Thoughts on CEU: Would Income Share Agreements Work for Us?

CEU is going through an incredible transformation. We are moving countries and we are facing new challenges. CEU leadership laid out a plan that is referred to as CEU2025. I plan to write about what I am about to say in an itemized list but my broad conclusion after looking at the CEU2025 plan is that it (with generous help from the Hungarian government) will destroy everything that made CEU a great place to work for me. (Others’ opinions may vary, but as far as I am concerned, this is how I see it.)

I have made a promise to myself that, despite more regular solicitations, I will stay at CEU and see all this through. I will try to contribute to the best of my ability. But in the process, my main goal will be to ensure this negative foreshadow of the CEU2025 future does not come to fruition. Next fall I will give up the on-demand baby sitting just one floor below where my parents live and move to Vienna because I believe that will be the best place where I can contribute to making an Austrian CEU an even greater place to be both for us, the faculty, and, most importantly, for our students.

These blog posts under the “Thoughts on CEU” series will be in this spirit. Hopefully they can contribute to a conversation on how CEU could thrive despite its new challenges.

To begin the series, we have to talk about something none of us want to talk about. CEU, despite recent recapitalization of the endowment and additional money for the Vienna transition (and maybe also cash for a permanent campus in Vienna), is not in good financial shape. It is fair to say most people on campus are not honest about this fact. Even the ones who may have been concerned before are now fooling themselves with this recapitalization. We, the faculty, do not have on demand access to accurate and up to date information about our yields, endowments, budget, but I can cite a conversation with the Rector here (from before our “little local troubles” started) we are not in good shape and the current influx of capital only puts us on life support, giving us a chance to get back on our feet and not be doomed in the long run.

To combat the problem, CEU2025 proposes to collect 3000 EUR tuition even from people who previously received a full ride. (Note that CEU2025 was only a few slides and the proposals are, of course, fluid. That is exactly why I am putting these thoughts out in the open.) Above, I mentioned that I have a long list that makes CEU a great place to be (and in my next post I will itemize). Here’s the first one: we have excellent and ambitious students many of whom had no opportunities elsewhere because they cannot afford it.

This tuition move puts CEU outside of the reach of some of our best students. Cost of living increases in Budapest (mostly due to steeply increasing real-estate prices) of the past 6-8 years have already put a strain on low income families’ ability to send their kids (and sometimes spouses, mothers and fathers) to CEU. Add Vienna cost of living ,which is around 50% more than in Budapest (with housing prices 80% higher) along with this hint of 3000 EUR tuition certainly puts us out of the reach of our traditional demographic of students who cannot afford a Western education. CEU, traditionally, was the jumping board to a Western education for much of the post-communist region. By the time I joined CEU in 2006, the West was directly accessible to many, but not to everyone. If we lose this demographic, I wonder who will come to CEU? This, of course, calls for a longer conversation but I do not believe that the appropriate market research has been done to answer it. If it has been done, I haven’t seen it. So, for now, lets just say that if we trade ambitious people who had no other opportunities for well off people who had no other opportunities, CEU’s reputation will certainly suffer (not to mention its academic staff).

But maybe there is an appropriate way to handle this without charging tuition. A few months ago a 50+ year old idea dating back to Milton Friedman’s book Capitalism and Freedom received quite a bit of attention in the news: Income Share Agreements. Agreements that a student can attend a University for free and in exchange they will share a certain percentage of their income for a certain amount of years. NPR’s Planet Money described it as a University buying stock in a student they train. They literally financially invest in the student’s future success.

Now, that sounds like CEU to me. We pride ourselves in our students, in training the future leaders of the entire region. We have students who are mayors of capitals, ministers, EU administrators. We believe in our students. So instead of charging them tuition, why not invest in them?

There are many nuances of how these income share agreements work to go through in such a blog post. But let me highlight some of the most important ones. CEU is not trying to generate that much revenue per student. So we could keep the income share quite low. Purdue University’s program asked 15% for 8 years from someone who worked in food science. (Purdue University also varied the percent depending on the person’s major, but this is a non-issue at CEU.) We can probably do much better keeping the percent at a non-scary number. Say, 5% would sound OK to me. Our tuition are nowhere near Purdue’s (though maybe neither is the projected income of our students, not sure). I guess we can keep the time longer if need be. The 8 years was 8 years while a person was in employment or was seeking employment. If someone wanted to get out of the labor force and make money traveling around the world busking, that did not count. (They could do it and pause their 8 years.) On the other hand if someone was laid off and was searching for their next job, that counted towards the 8 years. There were protections in place for the students. If they became mega-millionaires. They still only had to pay back 2.5x the cost of their tuition (a tuition that, with such a program in place, CEU could totally raise without a bad conscience). The amount the school expected back was capped.

Such an arrangement would allow our historical demographic access to CEU, especially if CEU provided some need based housing and scholarships to offset Vienna’s relatively high cost of living. It would put CEU in the world of cutting edge outside the box thinking, innovative solutions true to who we are and who we inspire to be. And there are other benefits. First, CEU received strong criticism for its “neo-liberal” behavior from an internal activist group. While I share the group’s concerns, I worry about their numeric literacy. If their goal was to just blow the endowment over the next decade or two, then I do not share these goals. If they thought figuring the numbers out is not their job, I do not find their propositions constructive. Maybe they were just, like so many at CEU, ignorant about our financial situation. This strategy is one that even such a radical group and the people whose job is to look after the financial health of the University could (maybe even should) agree on. Also, let’s say such a program is launched and the 10 or so years (whatever it will be) is up for the first students. The University, at this time, will have a strong personal but also contractual relationship with this student. We would have a great ability to communicate with them, find them if we lose track of them (because we would have the ability to collect more information from them even in the age of GDPR and use this information for staying in contact). So why not ask them to keep contributing? Not everyone will, but in the spirit of CEU’s mission, they may just chose to target CEU (or its future students) with their philanthropy. They are used to paying 5% of their income to CEU. Why not just keep doing that (and get a tax write off)? Maybe these people will be the ones who put CEU in their will and 75 years down the road, the benefits will multiply.

There is just one major complication this is all pointing to. In the past I have often asked why CEU doesn’t offer student loans for tuition or housing ourselves. The response was always, we simply cannot. We don’t have the ability to track students from a 130 countries to get our money back. That is true. But you know who else doesn’t have that ability? NOBODY! None of the financial institutions operate in all countries effectively. Some may decide to take on such a task but it will cost us, or it will cost the student dearly with heavy interest. The reality is that CEU is in the best position to administer such a program. We are used to offering education, even for free to students. Let’s keep doing that with deferred income. We do not have the ability to go after anyone in every corner of the world, but we have the ability to put a list on our website of the former students who defaulted on their obligations. (Not something we should take lightly, but this ability is a stronger enforcement mechanism than what anyone will have. One’s reputation is important.) Will some people default? Sure. Will it be such a large percent to declare the project a failure? Maybe I have too much faith in people but I sincerely do not believe so. I know this is an experiment, but what we lose if we, in the spirit of CEU2025, start charging tuition of everyone (or just about) is quite clear. The potential for gain with this alternative structure may be greater than anyone could predict today outperforming any tuition scheme we may put in place. So why not try it? If it fails completely, we can go back to a more traditional structure.

NOTE: Many of the ideas presented here come from the above linked NPR Planet Money Podcast and the Freakonomics interview with Purdue President (and almost Republican US Presidential contender) Mitch Daniels.

CEU’s Intellectual Themes Initiative Funds Our Comparative Populism Project

We are grateful for CEU’s Intellectual Themes Initiative for funding our project. Now we have a lot of work to do over the next two years. Announcement penned by Erin Jenne:

We are excited to announce our two-year interdisciplinary CEU grant project, Comparative Populism, which will launch September 2017 and is conducted by Levente Littvay, Bruno Castanho E Silva, Rosario Aguilar Pariente, Constantin Iordachi, Nick Sitter, Zsolt Enyedi, Elissa Helms, Balazs Vedres, Judit Sandor, Matt Singer, Norbert Sabic, Federico Vegetti, several CEU students (hopefully) and with external support from multiple scholars including Team Populism.

This project brings together CEU and international scholars working on topics related to populism across different disciplinary traditions. The aim is to build up a comparative database on countries across Europe on the varieties of populist politics and policies across the region from the end of the Cold War to present and to explore the connections between populism on the one hand and gender, law, foreign policy, and party politics on the other. By joining the different methodological skills and perspectives across the different academic units, the project team can arrive at a multi-faceted understanding of why populism manifests more strongly in some countries than others in the same region, why it takes on social conservative dimension in some places and more nationalist/nativist dimension in others, and how all of this connects to gender, the law, foreign policy, public administration and party systems.

Find out more HERE!