N.J. should try Oregon's tuition plan

By Steven Pressman

College costs in the United States have increased four times faster than household incomes during the past three decades and more than the cost of almost anything else, including health care.

What is true nationwide is true of New Jersey.

Tuition and fees at Rutgers University rose from $3,786 during the 1995-96 academic year to $12,755 for the 2011-12 academic year. Had they merely increased with inflation since 1995, they would have been about half as large - $6,416.

There are many reasons tuition has risen so sharply in New Jersey. Probably most important is that state funding for higher education has not kept up with inflation or with the rising number of students attending college. Predictably, universities had to increase tuition in order to educate their students.

It is hard to imagine a more shortsighted policy. For New Jersey to thrive in the future, state residents will need college degrees. Higher tuition does not help achieve this.

Conservative opponents of government assistance to universities usually argue that people have significant incentives to attend college and that college students should pay for their future gains.

The point about the economic benefits of a college degree is correct. Average earnings for a college graduate exceed average earnings for those without a college degree by close to $25,000 per year. Over one's working career, a college education is worth around $1 million.

But this argument is too conservative when it comes to understanding the gains from college.

Graduates making more pay more taxes to the government. Educated workers make their coworkers more productive. And having more educated workers will attract firms to locate within the state.

State expenditures on higher education are an investment. New Jersey has fallen short here for two decades - a policy error that needs to be reversed.

This is why the recent proposals by two New Jersey legislators, State Reps. Celeste Riley (D., Cumberland) and Joseph Cryan (D., Union), are so awful. Their solution to the problem of sharply rising tuition is to impose additional costs on state universities.

Through a series of bills, they seek (among other things) to freeze tuition for nine semesters for incoming students and to have universities graduate a large share of incoming students within five years. Schools failing to do this would receive even less state funding.

In either case, revenues would decline at state universities. Under no circumstances would universities get more money from the state under the Riley-Cryan bills. The result would be fewer classes and faculty members, larger class sizes, and lower-quality education.

This would be bad policy if there were no alternatives. The fact that there are alternatives makes the Riley-Cryan plan truly awful.

One simple solution would be greater support to state universities.

A more complex solution would be to adopt a new model of financing college education. The proposal developed in a Portland State University economics course deserves serious attention here.

The plan makes college free to attend, with costs paid back after graduation. Funding would come from selling bonds. The economics class estimated that a 3 percent tax on the income of each graduate for 20 years would repay what the state borrowed to finance the program, plus interest.

This proposal has many advantages. Students wouldn't shun college because of costs and future debt. They wouldn't work excessive hours while taking classes to pay for their education. They would choose majors that suit their interests rather than what will enable them to repay college loans. And, in hard times, loan repayments would fall with income, leaving more money for necessities.

A pilot program is set to begin in Oregon. Washington state is also considering enacting this program.

Rather than wasting time debating the Riley-Cryan plan, New Jersey should adopt something like the Oregon plan. Perhaps the way to begin would be to give students the option of paying half their tuition now and the other half in the future with higher taxes.

Either way, such a plan should result in great benefits for New Jersey.

A large share of high school graduates from New Jersey attend college. Yet we fall well below the national average when it comes to high school graduates attending college in their home state. Paying for college later would also encourage high school graduates to attend college in the state. And with more residents attending college in New Jersey, more would remain here after graduation.

Paying for college with future earnings is a win-win. It is a practical solution, an investment in education, and the state's future.