July 12 (Bloomberg) -- Oregon is winning praise for a proposal to make college more affordable. It would allow students to attend in-state public universities at no immediate cost in exchange for 3 percent of their annual earnings for 25 years after they graduate.
The “pay it forward” plan has many details to be worked out, as Inside Higher Ed reported. The Oregon Legislature has unanimously approved a bill, which is awaiting the approval of Governor John Kitzhaber. It directs the state to create a pilot program by 2015 -- at which time the idea would be formally considered.
Nevertheless, advocates are already excited.
“This is not a loan,” John Burbank, executive director of the Economic Opportunity Institute, a Seattle-based public policy group, told the Associated Press. “You’re paying forward, essentially, so your contributions would enable the next generational cohort of students the same free access.”
If it sounds too good to be true, it is.
For the program to work, it will have to be mandatory. Otherwise students who planned to major in engineering and finance -- fields with high-income potential -- would be more likely to pay for their education through traditional means. Without those students in the no-tuition plan, there won’t be enough income generated among graduates to cover future students’ tuition bills -- certainly not with a required payment of just 3 percent of annual income (1.5 percent for graduates at two-year colleges).
If Oregon makes the program mandatory, its colleges will in effect become the only ones in the U.S. that charge students with higher earnings potential more for their education, because they will contribute more over 25 years than everyone else. Motivated students wishing to major in engineering or finance will, quite rationally, opt for private colleges or out-of-state public colleges where they won’t have to subsidize liberal arts majors.
A college financing program that requires students to sign away a chunk of their future income would also be unappealing to wealthy families that have the ability to pay cash. They would probably opt for private colleges, too. Given that the children of the rich tend to perform better academically, this would lead to a decline in the quality of the student bodies at Oregon public universities, and reduce the opportunity for students from disadvantaged backgrounds to network with their wealthier peers. This social mixing is one of the main benefits of broad access to higher education.
The program would collect money over a 25-year period, but the colleges would need to pay their faculty and maintenance costs today; the most likely solution would be to sell the right to collect that 3 percent for 25 years to an investor, or perhaps borrow against it. If that happens, even families that could afford to pay cash now will be forced to pay an inflated price for education based on the college’s need to borrow against or sell at a discount its future income.
Most important, the pay-it-forward program does nothing to solve the real problem with college costs: Oregon is one of the biggest deadbeats among the states in financing for public higher education. According to the American Council on Education, Oregon cut its state higher education investment as a percentage of state personal income by 61.5 percent from 1980 to 2011. “Extrapolating this trend since fiscal 1980, state investment will reach zero in 2036,” the council reports.
This is an extreme example of a decades-old national trend. State funding for higher education across the country has declined by more than $1,000 a student over the past five years alone, according to an analysis from the State Higher Education Executive Officers Association.
In an era of TED Talks and thought leaders and big ideas, it’s easy to get caught up applauding new approaches to solving the higher education cost crisis. But in this case, we don’t need innovation. We need the old-fashioned funding that states used to provide.
(Zac Bissonnette is the author of “Debt-Free U.”)
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