This section provides an overview of issues and questions in Education that preceded and spurred the creation of the Center for Incentive Design.

Our approach towards educating ourselves and our children has numerous examples of misaligned incentives that create rising costs, hard to value returns, and a persistence of traditional approaches in the face of more efficient and effective alternatives.

Further study of Incentive Design can help raise awareness, quantify the impacts and costs of the misaligned incentives, and offer ways to create better systems.

Price of College Education

It’s no secret that the price of college tuition has soared over the past few decades. The US Bureau of Labor Statistics estimates that tuition has risen 1,483% since 1977 — nearly double the rate of inflation. There may be several valid explanations for this trend, but among the factors to examine are the system incentives driving the schools. For example:

1. Much of the value we attribute to university is their selection of students and not the education they provide. Completing a college degree takes four years and costs over $100k, and yet much of the value that comes from the degree is having gotten into the school in the first place. Why is the value-to-time-spent ratio so poor?
2. Legacy admission practices mean that some schools are more likely to grant access to children of alumni, and especially of those alumni who donate money. How widespread is this issue? What are its costs and implications? What are solutions?
3. Federal student loans have become such common practice that they risk being priced in. Introducing this third party payer may increase people’s willingness and ability to pay.
4. Schools with large endowments must maintain tax exempt status to avoid paying taxes. To do so, some of them need to show that a sizable fraction of their student body receive financial aid. And a good way to ensure that many need financial aid is to raise tuition.

Hard to quantify returns on investment

Providing incentives for young students to learn can be a big challenge. Primary education does not always do a good job articulating its value to the students and even parents, leading to absenteeism, drop-outs, and general under-investment of effort. How much human potential could be gained through better articulated and expressed incentives to excel at school?

For older students, one new way to align student and institutional incentives are Income Sharing Agreements, first introduced by Lambda Schools (now Bloom). ISAs provide access to education for low-income students by allowing the student to get their degree with no payments up front, and to pay the school only to the extent that they are successful in the job market.

Interestingly, California [struck down a key student protection](https://www.forbes.com/sites/prestoncooper2/2020/08/21/california-greenlights-income-share-agreements-but-with-a-caveat-that-will-hurt-students/?sh=64906dda7002#:~:text=BPPE took issue,in lifetime payments.) that limited the payback responsibility to a maximum of two years. The change forces students to pay back the full amount after two years, regardless of whether they are getting a return on their education. This new financial instrument has thus been made to function more like a traditional student loan.

Tutor at head of classroom

What are the odds that the teacher at the head of yours or your child’s classroom is the best in the world at introducing a concept? Very low.

With thousands of hours of expert video instruction available, it seems so obvious that a “flipped classroom” — where a student can watch a lecture at their own pace and we leverage the teacher’s in-person time to handle questions and provide the encouragement and emotional support conducive to learning — should succeed.

Certainly there are some benefits to the traditional lecture style — maybe for some it holds their attention better — but better understanding and crafting of incentives likely can help shift away from legacy effects and help us find more efficient and effective approaches.

Selection bias carries forward through career

Employers often look at the university one attended as a proxy for intelligence or aptitude. Yet where you went to school says more about who you were in high school than who you are today. And more about how you performed when you were 16 years old than what you learned in college.

Can we develop proxies for performance that better meet employers’ goals of finding great candidates while not relying so heavily on measures weighted by youth?