I am a fan of the idea that college should be free at the point of delivery, and financed through a universal income-based repayment (IBR) scheme. This would work basically by levying an extra income tax on those who hold college degrees, and using the revenue from that tax to publicly fund colleges. I think universal IBR is the best financing option for a long list of reasons.

First, it only imposes the cost of college on those who attend college. Those who attend college come from disproportionately well-off backgrounds, and make more than $1 million more over the course of their lifetimes for doing so. It does not strike me as fair to impose any of the costs of college on the relatively poor set of people that do not even attend it, not if you can avoid doing so.

Second, an IBR scheme ensures that college graduates do not sink under their loan repayment obligations. Currently, a number of people on the low-end of the college graduate income distribution cannot service their debt while meeting their needs. Requiring all graduates to contribute a small percentage of their income should largely, if not entirely, avoid that problem.

Third, a universal IBR scheme is much more progressive relative to the status quo. Even if the IBR is organized as a flat tax, it will mean that high-income graduates pay substantially more to fund the college system than low-income graduates. And of course, if we wanted, we could implement the IBR as a progressive tax with rising marginal rates.

There are more reasons, but those are the big ones. So far I have not found any research trying to determine how high the IBR tax would have to be. So I thought it might be helpful to do some back of the envelope math in order to produce a rough, ballpark estimation.

The convention for measuring lifetime income is to use a 40-year window, generally from age 25-64. That’s how the Census does it for instance. For a variety of reasons that I wont go into here, these usual metrics do not produce the figure necessary to make the IBR calculation. To get that number, I use the Census’ synthetic work-life earnings estimate method (described here), but apply it to average incomes of those with Bachelor’s degrees (table here). That produces a lifetime average income of $2,533,310, or $63,333 per year, for individuals with just Bachelor’s degrees.

The next figure we need is net cost of attending college. I think the best measurement for this comes from the College Board’s net cost figures for private schools. For the 2012 school year, the average net cost of attending a private school (includes room and board) is $23,840, which is $95,360 for four years.

Using those figures, we can say that under an income-based repayment system that used a flat rate, college graduates would need to forego around 3.8% of their income in order to make this system solvent. This estimate is probably on the high end as well because it does not include those with more than Bachelor’s degrees, and those individuals tend to make much more (I would have included them, but I cannot find net cost figures for professional and graduate degrees). In any case, there it is. We could have free college by switching to a universal income-based repayment scheme that functionally works by imposing a 3.8% surcharge income tax on individuals with college degrees. There are of course a lot of details to work out, but as a general proposition, it sounds pretty good to me.