CHAPTER EIGHTEEN

Paying the Professional Schools

THE BEST INVESTMENT AROUND, by far, is professional school. Whether it is engineering school or medical school, law school or library school, business school or architecture school, graduation from one of them increases a person’s lifetime earning power by a substantial multiple of the investment, that is, of the cost of his or her education.

Not all professional schools produce the same economic returns, of course. But even the ones with the lowest “yield” (probably schools of education, social work, and library science) endow their graduates with the potential of earning well above the median American income. Yet financing professional education will become increasingly difficult, whether the school is tax-supported or private.

Costs have been rising much faster at professional schools than at undergraduate liberal-arts colleges. Yet major increases in costs are still ahead for a good many professional schools. It is in those schools, after all—and by no means only in engineering or graduate business schools—that faculty salaries are becoming so uncompetitive that there is already a serious brain drain. And with money for higher education becoming increasingly scarce, the suppliers, whether legislatures or private donors, are bound to cut back on supporting those institutions—the schools for the “elite” and the “affluent”—rather than on supporting education for the “masses” at undergraduate liberal-arts colleges.

President John R. Silber of Boston University long ago proposed to bridge the gap between the riches that universities generate for their graduates and their own penury with a loan program under which the graduates would repay their schools the full cost of their tuition over five or ten years.

The problem with that proposal is that it might deter a substantial number of the ablest applicants; going into debt for a sizable amount at the very beginning of one’s career is frightening, especially to young people from low-income backgrounds.

A loan program of that kind would also grossly discriminate against a graduate who chose to dedicate his or her life to public service rather than go where the money is—the physician, for instance, who goes into research or becomes a medical missionary in Africa rather than a plastic surgeon on Park Avenue, or the lawyer who becomes a public defender rather than a corporate-takeover specialist.

If professional education is treated as an investment, however, the problem is quite simple. Investments are paid for out of the additional value they create. All that is needed to finance professional education—indeed, to put it on Easy Street—is to return to it a fraction of the valued added by it, that is, of the increase in the graduate’s lifetime earning power.

This would not burden the person who chooses to become a medical missionary; his liability would be zero. And it would also not burden the colleague who rakes in the money as a successful plastic surgeon; she can afford it. A fairly small proportion of the value added through professional education—at most 5 percent of the graduate’s earnings above the median income—should be adequate to support the professional school and give it financial independence. It would even be possible to support graduate schools of arts and sciences—the schools in most of our universities that are in the worst financial shape—in this way. Graduate schools of arts and sciences are, so to speak, the source of “R & D” for the professional schools, and it is shortsighted management to cut back research and development to what it can earn by “selling” its by-products.

Yet this is exactly what many of our universities are doing when they cut the budget of the graduate school of arts and sciences to what it can support by training Ph.D.s for largely nonexistent teaching jobs at colleges. The main “product” of that graduate school is knowledge and vision—and that needs to be supported adequately whether there are a great many doctoral students or only a few.

If we finance the professional schools through assessing the value added to the lifetime earning power of their graduates, and then put, say, one-tenth of the professional schools’ income into the graduate schools of arts and sciences, we would, I am convinced, have a solid financial base for research and scholarship in all but the most expensive areas. We would attain a degree of financial independence that would ensure that research grants, whether from government or industry, would again become the icing on the cake rather than the cake itself.

But how would we organize this? One way—the easy but dangerous way—would be to collect through the tax system.

Let us assume that the graduates of professional schools get a distinct Social Security number. All that would then be needed would be a few lines on the annual tax return where the taxpayers would deduct an amount equal to the median family income from their taxable income, figure out 5 percent of the difference, and add the result to the tax they remit. This would be no more difficult than the calculation for the Social Security tax on the self-employed, which is already part of Form 1040. No change in the tax law would be necessary to make the 5-percent charge tax deductible as a charitable contribution—legally it is a payment on a charitable pledge.

I would much prefer, however, a separate and nongovernment mechanism; let’s call it the Academic Credit Corporation. It would be a cooperative to which universities would turn over their claims, which the cooperative would collect for all of them.

One major advantage of this is, of course, that claims would soon—perhaps within five and certainly within ten years—become bankable instruments that could be sold in the financial market or borrowed against, thus generating an early cash flow back to the professional schools, based on actuarial expectations and experience in collecting against pledges. Even more important and desirable, such a cooperative would keep the schools and their money apart from the government.

I can think of no greater contribution that our major foundations could make today than to emulate what the Carnegie Foundation did sixty years ago when it underwrote the Teachers Insurance and Annuity Association (thereby, in my opinion, ensuring the survival of private higher education in America) and underwrite the Academic Credit Corporation.

What about the possibility that requiring a pledge to repay 5 percent of value added, especially if it were irrevocable and firmly collectible, would deter applicants?

To be sure, if a weak professional school pioneered the idea, it might lose applicants, but a strong one—the medical school at Harvard University, for instance, or the Wharton School at the University of Pennsylvania—could only gain. For there are strong indications that a good many able applicants are already deterred by the high and rising cost of professional school. If they could defer payment until they were able to pay—that is, until they had the income that a professional education makes possible—they could and would enter.

Unless the professional schools find a way to get paid when their graduates are able to pay out of the value added by the professional degree, they may soon find that they have priced themselves beyond the reach of all but the children of the rich, while still not taking in enough to maintain faculties, libraries, laboratories, and research.

(1982)