Social Irresponsibility, Actuarial Assumptions, and Wealth Redistribution: Lessons About Public Policy from a Prepaid Tuition Program

In this article, I shall try to illuminate the question of how governments, as opposed to private insurers, grapple with the problem of intergenerational social irresponsibility. I shall do so by analyzing and criticizing a single public program. That program, the Michigan Education Trust (MET), was the most widely publicized government action in the field of higher education finance during the 1980s. MET allows parents of young children to purchase contracts promising to cover the children’s tuition at Michigan public colleges when they enroll up to eighteen years later.

In setting forth this case study, I also attempt to develop a secondary theme. I shall argue that efforts to justify or criticize public programs should always incorporate assessments of who the programs’ beneficiaries are likely to be, specifically of where in the income distribution they are likely to lie. Thus, while Part I argues that a program such as MET might plausibly be defended as a check on social irresponsibility, it concludes that plausible justifications are not enough. Programs should be justified by comparison with alternative programs addressed to the same goals, and an essential element of the comparison should be the programs’ relative effects on political or economic inequalities. Part III carries the same theme from the world of ex ante justification into the world of ex post evaluation. Programs must be implemented, and policy analysts must be sensitive to the ways in which the process of implementation can exacerbate a program’s distributional costs.