For the past week, the world of higher education has been buzzing about Oregon, where state legislators have taken the first step towards a radical attempt at combating student debt. The proposed "Pay It Forward" plan is catchy as it is seemingly straightforward. Colleges would no longer charge their undergraduates tuition up front. Instead, students would promise to pay a fixed percentage of their income to the state for a set number of years after graduation.
You earn a lot, you pay a lot. You earn a little, you pay a little. But most importantly, nobody has to take out loans to cover the cost of classes.
It's bold. It sounds progressive. And if implemented, it could be a boondoggle. Here's why.
To be absolutely clear, Pay It Forward is nowhere close to becoming a reality. So far, Oregon's legislature has passed a bill instructing a state commission to consider the idea and possibly flesh out a pilot program that would itself have to be approved by lawmakers. What officially exists now barely qualifies as an outline.
That said, we have a decent sense of what the plan might look like in practice. As originally proposed by a group called Students for Educational Debt Reform, bachelor's degree recipients would pay 3 percent of their annual income for 24 years after finishing school, while community college grads would pay 1.5 percent. In other words, each full year of college would cost 0.75 percent of a student's earnings. The average B.A. completing their degree today would pay an estimated $39,653 over a lifetime, more than $7,000 above the actual cost of tuition and fees. That extra money would go towards making the system self-sustaining over the long term. However, taxpayers would have to keep footing their portion of the state's higher ed bill. Pay It Forward would only replace the costs currently covered by tuition.
There are some potential advantages to this approach. First, the obvious: fewer loans. Under Pay It Forward, Oregon students would not borrow any money to cover tuition. That means less debt impacting their credit score. And, just like under income-based repayment plans for federal student loans, there's zero chance of default.
The plan also has an appealing progressive streak. Future one percenters will pay the most for their educations. Graduates that find themselves mixing espresso drinks after commencement, or who devote themselves to low-earning careers like teaching, will pay the least.
Meanwhile, the system might encourage poor students to reach for better, more selective colleges. Some higher-ed experts, such as the University of Wisconsin's Sara Goldrick-Rab, argue that low-income students are discouraged from applying to top schools by so-called "sticker-shock." They see the astronomical advertised price of tuition at State U. and assume they can't afford it, even if the admissions office promises that they'll provide ample financial aid. Part of the problem may be that poor and working class families have little trust in large, unfamiliar institutions. But under Pay It Forward, up-front tuition is no longer an issue, and there's no need to guess about grants and other aid.
Finally, the program could potentially force some spending discipline on Oregon's colleges. Without the ability to raise tuition, schools will be forced to clamp down on their most profligate habits.
So what could go wrong? Lots, sadly. Because Pay It Forward wouldn't eliminate student debt completely, it might inadvertently make college less financially manageable for some students. At the same time, it could drive the most talented young people out of the state college system altogether. And, to top it all off, the whole plan might be financially unsustainable for the state.
Let's take those one at a time.
One of the fiercest critics of Pay It Forward so far has actually been Wisconsin's Goldrick-Rab. In a lengthy, must-read vivisection* of the policy posted today at The Century Foundation, she homes in on what I think is one of the idea's biggest weaknesses: it would still leave plenty of students buried in loans.
It's a major misconception that student debt is driven entirely by tuition. In many cases, it's not. At public schools, and especially community colleges, room, board, and supplies like textbooks are often far more expensive, especially once you take institutional aid into account. Pay it forward delays the cost of classes until after graduation, but not the cost of housing, meals, or course materials. So, as Goldrick-Rab points out, the typical student at The University of Oregon would still be staring down about $14,000 a year in expenses. Working 20-hours a week at a minimum-wage job, she notes, would earn them $7,000 after taxes. The other $7,000? Either they'd pay it upfront with family help, or they'd borrow it. (That's one of the reasons she's doubtful the plan would help with sticker shock).
Which brings us to why Pay It Forward might actually be a bad deal for some cash-strapped students. Today, financially troubled federal loan borrowers have the option of wrapping all their debts into an income-based repayment program that caps their monthly bill at 10 percent of discretionary earnings. It's a great safety net. But under Pay It Forward, BA's from Oregon would still have to pay an additional 3 percent of their income, for 24 years.
Now, supporters of the Oregon plan do have a counterargument. Ending tuition as we know it would free students to spend their financial aid money on living expenses. For instance, federal Pell Grant recipients could use their awards to cover housing instead of course credits. The problem is that most students don't get Pell Grants. Most students would still face a very real possibility of having to borrow.
Of course, those students who wouldn't have needed to borrow may have it even worse. After all, there's a good chance they'll be spending more on their education over time than if they had simply been allowed to pay up front.
The next big issue is what I call the engineer problem. If you're a student who plans to make a lot of money after college, say as an engineer or a computer programmer, Pay It Forward is a terrible deal. The average undergrad is already asked to pay more than the value of their tuition over time. Those who make higher than average salaries will be asked to pay vastly more. If you're a student contemplating graduate school, say to become a doctor or a lawyer, the problem may be even worse, since chances are you'll be relying on an income-based repayment program to handle your federal loans down the line anyway. Depending on the precise math, it may no longer be worthwhile for a talented student to attend an Oregon public school instead of a private institution that might offer them merit aid.
The engineer problem would also pose an accounting headache for the state. Remember, the system assumes that high-earning students will balance-out low-earning ones. Cut the high-earners out of the equation, and students will suddenly need to pay a higher percentage of their income to keep the system solvent.
That said, what it would take to keep the system solvent is a bit of an open question in the first place. Advocates have suggested that state would need to spend $9 billion over a quarter century before enough former students are paying into the program to cover its costs. The problem (well, one of the problems) is that their calculations appear to be based on the earnings of college graduates. But only half of Oregon public college students finish a B.A. within six years, and dropouts tend to earn far less than their classmates who earn a degree. Their figure is also based on a projection of the economy's health and college graduate earnings decades from now, which is utter guesswork. If those estimates don't pan out, the whole idea could turn into a financial albatross for taxpayers. Or, possibly worse, the state would have to ask students to pay back more of their income.
Ordinarily, when state legislators tell a committee to study an offbeat policy idea, it doesn't generate headlines in the New York Times. But the attention the Oregon plan has received speaks to just how frustrated Americans have become with student debt, and how desperate they are for a solution. Sadly, there are no simple fixes at this point, and the last thing we want to do is make a sad situation even worse.
*A few of my points later in this post are similar to hers, though not altogether the same. In any case, I'd like to give credit where it's due, and encourage any education wonks out there to read her whole take.
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