Pay It Forward: Oregon examines a new way to pay for college

Carla Axtman

At the tail end of the 2013 session, the Oregon Legislature approved a plan to set up a commission to study a potentially new way to pay for college: Pay It Forward.. The proposal was supported by a group of students from Portland State University as well as the Working Families Party.

The concept? Students at public universities and community colleges would pay zero in tuition up front. Instead, they'd agree to pay a small percentage of their income (1.5% for community college, or 3% for a 4 year school) for 20 years to “pay forward” the cost of instruction, thus paying for the next generation of students.

The announcement set off a flash of national press. The New York Times, The Wall Street Journal and ABC News, among others, reported on the proposal. Given our state's innovative approach to solving problems and experimenting with new solutions, it's nice to see a new wave of recognition for our willingness to sometimes think boldly.

The proposal is not without significant hurdles, however.

This type of funding structure to pay for higher education has been studied previously elsewhere and not managed to gain traction. Betsy Hammond at The Oregonian cites financial aid expert Mark Kantrowitz, who explained some of the problems thusly:

Many students would still end up owing big loans -- plus the promised percentage of their income. Only tuition and fees would be free, and many students need loans to cover the other costs of college. According to Di Saunders, communications director for Oregon's university system, the typical four-year cost for an in-state undergraduate is about $87,000 -- $31,000 for tuition and fees and $56,000 for rent, food and other expenses.

"You'll end up with the hit to the income and you still have student loans," he said. "It's not really going to solve anything."

Twenty-four years is a long time to burden a student with college costs, even if payments are only about $2,000 a year during the final 12 years of the contract.

Asking students to pay 3 percent of their income, even for that long, would be unlikely to cover the state's costs to operate universities for free. Students would likely be asked to pay a higher percentage or the system would go broke, Kantrowitz said.

Collecting money from former students who move out of state or out of the country would be tricky at best. Oregon doesn't have the power to compel other states or the Internal Revenue Service to tell it how much individuals outside Oregon earn. And other states would probably try to regulate the repayments as loans, which could run afoul of usury laws.

The upfront costs may be significant as well. Some analysts have noted that in order to keep universities operating, Oregon would have to come up with perhaps up to 10 years worth of cash to replace lost tuition and fees until enough graduates have started making repayments.

Even if this specific idea doesn't move forward, it could spawn some new and creative thinking around how students and families pay for college.

By Carla Axtman July 11, 2013