There has been a lot of talk lately about free college. Being a Libertarian I initially scoffed at the idea. Then, as I normally do, I started to wonder if there was any idea that could improve the current college “business model” to attain most of the same perks that “free college” would be able to attain.
It would be nice if money were off the table when it came to choosing where to attend college. It would be nice if my income, or my family’s income or social status, was not a factor. It would be nice if students were accepted solely based on their merit and potential, disregarding all other factors. To me, this is a principle that makes me want to find a solution as a Libertarian. I believe that I have done just that.
What if we had a business model that could remove the need for tuition, while making a college more profitable? What if colleges viewed students as investments and it was in their best interest to provide them with competitive degrees and to help them find employment quickly upon graduation? What if a college based its profitability off of the profitability of its alumni? What if colleges understood the needs of the market and focused its degrees on these areas to not only meet the needs of the market, but also to maximize alumni income? What if students that could not complete their program, and had to drop out, could walk away debt-free? What if the answer to all these questions is yes? Well, it is.
I have developed a business model that requires no upfront tuition to be paid by students. Instead, students agree that upon graduation, they will pay 12% of their income to the college for the next 12 years. With this basic agreement, the college’s profitability is not interlaced with the profitability of the student upon graduation. The college will want the student to find a high paying job quickly, and could offer services to help the student in this manner, and since the student is bound by this contract for 12 years, it is in the college’s interest to help its alumni for this entire time. The college wants to produce graduates that will earn a higher wage to maximize their profits.
In order to accomplish this, the college will focus degree programs on areas where there is a need in the market. Colleges would shift away from degree programs that earn little money and have little need in the market. Colleges would offer degree programs that would best fit the skill-set of the student and help the individual to be as successful as they can. The college now cares about counseling and motivating students to not drop out. The college now cares about each class within the degree program because it is in their interest to be as efficient as possible. Each class would be taking up vital space in a streamlined degree program designed to provide the best skill and knowledge to students to help them be as successful as possible.
Now the college would start to earn a reputation for itself and its alumni because of its better degrees. The market would constantly change and the degree programs would change in order to keep up, because that would be in the best interest of the college. This business model would remove the government from being loan officers, remove the need for grants for education, remove the debt that students face for decades, and create a contract between the college and its alumni that would be a mutually-profitable partnership.
In order to move this business model away from the theory and to test its validity, I took a look at the University of Colorado. During the Fiscal Year 2015-16 the University of Colorado’s revenue by tuition was $872.3 million, with a student headcount enrollment of 63,202 and awarded 14,479 degrees. If each of these graduates started out earning an average of $40,000 a year and received a 3% increase each year either through changing jobs or regular pay raises, once the 12 year span of alumni was full, the University of Colorado would be bringing in over $986 million dollars, an increase in revenue of over 13%. The average student would end up paying back $68,121 without any “interest.” These same 4 year degrees currently cost close to $120,000 with in-state tuition. If the average earnings of the alumni are $50,000 a year, the college’s income can increase to $1.2 billion, which would be an increase of over 41%. Understanding this, one can see why the colleges would focus on finding the best possible opportunities for its alumni.
I can hear you asking how does the university make more money while the student pays less? It’s simple; we have removed the middle-man, the government. By doing so, we have removed compounding interest and all payments start off based on the graduate’s current income. If the college has graduates that are earning less than their peers, it is in everyone’s interest for the college to assist the graduate to find a higher paying job.
Students that attend college, but fail to graduate, owe nothing. This prevents the current problem of student debt without a degree. The student can always return later and complete their degree, or transfer to another college. Transferring credits would have the same effect as the college owning “stock” in the transfer student. The 12% that the student would pay upon graduation would be split based on their credits among the two colleges. There are sure to be challenges to this business model, but they could be overcome with creativity and resources.
The biggest challenge will be in the initial years until the college attains a full 12 year span of alumni that are paying their 12% payments. This could be overcome by using a hybrid of the tuition system with the 12×12 program, or colleges with a large endowment might use some of it to attain this model. Harvard currently has the largest endowment in the world, just over $36 billion. It could be the first university to implement this business model as a social experiment.
There are solutions to these challenges, and these solutions lead us to a better business model when it comes to education costs in America.
* Jeffrey Smith served in the Army for 13 years, currently working as a Senior Operations Specialist and Analyst for a not-for-profit that proctors the clinical skills exam for medical students and has a master’s degree in business administration from Excelsior College. Jeff is a long time Libertarian looking for opportunities to bring the Libertarian platform to everyday people.