Oregon is on its way to becoming the first state to implement a radical new program that would let students attend state schools without taking out a single loan or paying out of pocket.
The “Pay it Forward, Pay it Back” plan lets students enroll with no money down, so long as they agree to pay up to 3% of their future salaries back into a state fund annually for 24 years.
“If it’s done correctly it’s essentially creating a social insurance vehicle for enabling access to higher education,” said John Burbank, executive director of the Economic Opportunity Institute, the Washington state-based think tank that helped come up with the idea. The EOI passed it on to students from Portland State University, who brought it to the legislature’s attention.
Students are clearly driving the push for tuition reform across the country, as the nation grapples with a $1 trillion debt load, state funding for schools has been slashed left and right and more and more students turn to student loans to fill the gap.
In January, students from cash-strapped University of California Riverside proposed the UC Student Investment Proposal, a plan to collect 5% of state school graduates’ income annually for 20 years in exchange for allowing them to enroll in school with no upfront fees.
The way both plans work, no payments would be collected from graduates unless they are gainfully employed, which means they’d be off the hook while in graduate school or out of work. It’s a lot like the income-based repayment plan that students who take out federal student loans are already entitled to. IBR caps payments at 10-15% of their income over a 25-year period, after which any remaining debt is forgiven.
But there’s a huge difference with Oregon’s plan that is worth noting. With the federal IBR plan, graduates must pay taxes on the amount of debt forgiven.
Oregon students wouldn’t be charged taxes on any remaining debt after the 24-year repayment period expires, which could mean even more savings.
So far, Oregon is the only state to really make moves to put such a plan in place. Lawmakers unanimously approved a committee to develop a pilot program for Pay it Forward, Pay it Back, but it would be at least until 2015 before they decide to move ahead or not.
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