Oregon Considering Income-Based Repayment Plan for College

Oregon lawmakers are looking at an entirely different way of helping students afford college education that would not leave them struggling under a mountain of debt when they graduate. Under a plan being considered in the state Legislature, a college education would cost students nothing upfront, but in exchange, students agree to pay the state [...]

Oregon lawmakers are looking at an entirely different way of helping students afford college education that would not leave them struggling under a mountain of debt when they graduate. Under a plan being considered in the state Legislature, a college education would cost students nothing upfront, but in exchange, students agree to pay the state 3% of their annual income for 24 years after graduation.

Douglas Belkin of The Wall Street Journal reports that the plan – called “Pay it Forward, Pay it Back” – would allow students to pay their tuition from a state-maintained fund. Those who take advantage of this money would pay a small part of their future salaries back into the fund, which would then be used to pay the tuition of other students going forward.

Initially, the fund would be seeded by a government investment of about $9 billion, but is projected to become self-sustaining after about 20 years.

Oregon’s Senate on Monday unanimously passed a bill, already approved by the House, that creates a study committee charged with developing a pilot program for Pay it Forward, Pay it Back. The legislature will decide in 2015 whether to implement the pilot.

“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,” said Mark Hass, a Democratic state senator from Beaverton, Ore., who leads the chamber’s education committee and who championed the bill. The legislation was supported by the Working Families Party.

The Oregon proposal follows the blueprint set down by the Economic Opportunity Institute, a non-partisan non-profit based in Washington that specializes in analysis of economic issues most likely to impact the middle class. Oregon is the first to take concrete steps towards adopting the plan, but lawmakers in Washington, New York, Vermont and Pennsylvania are also considering its future viability.

John Burbank, EOI’s executive director, sees the plan as a “social insurance vehicle” designed to make the upfront price of attending college less prohibitive to middle-class families.

The Oregon effort comes as public funding for higher education has plunged, tuitions have surged and the total student-loan debt in the U.S. recently surpassed $1 trillion. On Monday, interest rates on certain government tuition loans doubled to 6.8% after the Senate failed to block the increase. Oregon’s plan has parallels to income-based repayment models used for decades in the U.K. and Australia, and more recently in the U.S., in which borrowers pay government lenders a share of their incomes to cover education loans.

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