And here is the third and last part of my series on how asking how to pay for college is often the wrong question. This post is about the "Graduate stock" column in The Economist of August 22, 2015, subtitled "Funding students with equity rather than debt is appealing. But it is not a cure all." If you've read Part 2, you know I think we have to take a hard look at higher ed costs before looking at Band-Aids for the problem, among which offering equity counts as a gimmick in an election year where politicians want to show the electorate they care. The idea - motivated that "despite the rosy averages [of 15% ROI due to a bachelor's degree], not all graduates succeed, so borrowing to pay for college is a gamble" - is that "students could sell a percentage share of their future income to private investors and use the proceeds to fund their studies." The column's author does point out the adverse selection problem as evidenced by an experiment with equity financing at Yale in the 1970s, meaning that the students most likely to enroll in the scheme are those who plan on making the least money.
There are of course many issues with the idea of valuing college through a ROI (Return-On-Investment) concept because of the life skills students learn when they are away from home in a supportive environment that helps them figure out how to deal with roommates or classmates, set goals, follow through, make friends, become self-starters and the much-used "learn how to think". Except "learning how to think", which may require the involvement of a more senior figure of some kind, the other skills can also be learned outside college, for instance if the young adults come from family environments where they have had to grow up quickly. As for learning how to think, maybe there are ways to achieve that through prolonged mentoring or apprenticeship that don't involve paying $200,000 for the privilege (and it is not clear how many college grads actually do know how to think when they get their degree).
Students shouldn't have to go to college if it's not going to pay off for them, meaning that they can't pay the loans back. (Then the higher ed market would have an incentive to make college "worth it" to the segment of the population who would otherwise not enroll or drop out or postpone enrolling.) So here is my idea, and it may seem a bit radical, but other countries have a similar system, and I feel it would address a lot of the problems we see on today's campuses.
First, students should be allowed to attend two years of a pre-selected curriculum and graduate with an Associate's Degree of some sort in any college (not just community colleges). Students would have to reapply after two years to continue in the university they entered as freshmen, or would be able to apply elsewhere. People will complain that this won't allow students to take risks, but the first two years of college are the years where you learn the basics in a required curriculum so students wouldn't have much choice in their curriculum and so no opportunity to take risks anyway, and they could take all the risks they want in the second part of their curriculum. I don't think the four-year residential college system has encouraged students to take many risks. It only encourages some students who have worked very hard under their parents' watchful eye to gain entry into the college of their choice to behave like beached whales once they have finally gained admission into college. If students know they have to re-apply in two years, maybe they will pace themselves more. Or maybe it will just postpone the moment they will behave like beached whales, which would also coincide with the moment where they turn of age regarding drinking, and a better alignment between the legal age of drinking and the beached-whale behavior may not be a bad thing for them and for society in general.