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'Educare for All' would free students from oppressive debt

'Educare for All' would free students from oppressive debt
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When President-elect Biden takes office this January, he may, depending on which party controls the Senate, have the opportunity to solve the nation’s $1.6 trillion student debt problem. Out-of-control debt and costs have become permanent features of American higher education. The average amount of debt for 2019 college graduates was $29,000. It is $65,000 for those with a master’s degree and well over $100,000 for students with professional degrees. These debt burdens are disproportionately borne by students of color and contribute to persistent racial wealth inequality. 

Students should not start their careers under the oppressive yoke of debt, owing the most at the time when they earn the least. For this reason, debt relief, which has been proposed by Sens. Elizabeth WarrenElizabeth WarrenInequality of student loan debt underscores possible Biden policy shift Thomas Piketty says pandemic is opportunity to address income inequality The Memo: Biden faces tough road on pledge to heal nation MORE (D-Mass.) and Bernie SandersBernie SandersClub for Growth to launch ad blitz in Georgia to juice GOP turnout Inequality of student loan debt underscores possible Biden policy shift In defense of incrementalism: A call for radical realism MORE (I-Vt.), would be welcome. That said, periodically canceling student debt is no substitute for a comprehensive approach to financing higher education.   

What if, instead of the current system, students could apply to schools – vocational, college, graduate and professional – knowing that their tuition and other fees would be covered? The federal government would make tuition payments to schools on behalf of enrolled students, and it would monitor schools for cost and quality. These payments would be financed through a progressive income tax. This model may sound familiar because it is a version of Medicare for education. Call it “Educare for All.” 

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Under Educare, the government would commit to funding the total cost of attendance –tuition, fees and related expenditures – for all students except the very wealthy. Students would be assigned a percentage copay for the cost of attendance based on their family’s income and assets. For most students, the copay would be zero, but students from wealthier families would pay a fraction of tuition at each school. Students could apply to a fixed number of institutions for no fee and to any institution with the knowledge that they could attend if they gained admission.   

Because students would no longer have incentives to choose schools on the basis of price, the government as payer would need to monitor the cost and quality of each institution. This would be a welcome change from the current market in which students are often overcharged for degree programs that offer little benefit, and tuition consistently outpaces inflation because of reduced public support, increased faculty salaries and expensive administration and amenities. As with Medicare, all educational institutions would be required to accept Educare, and the government would determine an appropriate per student reimbursement for each institution based on the cost and quality of its services. That reimbursement would correspond to tuition for each Educare-eligible student. 

Educare would end the problem of student debt as we know it, and it would encourage more students to pursue higher education at all levels. It would also advance the cause of equality in higher education. Institutions of higher education should not operate as finishing schools for the wealthy. Yet at the 70 or so Tier 1 colleges, 10 percent of students come from families with incomes in the top 1 percent, while only 4 percent come from families with incomes in the bottom 20 percent. This system of financial exclusion must end. Educare would put every college, graduate and professional school within the financial reach of students from working and middle-class families. 

How much would Educare cost? Americans spend about $150 billion annually on higher education. Suppose that Educare were to cover $120 billion of spending, which is a high estimate given that Educare would lower costs by imposing fiscal discipline on schools. Americans already borrow close to $80 billion a year from the federal government for higher education expenses, so Educare would effectively convert the government’s investment in students from debt that is payable in fixed installments to equity that is paid as a progressive percentage of earnings. Educare would then require an additional $40 billion annually, which makes it comparable fiscally to Sen. Sanders’s “College For All” plan, except that Educare would cover all higher education programs.  

There is widespread agreement that both student debt and higher-education spending are on unsustainable paths. What is needed is a plan that allows all students, not just the wealthy, to apply to any school where they qualify, attend any school to which they are admitted, and embark on their careers free of debt, while curbing the cost of education. By achieving each of these worthy goals, Educare would establish a system of financing higher education that is both responsible and just.

Prasad Krishnamurthy is professor of Law at U.C. Berkeley, where he teaches and writes in the area of financial regulation.