Since the “Great Society” years of LBJ, American higher education has been off course. The reason: federal student aid money that altered the incentives of college officials.
In today’s Martin Center article, finance professor Robert Wright offers a solution — colleges should invest in their students, not in the markets. Just as many big businesses help their customers finance big-ticket items, so should colleges and universities help students who can’t afford the cost of their product by lending them the money they need.
Instead of trying to amass as much wealth as possible in their endowments (which are often rather poorly invested, Wright notes), college leaders should lend to students for their education. Incentives for colleges and students would again be properly aligned. Colleges would have some “skin in the game” and therefore more carefully choose and educate their customers.
Moreover, by cutting the ties to Uncle Sam, schools would regain their independence, which is why Hillsdale College decided many years ago to take no more federal money and run the kind of student-finance system Wright advocates.