Six Road Blocks to 'Pay It Forward,' the Pioneering Plan to Scrap Student Loans
NEW YORK ( MainStreet) Student debt could soon be a thing of the past, if Oregon lawmakers have their way.
Last year, Oregon legislators ordered a state commission to consider launching a pilot program that would fund public higher education in an entirely new way. Rather than a set upfront tuition, universities would charge students a percentage of their income after graduation, roughly 1% to 4%, effectively levying an income tax on graduates.
Students would owe no set amount; instead, they would pay for a predetermined number of years. After that, no matter how little or how much they had contributed, their college costs would be paid.
The pioneering plan, dubbed "Pay it Forward," has clear advantages. The measure would guarantee that no graduate would be crushed by student debt since payments are tied to income. And it would charge the most to students who financially benefitted the most.
The idea is catching on. Lawmakers in 24 states have introduced bills or resolutions that would study the feasibility of a "Pay it Forward" program for public universities, said Dustin Weeden, policy specialist at the National Conference of State Legislatures. Senator Jeff Merkley (D-Ore.) also filed a federal bill to promote the program nationally.
But not everyone is a fan. Mark Smith, senior policy analyst for higher education at the National Education Association, called the "Pay it Forward" proposals "quite frankly problematic" and Demos senior policy analyst Mark Huelsman said it failed to deal with the "underlying problems" of growing higher education costs.
So what are the biggest problems with switching from a debt-based tuition model to an income based method?
1. High costs
College tuition and fees for four-year public universities have more than doubled over the past 20 years, even after accounting for inflation, according to data from the College Board. And much of that increase was driven by states' diminishing investment in higher education.
"Pay it Forward" does nothing to address states' decreasing subsidies, said Huelsman. The program "lets states off the hook," and allows the cost burden to continue to shift onto students, he said. Instead, graduates who earn a substantial income may end up paying many times what their tuition would cost under the current system.
2. Other College Costs
While "Pay it Forward" deals with tuition and fees, it doesn't address other costs associated with getting a college degree, such as living expenses, which make up about 60% of the costs associated with finishing a four-year degree, said Huelsman.
Under a "Pay it Forward" system, borrowing for expenses such as housing, food, and books, which can now be wrapped into student loans, may become more difficult, said Smith. "The logical outcome would be that the interest would be higher," he said. And that could leave many students paying down high interest debt for living expenses at the same time as universities take a portion of their income.