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Ben Franklin and Ted Wheeler: “An investment in knowledge pays the best interest”

Benjamin Franklin was a failure as an apprentice chandler. He almost died as a runaway from his second apprenticeship, as a printer. Eventually he figured out what to do with his life. In the end he donated L1,000 in his will to start a revolving fund to lend money to Boston students, so they’d have an easier time of it than he did.

The idea was that his money would fund the first students, then they’d repay the fund out of their higher incomes, and that money would go to new students, ad infinitum. In 1908 Andrew Carnegie chipped in more money, creating this technical college, which still exists and specializes in HVAC engineering and electrical technology. The inventor of the lightning rod and the Franklin Stove (both of which, in an early example of open-source technology, he refused to patent) would be pleased. But charity is not a reliable way to fund education. Even Carnegie and Franklin could only create one technical school.

Oregon now has an innovative program under consideration to do something similar on a much larger scale. State Treasurer Ted Wheeler’s idea originates with the well-proven fact that, even if you ignore the benefits to society, the private return to education, in terms of higher wages, is far higher than the government’s cost of borrowing. Betsy Hammond explained the plan in the Oregonian last year:

Oregon currently awards about $50 million a year worth of “opportunity grants” — enough for just a fraction of eligible students who apply. More than 80 percent of students who qualify are turned down because the state runs out of money.
If lawmakers agree, voters would be asked to approve the plan in fall 2013 or spring 2014, said Wheeler’s policy director, Michael Selvaggio. The state would then sell $500 million in bonds to start the fund, which would be projected to grow to $6 billion in 30 years.

UO’s PathwaysOregon program uses these opportunity grants, private money, and federal aid to put together tuition free packages for to low income students – but it’s also underfunded and turns away many students.

Borrow at 3%, invest at 10%. What’s not to like? Any such program needs to be carefully designed, because of the moral hazard and adverse selection issues and because many of the borrowers will leave the state. But compare the potential benefits to, say, the $100s of millions Kulongoski and Kitzhaber have wasted on green energy tax credits. (Ted Sickinger story here.)

Wheeler, who hopes to run for Governor in 2018, is still working on the details. The latest report on his efforts is here.

One Comment

  1. Vlad 07/31/2014

    There is increasing evidence that the return to education for marginal students, likely attending below average schools, is well below the average return for prior graduates.

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