Financing Education

Higher Education Finance

I led a project that analyzed the economic feasibility of the Educational Opportunity Bank, a proposed system of contingent-repayment loans to be used for financing college tuitions. The basic idea is due to Milton Friedman. The Ed Op Bank plan was being pushed in the 1960’s by Professors Jerrold Zacharias of the MIT Physics Department and Andrew Gleason of the Harvard Mathematics Department. It had the support of President Clark Kerr of the University of California and other leaders in higher education. The goal of the plan was to make financing of higher education readily available through direct loans to students and to insure students against the randomness of returns to investment in higher education.

The project team (which included Frank Fisher, Duncan Foley, Nan Friedlander, and Stan Fischer) put forward a detailed plan that involved no direct costs to the Treasury but did have serious indirect government budgetary implications. At a White House press conference in which I participated, lobbies for the public universities were strongly opposed to this form of student choice. The private universities sat on their hands. Nonetheless, successful pilot-project Ed Op Bank programs, were later adopted by the Stanford Business School (under the leadership of Dean Arjay Miller), Yale University, the Ford foundation and others. This project is now out of date, given the ballooning of student debt in the US. The research is mostly of historical interest.