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Social Mobility Memos

What can Jeb’s plan do for higher education?

Beth Akers

Jeb Bush just released an education reform plan that represents a wholly new approach to the federal government’s involvement in higher education. So—is it any good?

Big idea: innovative financing system

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:

  1. Each individual could access $50,000 of credit towards educational expenses over their lifetime.
  2. 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.
  3. 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).

Sound principles, a good start

As with any new program, the devil will be in the details, but this proposed reform is built on solid principles. Education is a sound investment that pays large dividends for most students. As such, reforms that seek to provide broad-based relief to students miss the mark. We need instead to be addressing the problem of debt coupled with low earnings. This plan does exactly that.

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.

A misstep on student information

The most obvious misstep in the plan is an inadequate proposal for improving student access to information. Information on institutional outcomes is a critical part of the system of accountability for institutions. Bush’s plan proposes strengthening the state databases which track student outcomes across time, but it fails to endorse a centralized data system, which would be the most efficient and effective way to collect and disseminate the information that consumers need.

Overall, Bush offers a thoughtful plan that addresses some of the key issues plaguing the nation’s system of higher education. Right now the debate is dominated by the idea of making college free. So the plan will likely be criticized from the left for the absence of additional subsidies. But the plan looks to be in line with both values of the GOP, and the needs of the higher education market.

For Beth’s earlier analysis of Clinton’s higher education plan, click here.

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