FixUC Stumbles onto Human Capital Contracts

Nanette Asimov, “Plan Would Eliminate Tuition to UC’s Benefit,” in SFGate.com

Leanne Maxwell, “UC Considers Students’ ‘Delayed Tuition’ Proposal,” in sfist.com

News outlets are reporting on a proposal (PDF) produced by a student organization, FixUC, which operates out of University of California-Riverside. More importantly, the university is actually considering it. The proposal is essentially the kind of human capital contracts plan endorsed by economists from Richard Vedder to Robert Reich: instead of paying tuition up front, students pay after they graduate (or drop out). In this incarnation, graduates will pay 5 percent of their incomes over 20 years; FixUC argues that graduates earning $50,000 on average over 20 years will pay the current four-year tuition, $50,000, back to the university. Tuition, though, isn’t total cost of attendance, including living expenses, textbooks, etc.

As readers know, I’m a fan of these kinds of proposals. With good enforcement, they provide clear data on the value of specific degrees, encourage efficient education, and prevent the drain on college graduates’ incomes to interest payments on student debt. I’ve written in more detail on the potential benefits of human capital contracts before.

As of now, the proposal only applies to undergraduates, so UC will still be able to loot its law students’ future incomes at $40,000 – $50,000 per year to pay for other programs, excessive administrators, and pepper-spraying security. If it were applied to legal education, UC’s programs would be able to offer cheap national-level education, though it’s doubtful it’d still be worthwhile.

I have two concerns to write about:

(1)  From a practical standpoint, “graduates’ income” here isn’t defined. Is it gross income? Net income? Net income above the poverty line, which Income-Based Repayment uses? Much rests on the assumption that the premium of a college degree over a high school degree is sufficient to make the endeavor worthwhile for students, including forgoing four years of full-time income, which FixUC doesn’t discuss. If the premium of opportunity costs plus five percent more income plus one dollar doesn’t materialize, then it’s still a drain on the economy going to the university.

(2)  One point in the proposal reads:

“Campuses will be encouraged to refrain from giving preferential treatment to departments and majors that lead students to more traditionally lucrative careers.”

I fail to see the problem with investing in lucrative education. As much as I enjoyed reading Theaetetus, that doesn’t mean I think electrical engineers should subsidize it. Doing so promotes education as consumption rather than investment. People should take a Plato seminar because it’ll enrich them, not because someone else is paying for it.

As a caveat, I’ve written elsewhere that I’m acclimated to a worldview of downward mobility for young adults, but FixUC’s proposal boldly promises to be revenue positive for the university. Thing is, I’m not sure that on net UC’s college degrees are really worth $50,000 given the corruption EduBubble routinely accuses of UC. Human capital contracts are generally better than student loans, but while universities have an incentive to maximize graduates’ employment, they still get paid if graduates ultimately lose money in the long run. “Better than student loans” isn’t the same thing as “revenue positive for students” and society.

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2 Responses

  1. I completely agree, defining what “income” truly means is fundamental to the HCC. I created a spreadsheet which can be customized to your tastes to pit a traditional student loan (undergrad in this case) versus a human capital contract.

    http://spolitomics.com/2012/08/30/humancapitalcontractsstudent-debt/

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