Legislation similar to Oregon’s has been introduced in several states. | REUTERS Can 'pay it forward' pay for college?

On the same July day that Congress briefly allowed interest rates on federally subsidized student loans to double, the Oregon Legislature took a step toward eliminating tuition bills at public universities altogether.

A few months later, it’s Oregon’s decision that has had a lasting nationwide effect.


Lawmakers there voted to study a proposal to transform how students pay tuition and fees at public colleges. Instead of getting a tuition bill upfront , students would pay a percentage of their income to the state for 25 years after graduation. The idea’s supporters envision a sort of reverse Social Security: Students benefit early in life, then “pay it forward” for the next generation.

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Oregon won’t enroll students under the new financing plan until at least 2015, and then only if the Legislature agrees to a pilot program. But the idea has quickly spread. It has caught attention as concern grows about college affordability and student debt: More than half of students at public four-year colleges now take out student loans, borrowing an average of about $25,000 before graduation.

Students “are facing a real crisis and every single legislator knows it,” said Barbara Dudley, an adjunct professor at Portland State University whose students introduced the proposal to Oregon lawmakers. “There’s nobody in any district who doesn’t hear from their constituents about this problem, and maybe in their own family as well.”

Legislation similar to Oregon’s has been introduced in several states, including New Jersey, Ohio and Pennsylvania. Representatives of 19 states showed up at a recent conference to talk about how the new financing scheme would work. Oregon’s Democratic Sen. Jeff Merkley has introduced legislation to help states start “pay it forward” programs using federal student loan money.

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Groups who have long worried about student debt are skeptical. They say the proposals could make college less affordable, not more, by encouraging states to pass more of the cost of higher education onto families. They say it’s not a solution to all student debt because students would still have to pay for books, room and board and living expenses.

“Pay it forward,” a proposal from the Economic Opportunity Institute, a Seattle-based think tank, is modeled on student loan repayment systems in the United Kingdom and Australia. Those countries deduct student loan payments from borrowers’ paychecks, basing the payments on income.

The United States is moving toward a similar system, minus the payroll deductions. An optional payment plan for federal student loans bases payments on 10 percent of a borrower’s monthly discretionary income and forgives the remaining balance after 20 years.

The Oregon plan, though, gets rid of the idea of a loan entirely. The Economic Opportunity Institute’s executive director, John Burbank, compares it to Social Security or Medicare. Contributions don’t depend on the cost of the education a student received. Rather than borrowing and then repaying a specific amount of money, students would pay a percentage of their income for a specific number of years.

Students at the University of California at Riverside proposed a similar model in 2012. But the only real precedent so far has been at Yale University in the 1970s. Students borrowed money from Yale and were supposed to pay back 4 percentage of their annual income until the entire class had paid off its collective loan. At the peak of the program’s brief life span, more than one-third of the student body was participating.

Many wealthier graduates paid a penalty to get out of the program early, and poorer ones quit paying at all. When Yale ended the program at the turn of the 21st century, the university’s president told the Yale Daily News he was relieved the experiment finally ended.

Burbank says states have more enforcement power than a private university. The Yale program was a product of the “cultural hubbub of communal good times” of the 1960s, he said. “That faded quickly in the 1970s, when the contributions needed to be made.”

Burbank, too, sounds slightly utopian when arguing for his own plan. A zero-tuition college degree will make a college education seem possible for students who can’t imagine affording even the relatively modest tuition bills of a public university, he said. That will have ripple effects into the K-12 system and across the state.

Others are more skeptical. They fear that students who expect high incomes after graduation will be discouraged from attending a public college and that the end of tuition bills will make it easier for states to pass costs to students.

“If a state has tough, tough choices in front of them, and it knows that a student is going to be able to amortize, over 20 years, their debt, then why would the state have any inclination to actually reduce that debt right now?” said Randi Weingarten, president of the American Federation of Teachers, which has joined other education groups in arguing against the idea.

Burbank envisions waiting lists to participate in the program. That would prod states to spend more on higher education so that more students can participate, he said. And Dudley sees the program as an alternative to help students after state cutbacks.

“I do wish we had fully funded public education, lest anyone think I think this is a better solution,” said Dudley, a founder of the Oregon Working Families Party. Her students seized on the Economic Opportunity Institute plan when searching for a state-level solution to student debt. “I’d rather that it was in fact fully funded. But it’s not.”

Many questions remain about how “pay it forward” plans would work. States would have to spend to create the initial pool of money until enough students repay their loans to create a self-sustaining trust fund. Tracking students who work outside the state is a concern as well, because the U.S. Department of Education is prohibited by law from creating a national system linking students’ educational records with their earnings. And the system would have to figure out what to do with the 46 percent of students who don’t graduate within six years.

“It’s not very well thought out, and it’s being sold to students as something that will solve their problems,” said Kate Tromble, director of legislative affairs for the Education Trust.

Oregon will soon have a chance to find out. If the study commission were to give a pilot program the green light, the next step would be a state constitutional amendment to allow a bond issue to get the trust fund started.

Even before the pilot, the speed that the idea has spread across the country surprised even its proponents. Many ideas proposed by small think tanks and embraced by a group of students never make it this far.

“I have worked in legislative things for decades,” Dudley said. “I have never seen anything move this quickly. I was stunned.”

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