Student Debt Horrors: Can 'Pay It Forward' Solve the Crisis?
NEW YORK ( MainStreet) Not long after I started law school, I was having lunch with a friend. Being law students, we were talking about debt.
My friend had an idea. It wasn't an original idea, but it was a good one, and it went something like this: what if, instead of collecting debt-fueled payments for tuition, schools themselves had to put some skin in the game? Instead of collecting a fixed tuition, universities would be entitled to a percentage of alumni earnings for a certain number of years. The better the graduates do, the better the school would do and vice versa.
Well, it looks like someone in Oregon may have been at the next table, because starting soon that's exactly what's going to happen.
Under a bill passed unanimously by the state legislature this summer , Oregon has decided to pilot Pay It Forward, a program to waive tuition for state universities in exchange for a fixed, low percentage of students' income after graduation.
This is based on a model used in the United Kingdom and Australia. It was proposed as a solution to the student debt crisis, according to Portland State University Director of Communications Scott Gallagher, by a class taught by P.S.U. professors Mary King and Barbara Dudley.
Under the Portland State proposal, four-year graduates would pay up to 3% of their income for 20 years after graduation, and community college students would pay 1.5%. Students who do not graduate will still pay, but at a pro-rated amount based on their time spent in school. Although no one would pay traditional interest, most graduates would end up paying more than the value of tuition, thus helping to account for rising costs and inflation and "paying it forward" for the next generation.
The immediate savings are substantial. Currently tuition at Portland State is $2,125 per semester for a full-time, resident student and $6,181 for a non-resident. At the University of Oregon those numbers are $2,167 and $3,895, respectively.
Some benefits to this system practically jump off the page.
Instead of graduating thousands of young people crippled by mortgages at age 20, Oregon students could walk out with a debt load made manageable by definition. They would never pay more than a small percentage of their income, because that's all they would owe. This is compared with the average college graduate in 2013 , who owes $35,200 in interest-bearing loans by the time he puts on a cap and gown.
That level of debt, at a time when young people should be investing in first houses, buying new cars and starting families, has already made itself felt across the economy in fairly significant ways. That trend is only likely to increase, even disregarding what some have called the "student loan bubble" that's been building over the last decade.