Meet Alaric Blair, a 47-year-old elementary school teacher from Calumet City, Ill. He is strict, pleasant and ambitious. Right now, he’s taking advanced classes at Chicago’s Dominican University, hoping to recast himself as a school principal. It’s costing him $10,000 — and he has no desire to get tangled up in the current student-loan mess.
Anyone paying for higher education in the U.S. knows we’ve reached a financial crisis. Tuition keeps rising much faster than inflation. Going in debt to cover costs has become so common that education loans now exceed $1 trillion. Borrowers’ fates are shockingly inconsistent. Some graduates rapidly dig their way out of debt and enjoy better lives as fully accredited doctors, actuaries or the like. Others can’t finish costly programs or strike out in the job market, leaving them ill-served by easy credit. There’s no flexibility in this system: repayment schedules keep ticking.
Back in 1955, economist Milton Friedman argued in favor of financing education with variable-repayment systems that tied into students’ eventual earnings. Top earners would repay more. Dropouts and hard-luck cases would be treated more leniently. Modern-day researchers such as Miguel Palacios of Vanderbilt University continue to advocate equity-based financing, tied to a fixed percentage of future earnings. Yet such approaches exist mostly in academic white papers, rather than in the real world.