In order to address the problem of many students graduating from college with huge debts, Bernie Sanders has proposed that all state universities provide free education as an investment in the nation’s future by enabling the creation of a more educated work force. The idea is that freed from such debt, graduates will be able to choose worthwhile careers rather than ones that pay a lot so that they can retire their debt. Sanders points out that many developed countries provide free higher education to their students. Even some developing countries do so. For example, my own university education in Sri Lanka was completely free.
Of course the idea of providing anything free, however worthwhile it may be (such as health care), is anathema to our ruling oligarchs, and free-market devotees have come up with their own capitalist solution to college debt, one that has been seized on by New Jersey governor Chris Christie as his presidential campaign flounders.
The idea is that students incorporate themselves somehow into a kind of company and sell stock in themselves to investors in return for giving them a portion of their future earnings. While on the surface this has disturbing similarities to the practice of sharecropping, with education replacing land, with all the problems that can happen in such a system, its supporters say that it is not that different from the student loan systems we currently have.
Economist Richard Vedder explains how the system would work:
Students currently do the equivalent of selling bonds – they borrow money with the promise to repay the funds. Why not issue stock (equity) in themselves – give investors partial, temporary ownership of a college graduate’s “human capital,” in return for a share of his or her earnings. Call these contracts between investors and future students “income share agreements” or “human capital contracts.”
There are lots of advantages to having voluntary arrangements made between individual students and financial service companies financing human capital construction. A contract might go like this: “if you pay one-half of my tuition to go four years to XYZ University, I will give you 15 percent of my earnings beyond $15,000 a year for the next 18 years.” Sometimes the investor will hit a jackpot: the college student becomes highly successful, making a big six digit income. In other instances, the student either flounders in college or secures a low paying job after graduation and, on net, the investor loses. The trick is to have a pool of contracts that collectively provide a good return. The risk, however, passes from a young student with no experience in financial markets to a savvy investor.
One problem with this system can be seen immediately. Investors are more likely to back students who go into areas that promise high earnings (like investment banking, medicine, engineering) and avoid careers that serve the needs of people (like teaching and social work and other forms of public service oriented jobs). But Vedder see no problem with this. In his eyes, the reason some jobs pay poorly is because those jobs have no value in the eyes of society.
Isn’t this “unfair” to those wanting to be librarians, teachers, social workers, etc., since they would have to forego more of their incomes to satisfy the human capital contract? Not really. Society puts a relatively low value on those jobs. If a market-based financing system is in place and, say, fewer kids want to be teachers, in time salaries of teachers would rise to eliminate potential shortages. If lots of kids flee to high paying STEM [Science, Technology, Engineering, Mathematics] disciplines to lower the proportion of equity that has to be paid to human capital investors, in time this will lead to some flattening of salaries in those disciplines – supply will rise to meet high demand.
But this misses the point that there already exists a scarcity of teachers as can be seen in the increasingly large class sizes they are called upon to teach and yet their salaries and benefits are being cut, not raised. This is because schools (and libraries and social service agencies) are funded by taxpayers, and states are cutting those budgets in order to give tax cuts for the wealthy. Furthermore, the number of teachers the nation requires is vastly greater than the number of investment bankers and engineers. There is no way that the salaries of all or nearly all of these teachers will ever approach that of the currently high-paying occupations.
The logical end point of this free-market model for teachers (and one that is ardently sought by conservatives) is for publicly funded schools to disappear and be replaced by entirely private schools that would then compete for teachers and students. But that does not mean that the salaries of all teachers would rise. What would be the more likely result is a further separation of rich and poor, with a few schools catering to the elite and paying higher salaries to their teachers and attracting the children of the wealthy who will then go to elite universities and jobs in high-paying fields, while the majority of people will have to send their students to schools that pay their teachers much less because they cannot afford more. Teachers will take low-paying jobs in such schools simply because they need to earn a living.
This system already partially exists in the US where schools are largely funded by local property taxes. People who can afford to, live in school districts that have high property values that generate higher taxes that can support schools that provide excellent resources. But these are relatively few. In Vedder’s proposed system, the current inequality will likely accelerate.