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Wall Street Journal: Oregon Explores Novel Way to Fund College
Author: Douglas Belkin, Wall Street Journal
Posted: July 3, 2013

Read the original story here in the Wall Street Journal. 

As lawmakers in Washington remain at loggerheads over the student-debt crisis, Oregon's legislature is moving ahead with a plan to enable students to attend state schools with no money down. In return, under one proposal, the students would agree to pay into a special fund 3% of their salaries annually for 24 years.

The plan, called "Pay it Forward, Pay it Back," 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.

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 idea originated with the Economic Opportunity Institute, a nonprofit, nonpartisan group in Washington state that bills itself as "a think tank for the middle class." Legislators in states including Washington, New York, Vermont, Pennsylvania and California have expressed interest in the concept but Oregon is the first to take legislative action on it, said the institute's executive director, John Burbank.

"If it's done correctly it's essentially creating a social insurance vehicle for enabling access to higher education," he said.

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.

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.

Dave Girouard, chief executive of Upstart, a Palo Alto, Calif., company that seeks investors to provide capital to professionals for a guaranteed percentage of their future earnings, said the Oregon plan could suffer because it might turn off students with the biggest earning potential, for whom traditional interest rates would be preferable to promising a share of future income. What you don't want is a program filled with "people who don't intend to work as hard or have a bias toward earning less money," he said.

Jason Gettel, a policy analyst for the Oregon Center for Public Policy, a nonpartisan, nonprofit think tank, said in a presentation to the legislature that the program would need time before it could pay for itself.

In the 2010-11 school year, there were about 21,000 first-year students in public state colleges and universities in Oregon paying $171 million in tuition. To move them, and the next 23 classes behind them, into this program would cost the state more than $9 billion over 24 years until enough students had graduated and were paying into the system to cover its outlays.

Using 2010 census data not adjusted for inflation, Mr. Gettel estimates 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, Mr. Gettel said. Students would pay more or less depending on how much money they earned.

The idea was first presented to Oregon legislators by students from Portland State University last year. Tracy Gibbs, one of the students, said that by freeing graduates from the steep overhang of debt many now face, the plan would allow young people to buy houses and contribute to their retirement accounts.

"This will open up for our generation the same opportunities that our parents and grandparents had when they were done with college," she said.

Write to Douglas Belkin at