One of the ongoing issues in America today is the high cost of a college education. Failure to attend college is one of the reasons for the increasing income inequality and the increasing separation between high and low income persons. The ability to offer universal college attendance to all can reduce future income inequality while enhancing the quality of life of everyone.
In addition, high college attendance leads to an overall increase in wealth in the country. In post WW-II America college was available to all veterans leading to a massive increase in American’s wealth and standards of living. Post WW-II America is generally looked at by people as the high point of American culture and the model of many of the things conservative’s demand – families led by a single wage earner (male) with stay at home wives taking care of the home and children.
Beginning in the 1970’s, college education has increasingly been out of reach of many due the high cost and the difficulty in either getting student loans or paying them back especially in an economy with such extreme volatility as ours with booms and busts following themselves with regularity. States no longer want or can afford to subsidize their colleges, resulting in higher and higher college tuition costs making education more affordable resulting in fewer people attending schools causing costs to increase.
A proposal to pay for college is to charge for college just like social security. Provide a college education for a deferred payment of 3 or 4% of annual income once you leave school. In general, a charge of 1% of annual income for each year of school (including graduate school) appears to work nicely for both the students and the UC system.
We can use the University of California UC) system as an example. The budget of the UC system is about $6 billion annually. Of this roughly $3 billion comes from the state, $1 billion from income producing activities of the UC system and $3 billion in tuition and fees. Approximately 238,000 students currently attend the UC, with annual tuition of $13,500.
If UC charged 1% of a person’s annual income from age 24 to age 65 assuming an average annual income of $55,000 at year 1 increasing at 2% per year, by year 14 the system would be taking in as much in tuition as it does today. By year 32 the UC system could be totally self-funding with no need for state general funds.
Some of the benefits of this approach is that during recessions, people’s incomes fall and so do their education costs. During boom periods, people’s incomes rise as do their incomes and their education payments. Additionally, people can now afford to go to college for historically lower paying jobs such as art and humanities just because they want to. A lower paying job that you like means your education costs would be lower than the finance major that goes to Wall Street.
Finally, at a 5% discount rate, the net present value of college is only slightly higher for an average earner over their 40 year work life than if they paid all $54,000 during their college days.
The biggest problem is the first few years when the system is operating at a deficit. But fortunately, banks and hedge funds would love to lend UC the money necessary to fund the initial deficit until the system is self-sustaining.
There are other benefits of deferring college costs to both the individual and society. A small voluntary tax surcharge to pay for school is a good arrangement for students, the state and society.
For some reason unknown to me, the embedded excel tables were deleted. If someone is interested in the numbers I can provide them perhaps by just embedding a spreadsheet — but they are big and don’t seem to format correctly. I tried to put them in as a picture but that didn’t work. If no one is interested in seeing the numbers, no reason to spend lots of time trying to figure out how to paste a spreadsheet in here.
Table 1 – Example of a class of 238,000 entering school with ¼ graduating in 2020 and ¼ graduating each year thereafter. On average, each graduate would pay 2% of their average income of $55,000 or in year 1, 59,500 graduates would pay $1,100 each, the following year 119,000 students would pay, etc. But the first year students would have seen their salaries on average increase by 4% (maybe a little high).
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Table 2 – Total tuition payments received by the UC system beginning with the first graduating class and growing with each class.
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