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Cross-posted from Alevei.

In my previous post, I set out to discuss a proposal by the University of Chicago economist Luigi Zingales that advocated equity financing of higher education, which he outlined in a June 2012 New York Times op-ed, but reconsidered that project when I realized that Zingales's political connections, including his close association with GOP vice presidential candidate Paul Ryan, made for a more interesting story, especially in light of the author's coyness with respect to his political motivations, about which the Times article and accompanying author bio are silent.

In making his pitch for equity funding of higher education, Zingales presents himself strictly as a professor and an economist, situating his authority and credibility on the topic entirely in that context. He is of course a professor of economics, but there is no question that his position is also very much informed by his political affiliations, which he does not disclose. As my own position is also political, I have no objection to hearing out the positions of others who come to their beliefs by way of their politics, including when theirs are different from mine. But I think it is important to be forthright about political orientation and values if we intend a healthy debate, and Zingales was not at all forthright in those respects in his presentation to readers.

In this post, I revisit the op-ed, but not because I think his idea deserves to be taken seriously. It doesn't. Zingales has established precisely zero credibility for one of his central claims, in which he attributes the decreasing affordability of higher education to "crony capitalism," which he further claims enriches professors at the expense of "everyone else." As I discussed previously, his unwillingness or inability to recognize that the majority of professors in the U.S. are not pulling down anywhere near as much bank as he is seems disingenuous. As I also observed, his credibility is further challenged by an impressive tolerance for cognitive dissonance that enables him to give bestie Paul Ryan and his family a pass despite their extensive record of self-enrichment via federal generosity, which I guess is somehow not "crony capitalism" but rather just good old-fashioned free-market capitalism the way God intended.

Rather, I have reconsidered because somehow that article has managed to get itself taken seriously by a lot of people. While by no means has all of the attention been positive, still the op-ed and the idea it espouses have become part of mainstream public discourse on the very real problem of college affordability for American students. And it just happens to be an especially fine example of what is so incredibly wrong with the assumptions that inform a lot of that discourse.

Zingales proposes that "Investors could finance students’ education with equity rather than debt. In exchange for their capital, the investors would receive a fraction of a student’s future income — or, even better, a fraction of the increase in her income that derives from college attendance." He claims that "Equity contracts would diversify the risk of failure, with highly compensated superstars helping to finance the educations of less successful college graduates," although he does not explain exactly how that would work.

He further maintains that the contracts will somehow "avoid pushing graduates into lucrative jobs just to pay off debt," which sounds great in theory, but I don't think it could possibly be true in practice. I don't see how such an arrangement wouldn't push graduates toward "lucrative jobs," including by initially pushing them towards undergraduate majors that are considered more likely to lead to such jobs. I doubt Dr. Zingales is naive enough to believe otherwise, and since he provides no evidence to support his claim, I suspect that he is being disingenuous, especially when he adds this part:

Most important, these contracts would provide financiers with an incentive to counsel students wisely, as financiers would profit from good educational investments and lose from bad ones.
The specifics of what "good educational investments" that would result in "profit" for the "financiers" might look like are left to our collective imagination.

But the focus of media attention to the topic of the value of higher education suggests that the operative definition of "good educational investment" assumes that it is one that above all maximizes future earnings in relation to tuition investment, on the assumption that a "good investment" is definable in exclusively economic -- and exclusively individual -- terms.

One influential study of "return on investment" (ROI) conducted by PayScale (a company that collects and analyzes salary and other career-related data) ranked 853 U.S. colleges and universities according to the extent to which "what you pay to attend" is worth "what you get back in lifetime earnings." Of the top 20 schools with the highest ROIs, all but two are private, six are Ivies, and the total tuition at all but three tops $200K. Apparently even that astronomical tuition investment is totally worth it because of the "projected net return on investment" over 30 years, which Payscale reports is $800K for the #20 college on the list (Rensselaer Polytechnic) and over $1 million for the institutions ranked first through ninth.

Apart from several expensive private liberal arts schools, the low-ROI end of the list is dominated by non-flagship state universities that serve diverse student populations.

Thankfully, as of course we all know, the playing field for admission even to the most expensive and elite universities in this country is completely level, and so there is no object whatsoever in the way of any student who would like to attend a high-ROI institution. [1]

But there is also the role of undergraduate major in calculating ROI. U.S. News recommends "College Majors with the Best Return on Investment," and Fortune reveals "The 15 College Majors with the Biggest Payoffs." Kiplinger's offers a helpful list of the "Worst College Majors for Your Career" and Time outlines the "20 Best- and Worst-Paid College Majors." Across the lists, the "best ROI" majors seem to be (pre-)medicine, engineering (looks like any kind will do), economics, finance, or anything that leads to a career in the pharmaceutical industry. Selecting one of these financially promising majors will "justify going to a more expensive school," according one expert, because "there's more job opportunities" and these jobs "pay better."

So, is a philosophy major (Kiplinger's 4th "worst major") at Stanford (4th highest institutional ROI) a good educational investment or a bad one? Can a high-ROI school compensate for a low-ROI major, or vice versa? Is it still a good investment to pursue a high-ROI major, like electrical engineering (5th "best major"), even at a low-ROI institution?

And which is the better investment: $200K in tuition for an anthropology major (#1 "worst major") at a high-ROI institution or at a lower-ROI university at half or even a third of the cost? Will equity financiers want to invest in anthropology majors at all? Might their "wise counsel" include discouraging students from pursuing low-ROI majors? Should anthropology and all other low-ROI majors then be reserved exclusively for those students who can pay their own way?

Will financiers support students who want to attend higher-cost high-ROI institutions if they pursue low-ROI majors? Will they support students at low-ROI colleges at all? Is a low-ROI major and/or attendance at a low-ROI institution a bad investment? Is it a better investment not to go to school at all?

Zingales doesn't address these issues, not a surprise since he never even gets around to defining "good educational investments" beyond announcing that "financiers would profit" from them and "lose from bad ones." But it does seem like a free-market guy like him would be totally down with the ROI-rankings game. By the way, his own institution offers "far above median" faculty salaries and enjoys considerable renown, despite its less-than-stellar institutional ROI ranking (#78).

Not only does Zingales offer no justification whatsoever for his claim that somehow equity financing will "avoid pushing graduates into lucrative jobs just to pay off debt," but the framing of his proposal in relation to the investor's incentive for profit suggests that in the system he envisions, the "wise counsel" of the "financiers who would profit from good educational investments" may well steer students toward high-ROI majors if not compel high-ROI major selection as a condition of funding. Imagine the effect this could have on the institutional side: "Financiers" could ultimately be the ones to determine which academic disciplines have value and thus deserve institutional support and which ones don't, which could effectively be the end of the line for some disciplines. That could be what Zingales is thinking when he announces another of his selling points for the "wise counsel" of "financiers":

Thus would create more informed demand for the schools, exerting pressure on them to contain costs and improve quality.
I would love for this to be nothing more than some slippery-slope paranoia on my part, but I don't think it is. For one thing, there is just no evidence that Zingales's formulation assumes any kind of educational or cultural value beyond the individual ROI model for the student and "profit" for the "financier." For another, the ubiquity of ROI as the central assumption of recent public discourse on the topic of the value of higher education suggests that it is not. And for yet another, programs that tie eligibility to very specific kinds of "educational investments" are already part of the discussion. For example, the Amazon Career Choice Program for warehouse employees of the behemoth online bookseller (and everything-else seller) is, according to its FAQ page, "unlike traditional tuition reimbursement programs" in that they "exclusively fund education only in areas that are well-paying and in high demand." (Those are my italics, but it was not my idea to use "exclusively" and "only" redundantly. Thanks to my low-ROI undergraduate major, today I can easily recognize such graceless syntactic constructions, and the satisfaction I take in doing so is what they pay me with instead of money.)

But none of this quite gets at the real problems with the discourse in general and the Zingales proposal in particular, one of which is this: There is no cultural consensus that students will make the best educational decisions when they base those decisions primarily (if not solely) on the basis of expected individual financial ROI. Should we accept that assumption as a logical guiding principle for any serious discussion of higher education? The case has not been made convincingly or really at all that this kind of thinking is the wisest course for our society, and I have a pretty strong suspicion that it is not. [2]

And speaking of unconvincing arguments, Zingales insists that despite how all this looks, what he is advocating "is not a modern form of indentured servitude." In his pre-emptive defense against the charge, which he is right to anticipate, he reveals another problematic ideological stance that has gone mostly (but not entirely) unchallenged in the wider public debate of whether college is "worth it." Zingales says that what he is proposing is not indentured servitude but rather

a voluntary form of taxation, one that would make only the beneficiaries of a college education — not all taxpayers — pay for the costs of it.
I could not agree more that the beneficiaries of a college education should absolutely be paying for it. Where Zingales and I disagree is in our respective understandings of who the beneficiaries really are.

The problem is not that we have a system in which those who are not "the beneficiaries" of higher education are somehow the ones paying for it. The problem is that too many of the beneficiaries are not paying anywhere near enough for it, too many of them resent what little they do pay, and too many of them would like to pay even less.

This is at least in part because a lot of people honestly don't see how they benefit from the education of other people, which I have to agree is a logical conclusion in the context of the dominant ideology that informs popular opinion on the topic of higher ed, which is (say it with me) that it is all about individual financial ROI. In that context, why would people see themselves as beneficiaries of any education but their own?

But they are. We all are. It is indisputable that a whole lot more people benefit from the education of a single individual than merely the individual and that these benefits are cumulative and span generations. We are incredibly fortunate to live in a mostly safe, mostly civilized, and relatively prosperous society with extraordinary rights and resources that are foundational for anyone who wants to build anything.

That Americans have achieved so much that is truly extraordinary -- think moon-landing extraordinary, Internet extraordinary -- is a direct result of the high cultural value that We the People have placed on education in general and higher education in particular, in which we have invested accordingly. In this sense, and I want to make clear that I think this is the sense that matters most, higher education is not merely or even primarily an investment in an individual.

But somehow the idea that it is has become a powerful cultural assumption. Of course the individual benefits of a college education are undeniable, but it makes no sense to assume (or to try to dictate) that it is valuable only in terms of the financial return to the individual (and to the "financier" who pays for it). What an incredibly cynical, short-sighted, and unimaginative view that is.

Imagine what our society might look like if Americans had always thought that way. Imagine a United States with no G.I. bill, no Claiborne Pell, no cultural tradition of education as a public good. How many valuable advances and innovations in the sciences, technology, medicine, and yes, the arts and the humanities, would never have happened if only affluent people could access a quality university education, if the only higher education open to most Americans was training to be good little worker bees in jobs that are some billionaire's idea of what is best for us?

The debt that a student takes on is all too individual, but the benefit of that individual's education is collective. And until we can find a better way to make higher education more affordable and more accessible, we ought to be working a lot harder as a nation to support individuals for whom student loans are the only option, and that includes the ones who don't opt for high-ROI majors and those for whom high-ROI institutions are out of reach. Students who choose alternatives to financial self-enrichment, who choose to pursue work in areas that make life worth living not only for themselves but also for others -- and that includes pre-school teachersartistsanthropologists, and philosophers, as well as doctors and engineers -- are good educational investments even if "financiers" don't ever recoup a dime of "profit" off them.

I guess it's easy to blame the student debt crisis on college students and graduates and professors and administrators, or to propose a funding scheme like Zingales's that does nothing to address the real causes of increasing college unaffordability, starting with the national disgrace that is the systemic disinvestment from public colleges and universities by state legislatures. It is certainly easier than trying to take on in any meaningful way the devastating consequences of student-loan debt for individuals and for the U.S. economy.

It is hard not to be discouraged at the moment, especially given the possibility that the nation might be about to elect to the highest office in the land a smirkingdishonest asshat whose idea of fiscal responsibility is disparaging poor people and stashing millions in overseas accounts to avoid paying his taxes. And never mind his equally dishonestfree-marketeerI-built-that running mate, whose own accumulation of wealth via government subsidies entitles him to a descriptor so many times stronger than hypocrite that even this low-ROI English major can't think of one that rises to the occasion.

But I hope that as a nation we will reject the cynical ideology that an educational investment is (and ought to be) an individual thing, that the point of education is an exclusively individual benefit, that the benefit can only be measured as a return on investment that can be counted only in dollars, and that any notion of a "greater good" is socialism and therefore bad. We should not accept without question an ideology that discourages and potentially even prevents people from pursuing educational goals that aren't an obvious fast track to generating big revenue for themselves (and "profit" for their "financiers"). Truly, it is a fine thing that there are people who aren't just out for themselves. And the last thing we need in this country is to continue to celebrate and reward the ideology of greed that has gotten us into so many of the messes that we are collectively in today. If we continue to allow that ideology to define our education policy and our culture, we will soon find ourselves living in a country we no longer recognize, a country that doesn't anything look like the America we grew up believing in.


[1] Of course it is not at all clear that factors that have nothing to do with quality of education, such as pre-existing socioeconomic privilege and social advantages that many high-institutional-ROI students enjoy, can be ruled out as significant influences on a high-ranking institution's ROI. That is, such a return may not be a function of the institution itself but rather reflective of the relative privilege of the students most likely to be admitted and to attend. On a related note, see "The Reproduction of Privilege," by Thomas Edsall, in which the author identifies "anti-democratic trends" in the admissions policies of the "most competitive" colleges, many of which are of course also high-ROI institutions.

[2] And don't even get me started on how all this institutional ROI business does absolutely nothing to address either the highly problematic role of elite colleges and universities in perpetuating social inequality or their unearned reputations for providing categorically and measurably superior educational experiences to those enjoyed by students at non-elite institutions. The obsession with institutional ROI helps to perpetuate the fetishization of elite schools while ignoring their role in maintaining inequality, even though that is a key feature of what makes many high-ROI institutions such "good educational investments" in the first place. As Thomas Edsall observes in "The Reproduction of Privilege," cited in Note 1 and linked again here, these institutions actually exacerbate the class divide.

A better idea might be to get over the obsession with pedigree that seems to underwrite so much of the public discourse about "value" and higher education. I mean, that kind of thing is really kind of un-American when you think about it.

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Comment Preferences

  •  Are there any laws that would prevent (0+ / 0-)

    an investor group from putting together a fund to implement this concept now?  I think the challenge is that the payout period is so long if you are looking at lifetime earnings.

    "let's talk about that"

    by VClib on Sat Sep 22, 2012 at 07:51:14 PM PDT

    •  I don't know if there are any laws (1+ / 0-)
      Recommended by:

      to prevent any individual from paying for any other individual's education. I imagine that it probably is legal for two parties to enter into a contract along the lines of what Zingales is proposing. The devil will be in the details. As you rightly note:

      I think the challenge is that the payout period is so long if you are looking at lifetime earnings.
      That is indeed a big sticking point, in part because it so strongly suggests the possibility of a lifetime of indentured servitude. Of course, in the past indentured servants have usually had a specific amount they were expected to work off (at least theoretically), which meant there would ultimately be an end date to their servitude (again, at least theoretically). This is not in any way to suggest that indentured servitude as it is traditionally known is a good idea or even remotely just. It isn't.

      Rather, it is to suggest that the very real possibility of what might for some end up being a lifetime debt is not going to be particularly appealing to most sane people. On a closely related note, another reason that this is probably not any kind of real solution to the existing problem of student debt and college affordability is that it actually does very little (if anything) to improve the prospects of the students who are most likely to need financial aid in the first place.

      For most of those students, assuming that they would still be eligible for funding under a plan like the one Zingales proposes (and I suspect that many of them probably would not be, for reasons I outline in the original post), the only difference from the current system would be the entities to whom they are indebted, i.e. private individuals and organizations instead of the federal government, which currently makes and guarantees most students loans.

      What should be ironic but sadly probably isn't any longer for anyone who has become accustomed to the shameless hypocrisy of the likes of Zingales and his cronies, is that the Zingales plan would not necessarily decrease the government subsidies for higher education that he decries. It would instead just shift those subsidies to a different class of recipients. Where today it is individual students (via Pell grants and federally subsidized loans) and public colleges and universities who are the recipients, under the Zingales plan, the subsidies would instead go to private individuals and firms (the "financiers"), who will almost certainly get generous tax breaks for their participation, and who will further benefit from the services that Zingales proposes that the federal government (specifically the IRS) provide to them to collect their returns-on-investment from the graduates by deducting funds from their paychecks and sending them to the "financiers."

      In other words, until and unless the idea of equity financing can actually be shown to work in a way that benefits students above all in a way that is fair and equitable, and can be explained in a way that makes clear that this is something other just one more cynical, dishonest proposal for shifting public money to private entities (see also: charter schools, Medicare vouchers) and for shifting control over programs and curricula at public institutions to private entities with agendas that are unlikely to prioritize anything that might coincide with the public good, I don't see how this is anything but the kind of crony capitalist boondoggle that Zingales, his BFF Paul Ryan, and their many "privatize-everything!" compadres have made careers out of.

  •  How far have we descended when such brilliant (3+ / 0-)
    Recommended by:
    David54, commonmass, alevei

    thinking and writing is required to illuminate the existence, nature, and solution of even "problems" that should be "no brainers".

    We have to have universal, unlimited, free, education.

    How can we possibly afford otherwise?

    The "samples" over the past 60+ years have already proven, beyond refutation, that our large numbers of "winners" from a more tepid version of this experiment far outperform what can only dubiously be called our "bad bets" at a level, society wide, that must be labeled as astronomical.

    There can be no protection locally if we're content to ignore the fact that there are no controls globally.

    by oldpotsmuggler on Sat Sep 22, 2012 at 08:23:30 PM PDT

    •  thank you! (0+ / 0-)
      We have to have universal, unlimited, free, education.
      What we have achieved as a nation to date, even though we have thus far fallen short of that ideal, suggests that more investment in universal education, not less, is indeed what we need. We leave decisions about these things to dangerously unimaginative people like Zingales at our peril.
      •  Maybe he's dangerously unimaginative, but he (1+ / 0-)
        Recommended by:

        sounds more like a shameless sellout to me. Maybe shooting for one of those "free market chairs" that the Koch brothers are now endowing.

        There can be no protection locally if we're content to ignore the fact that there are no controls globally.

        by oldpotsmuggler on Sun Sep 23, 2012 at 06:58:13 PM PDT

        [ Parent ]

  •  The fact that philosophy and other humanities (3+ / 0-)
    Recommended by:
    mama jo, commonmass, alevei

    majors would be a low ROI is a function of the decline of civilization.
    I repeat: the decline of civilization.
    We should just fund all education.

    You can't make this stuff up.

    by David54 on Sat Sep 22, 2012 at 08:38:32 PM PDT

  •  it seems that some are on a quest for (2+ / 0-)
    Recommended by:
    commonmass, alevei

    a Brave New World.

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