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Colleges should reap from the successes of its graduates

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Bob Moon: Just as job seekers find they need ever more and better qualifications to get hired, the lousy economy is causing colleges to keep raising their prices or lowering their quality — or, in too many cases, doing both. It’s seemed to be a vicious, unsustainable cycle — until now.

Commentator Kim Clark has this example of something done right.

Kim Clark: Back in the 1950s, Nobel Prize-winning economist Milton Friedman warned that having colleges charge upfront tuition was a problem. It meant that smart but poor students might not be able to afford the education they’d need to maximize their talents. He thought it would be smarter to just collect a surcharge on their earnings after they graduate.

Australia has tried this. It created a graduate surtax in the 1980s, and its seen its college graduation rates skyrocket since then. And an expensive private college in upstate New York is trying an even more promising version of educational investments. Clarkson University is offering a select group of young entrepreneurs free tuition — in return for a 10-percent share of their start-ups. Clarkson already has one undergraduate and one graduate student studying under these terms. And it’s recruiting up to five more teen entrepreneurs for the fall of 2012. Clarkson officials say that if these educational investments work out, they will pursue more.

Imagine if all colleges’ revenues depended on their graduates’ success. The invisible hand of the market would quickly crush diploma mills and party schools. Colleges would realize they couldn’t afford to be soft on do-nothing professors or cheating students.

Sure, there are lots of objections. If colleges had to wait for graduates’ big earnings, would they want to enroll liberal arts majors for example? Well, there’s evidence that liberal arts majors end up doing very well in the job market over the long term.

So, yes, this new way to fund college is risky. But what we’re doing now is not working very well. We need to align the financial interests of colleges with those of their students. That would free the market to what it does best — drive prices down and quality up.

Moon: Kim Clark is a senior writer for Money Magazine.

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