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Transforming the Way We Finance Higher Education

posted by David Moss

In my various posts this week, I've focused on some of the problems that afflict our current system for financing higher education.  The new approach I've suggested would ensure that every American could pay for college on the basis of income-contingent federal loans. 

A comprehensive income-contingent-lending (ICL) program would transform the way we finance education and training in this country, much as social security transformed the way we finance retirement. In fact, such a program might be thought of, roughly, as social security in reverse. Instead of paying-in over one’s working life to finance retirement (i.e., once one’s human capital is depleted), an ICL program would allow a young person to build human capital up front and then spread the cost over his or her working life. Like social security, an ICL program would allow Americans to cover risks they couldn’t otherwise cover on their own, and it would take advantage of the withholding system to simplify and streamline administration.

The ultimate investment we can make as a society is an investment in the education of our young people. Sadly, our existing system for financing higher education is hopelessly inefficient and complex – and this, at a time when the benefits of higher education have never been more clear. We can do better. A comprehensive ICL program would be like a GI bill for everyone, but one that would also pay for itself over the long term. Social security transformed retirement by changing the way we finance it. It’s time we do the same for education.



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