The state of Michigan is considering a new program that would change the way people pay for their education. The proposed alternative would offer graduates interest-free loans and would require them to pay back their loans based on their income. Community College graduates would pay 2% of their income and University graduates would pay 4%. “I commend the legislature for thinking about creative solutions,” says Dr. Wayne Baker, Chair of Management and Organizations at the Ross School of Business. “The advantage of this program is that it doesn't saddle students with knee-buckling debt. The disadvantage is that it may suffer from adverse selection.” As currently structured, the program does not financially appeal to those who expect to enter a high-paying profession. Those who enter the workforce bringing in a modest to middle income, however, would benefit. “The program could work if they figured out how to make it appealing to future big earners,” Baker says. “Without that, it's problematic.”
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