Senator Rubio Advances the Ball

When it comes to higher education, most politicians are cheerleaders. They’re content to speak the usual pieties about the importance of college and never do anything that could upset the status quo.

In a recent speech at Miami-Dade College, however, Florida Senator Marco Rubio suggested several higher education changes that might seriously upset the status quo. Let’s take a look at them.

First, there is the Rubio-Wyden bill, known as the Student Right to Know Before You Go Act. This bill isn’t exactly new, having been introduced back in 2012. No matter—it is an intriguing proposal and all the more so for its conservative/liberal cosponsorship.

As Senator Rubio told his audience, his bill “aims to give students reliable data on how much they can expect to make versus how much they can expect to owe.” There is quite a bit more to the bill than just data on college costs and prospective earnings (I examined it more fully here) but let’s just consider the costs versus benefits aspect.

A “Student Right to Know” Site

Much of the higher education establishment’s pitch to students is that on average, people with college degrees earn way more money over their lifetimes than do people who don’t have one. Big numbers like a million-dollar college bonus are irresponsibly tossed around. Some people are probably lured into enrolling in college on the basis of such grandiose but misleading claims that college is the path to prosperity.

There has been a lot of pushback against the notion that going to college is a great “investment” worth almost any cost. The Pope Center has often done that. But imagine how much greater the impact if the federal government collected and made available the information necessary for students to make individualized comparisons pertinent to their own circumstances.

A student could go to the “Student Right to Know” site and look at, for example, the comparative earnings of English majors, psychology majors, and history majors who graduated from Colleges A, B, and C and then look at the costs of attending each school. Based on that information, the student might conclude that one of those combinations looked better than the others.

And it’s also possible that after analyzing that information the student would come to the conclusion that each would be a losing proposition. No doubt a great many marginally employed college grads right now wish they had known before going the kind of sobering statistics that the bill would make readily available.

Having more information is good and this could have a huge impact on higher education by reducing the number of students overall, so universities can concentrate on serious students and stop giving out weak, generic degrees.

Income-based Repayment

Senator Rubio’s next proposal is to change the repayment system on federal student loans. At present, there are income-based repayment options available, but, he states, they are not well known, inefficient, and replete with unintended consequences. He would change the law so that all student loans would be repaid on the basis of a percentage of the graduate’s income.

The senator spoke from personal experience as to the severe difficulties that young graduates find themselves facing when the large monthly bills for college start to arrive at a time when they’re struggling to get their careers into gear.  If they had to pay only a percentage of their income, that would significantly ease the burden.

This is the idea that I like the least. Indeed it would ease the burden in the years right after graduation, but at the same time income-based repayment would lessen or even remove the incentive that students now have to think prospectively about the cost/benefit ratio of college. With income-based repayment in place, the government is in effect telling students, “Relax—if college turns out not to do much to increase your income, you won’t have to dig deep to cover the costs.”

Moreover, I fear that an income-based repayment system will fray around the edges as politicians make the percentage of income lower to demonstrate their concern for the well-being of students (much as they have made Social Security more and more generous over time to show their concern for seniors) and that more debt will be forgiven (which is to say, dumped on taxpayers).

Instead of trying to make federal student loans more manageable, the better way to go would be to get as many people as possible to finance their education in other ways. Senator Rubio’s third idea takes us in that direction.

Student Investment Plans

He advocates “Student Investment Plans” under which a student would receive the funding needed for college from a private investment group. That group would enter into a contract with the student stipulating that the money would be repaid with interest once the individual got into the labor force.  The investment group makes money by backing students who used their college time effectively and added to their human capital.

These human capital contracts have the signal virtue of putting college to the test of the market. The incentives change dramatically when students have to convince potential investors that they are good bets, rather than being automatically entitled to loans from the government.

The concept of human capital contracts, however, is not new and does not require any federal involvement. Back in 2004, I wrote about a company named My Rich Uncle, which had been in this equity funding business since 2000. Unfortunately, MRU couldn’t make its business model work; it filed for bankruptcy in 2009. That does not, of course, show that equity funding is not feasible, but only that one firm failed at it several years ago.

I happened to have the opportunity of speaking with Senator Rubio personally about this and he said that he would make certain that the bill cleared away all federal tax and regulatory obstacles to the success of firms that wanted to try the student funding business. In my view, that is all the federal government should do; it should not set up an approval process for such firms since compliance with government regs is apt to scare away some or all competitors.

If the clearing away of legal obstacles is what it takes to engender a market for equity funding contracts, I say the sooner the better.

Finally, Senator Rubio addressed the problem of accreditation. He mentioned favorably that Utah Senator Mike Lee has introduced legislation that would put accreditation in the hands of the states. (That is where it belongs according to the Tenth Amendment.) Rubio wants to go further and set up a federal alternative to the standard college degree from an accredited college as a means by which people can demonstrate their competence and employability.

Perhaps the most subversive idea Rubio has in this regard is a federal program that would certify people who have learned valuable skills outside of the formal educational system.

The Senator said, “We could jumpstart and create private sector confidence in this practice by creating a pilot program to hire such workers in federal agencies. The agencies would identify occupations where employees could have learned skills from non-traditional sources….I suspect that we will find that in many fields, the sources of an employee’s education is far less important than many previously thought. Those who have the skills and aptitude to be successful in a job deserve the opportunity to be considered for employment, even if they learned the trade from a non-traditional source.”

Here’s why that could be revolutionary. Much of the private sector has succumbed to degree snobbery to such an extent that having a degree from an accredited college is now mandatory for people seeking a wide array of jobs that could be done by any intelligent and industrious person, with or without any college coursework. Hardly any firms have shown a willingness to break free of the college credential mania.

What if the federal government did?

It was a good thing when the federal government stopped discriminating against people based on race. It would also be a good thing if it stopped discriminating against people on the basis of educational credentials. While I oppose much of what federal employees do, those we hire ought, at least, to be considered on their actual abilities; no one should be screened out for want of a college degree.

Suppose that the federal government set this fine example and the private sector saw that there are alternatives to screening people on their possession of college degrees? A great many students who now go to college just for the sake of getting that credential would think about other paths after high school—others perhaps even while still in high school.

Bill Clinton once said that America needed a “national conversation about race.” What the country really needs is a national conversation about college. Whether or not any of his ideas ever become law, Senator Rubio will probably spark that conversation.