January 18, 2016

STICK TO THE BIG IDEAS:

What can Jeb's plan do for higher education? (Beth Akers, 1/18/16, Brookings)

The big idea at the heart of the plan is to reduce the risk of borrowing to go to college by adopting a system that would function like an income share agreement between the student and the government.

There are three main elements to this aspect of the plan:

Each individual could access $50,000 of credit towards educational expenses over their lifetime.

Borrowers would repay by committing a set fraction of their income over 25 years, rather than repaying based on a fixed rate of interest. So borrowers with high earnings will pay back more than they've borrowed (up to a limit), while borrowers with low earnings will pay far less.

Collections would be through the tax system, in place of the dizzying complexity of the current repayment system. (PLUS loans for both parents and graduate students would be eliminated).

Accountability

In addition to these far-reaching reforms of the federal loan program, Bush's plan also creates a "skin-in-the-game" system for institutional accountability. He proposes that institutions take on some liability when their students fail to fully repay their debts.  Many oppose this additional layer of regulation, but it's a reasonable model that does have precedent in other markets. For instance, state unemployment insurance programs are partially funded by higher payroll taxes from employers who have laid off more employees in the past.

Promoting innovation

The plan also creates opportunity for innovative business models in higher education through a reform of the rules for institutional access to federal aid. Here the plan is thin on the details, but it endorses a new pathway to eligibility based on performance outcomes rather that the traditional model of accreditation. Encouraging innovation is the right idea, but the success of this proposal would completely depend on how it's implemented.

Posted by at January 18, 2016 5:10 PM

  

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