CreditCards.com

Living with credit

Oregon tests “Pay it forward” idea to cut student debt

Kelly Dilworth

If you were offered free college tuition in exchange for giving up a small percentage of your paycheck for the next 20-plus years after graduation, would you take it?

Lawmakers in Oregon are betting that many high school seniors — a number of whom will face crushing student debt post-college — would answer that question with a resounding yes.

On July 1, the same day that Congress let rates on federally subsidized Stafford loans double to 6.8 percent, the Oregon state senate passed a bill authorizing the creation of a unique pilot program that will be designed exclusively for students who attend public colleges.Pre-pregnancy costs can strain a family budget

The program — which is still just in the early planning stages and is far from actually being implemented — will allow students to attend an Oregon state university or community college for free, in exchange for repaying the state a small fraction of his or her income over a set period of years.

Students who graduate with a four-year bachelor’s degree, for example, would set aside 3 percent of their annual income for the next 24 years, while students who spend less time in school in order to get a two-year associate’s degree would owe just 1.5 percent each year. (Students who go on to get master’s degrees would be on the hook for slightly more. Those students would have to pay back 4 percent of their adjusted gross income, according to the proposal that was presented to the Oregon state legislature in 2012.)

The plan was originally developed by a group of public policy students at Portland State University during a class on economics and student debt. The students refined the idea during a semester-long group project and then pitched it to Oregon state legislators, who unanimously passed a bill ordering the creation of a pilot project — dubbed “Pay it forward, Pay it back” — in both houses earlier this month.

Already, the student-centered plan has received ample attention from around the country. Some analysts have lauded it for its creative approach to helping solve the student debt crisis.

“This will open up for our generation the same opportunities that our parents and grandparents had when they were done with college,” said Portland State University student and plan co-founder Tracy Gibbs in a recent interview with the Wall Street Journal. In the same article, Oregon Sen. Mark Hass of Beaverton, glowed: “We have to get way out of the box if we’re going to get serious about getting young people into college and out of college without burdening them with a lifetime of debt.”

Others, however, have pointed out that the plan’s emphasis on eliminating student debt is slightly disingenuous. Free tuition and fees won’t solve students’ debt problems completely, since they’ll still have to pay for living expenses and books –both of which can quickly add up. (According to Oregon State University’s 2013-2014 cost-of-attendance estimates, for example, students can expect to pay up to $10,578 for room and board, $1,965 for books and supplies and $2,577 on personal expenses. That adds up to $60,480 for a four-year degree by itself, assuming a student has no other help to pay for those expenses.)

“While Pell recipients might be able to forgo borrowing under this new plan, it is very unlikely that other students will,” noted University of Wisconsin professor Sara Goldrick-Rab in a blog post for the nonprofit think tank The Century Foundation. “Moreover, the plan is for students receiving up to four years of schooling, yet barely 50 percent of Oregon students complete a four-year degree in six years.  Thus, it is highly likely that many if not most students will leave college with loans in addition to this repayment obligation.”

Some critics also worry that the plan may deter students destined for high-earning careers to avoid state universities, since those students are likely to pay far more for a degree under the “Pay it forward” plan, than they would if they took out traditional student loans.

“The industrious students who take only the most advanced classes and spend most of their waking hours in labs and libraries to take on a demanding career that starts them at $60,000 and puts them at over $100,000 within five years could end up paying over $60,000 during their 20-year sentence, while students who study a less in-demand field and max out at, say, a $35,000 salary will contribute less than $21,000,” noted blogger and author Joe Mihalic in a recent debate over the plan in the New York Times.

That said, policymakers still have time to try to iron out at least some of those wrinkles. The Oregon State Legislature won’t hold another vote on the plan until 2014, once the details of the pilot program have been fully worked out.

Until then, debate over “Pay it forward, Pay it back” is likely to remain robust, as journalists and policy analysts watch Oregon closely to see if policymakers come up with a viable plan that can work in other states.

Join the Discussion

We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, we ask that you do not disclose confidential or personal information such as your bank account numbers, social security numbers, etc. Keep in mind that anything you post may be disclosed, published, transmitted or reused.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company's business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.