Oregon's Bold Plan To Fund Higher Education

The great advantage of the federal system is it provides 50 models for success. While the federal student loan program has lead to drastic increases in college tuition, bloated college bureaucracies and aggregate student loan debt approaching $1 trillion states have been casting about for better ideas. It may not be the perfect model but give Oregon credit for the sort of out-of-the-box type thinking that has always come from the states. Oregon wants to do away with the entire student loan program-no up front money required. Once students graduate they would be obligated to pay 3% of their gross income for the next 24 years. The Wall Street Journal spells out.

Using 2010 census data not adjusted for inflation…students would pay an average of about $800 back into the program the first year after graduation. As their incomes grow, that would increase to about $2,000 in year 20, by which time they would have paid off the cost of their educations. Over the next four years they would contribute an additional $7,400, which constitutes the pay-it-forward aspect of the program—a sort of finance cost. Students would pay more or less depending on how much money they earned.

Under the program called "Pay it Forward, Pay it Back," Oregon would create a fund that students would draw from and eventually pay into—potentially bypassing traditional education lenders and the interest rates they charge. The state would likely borrow for the fund's seed money, which could exceed $9 billion, but the program's designers intend it to become self-sustaining. The plan is clever as it incentivizes colleges to steer students into the areas that will maximize their lifetime earnings. Under the Oregon plan, students who don't graduate would still pay a fraction of their incomes into the fund; the amount would depend on how long they were in school.
Oregon’s Senate unanimously passed a bill on Monday arming a committee to develop a pilot program, though the legislature won’t decide until 2015 whether to implement it. The proposal has a few questionable aspects, most notably the $9 billion start up cost. Details aside, the idea is intriguing.