, a “natural” value to education. Education value is highly variable depending on the situation. A medical doctor will normally make more than an American Studies major. Thus, a medical degree should cost more than the American Studies degree. The best way to differentiate will be to charge for the education based on future earnings.

Here’s a problem with this line of reasoning, much of success is random or a product of family connections. I know plenty of people with law degree who live with their parents now. I also know college dropouts who are making six figures. There’s a lot of variance, but using broad figures, going to college seems to bestow some benefit to the enrollee. A benefit that is highly variable and a benefit that has been going down in value over the last decade. Taken altogether, we shouldn’t assume college is a primary driver of personal success. And if it’s not a primary driver of success, we should be ever more skeptical of this scheme. This setup will encourage more people to go to college, thus reducing the value of a college degree, and possibly costing them real opportunities in the private sector.

This scheme, by hiding the cost of college, will have the effect of not discouraging people from seeking worthless degree. If I’m paying, upfront, to go to college, I care about Return on Investment (ROI). If I’m not paying upfront, those concerns about ROI go away. More people will feel free to pursue the liberal arts without (apparent) consequence. Instead of pursuing a real opportunity, the individual will waste their time. Not a good thing.

Finally, we should think about the actual mechanism. Taxation is already ridiculous and will get more ridiculous as promised entitlements come due. Adding to your tax burden at a young age could have disproportionate outcomes later. But this is conjecture.

Higher education needs to reform. Colleges need to reduce costs, students need to pick better programs that teach real skills, and society needs to take coming student loan debt crisis seriously. Pay It Forward does nothing for the actual problems we have to solve, it only hides them, and that’s a bad thing.

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