Higher Education and Private Sector Investment
The following article by Jonathan Butcher first appeared at See Thru EDU, a project of the Texas Public Policy Foundation.
Last month, the Chronicle of Higher Education featured students that participated in billionaire Peter Thiel’s fellowship program that paid them not to go to college. This opportunity has great advantages for students that are ambitious enough to start a new business and have an inspired idea.
Fundamentally, Thiel’s scholarships are the opposite of the federal government’s approaches to helping students succeed after high school. Washington intends to ask taxpayers to subsidize as many college tuition payments as possible, as demonstrated by the 93 percent of all college loans underwritten by Uncle Sam.
Thiel’s start-up scholarships provide a way for the private sector to invest in students’ futures, instead of relying on the government to pay for tuition and then hope students try their best in between keg parties.
Still, Thiel’s scholarships aren’t for everyone. The scholarship program is difficult to bring to scale, to begin with. It is unlikely that enough American billionaires will pay for enough students not to attend college to change the common perception that you must have a college degree in order to get a decent job.
Alternatively, the private sector could become invested in college students’ educational futures without asking taxpayers for more money through income share agreements. Under these arrangements, companies sponsor a student’s college tuition in exchange for a percentage of the student’s income after graduation. Writing for the Brookings Institution, Beth Akers calls it selling “shares” of a student’s future earnings.
Akers reminds readers that no less than Milton Friedman proposed such an idea more than 60 years ago in the classic book Capitalism and Freedom. Friedman explains that companies could “advance [a student] the funds needed to finance his training on condition that he agree to pay the lender a specified fraction of his future earnings. In this way, a lender would get back more than his initial investment from relatively successful individuals, which would compensate for the failure to recoup his original investment from the unsuccessful.”
Skeptics claim companies may only want to help students attending competitive schools, widening the gap between the haves and the have-nots. Additionally, since students do not know what their eventual income will be after college, students enter the agreements with some uncertainty about how much they will have to repay.
Yet income share agreements would take the burden of college tuition repayment off of taxpayers and ask employers to invest more in the human capital they hope to find in the job market. That is certainly an improvement over Washington’s method of asking taxpayers for more money.