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Oregon's Plan to Do Away with Student Loans


Oregon is considering a plan to allow students to attend state schools without taking out loans or even paying any tuition upfront. The catch? Under a plan called, “Pay It Forward, Pay It Back,” once the students graduate, they would pay 3 percent of their salaries into a special fund for 24 years. The WSJ reports:

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.

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 loan Oregon would need to get it started. But details aside, the idea is intriguing.

Universities currently get their money upfront and generally don’t have to worry about the prospect of a default on student debt, giving them less of an interest in how their graduates perform in the job market. A plan like Oregon’s would give colleges an incentive to ensure that their students not only graduate but land good jobs.

That’s the theory, at least. Will it work in practice? We would sure like to find out.

[Ball and chain image courtesy of Shutterstock]

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  • jeburke

    Looks like a loan to me — only one that higher salaried people would be forced to subsidize the lower salaried people for 20 years. Nice deal for aspiring artists!

  • Anthony

    This is a brilliant idea. I think Milton Friedman proposed something like this a long time ago.

  • bigfire

    Won’t work. I can see class action lawsuit already forming against indentured servitude.

  • Anthony

    “The proposal has a few questionable aspects, most notably the $9 billion loan….” In addition to economic forecasting 20 years out as well as start-up and implementation concerns, the idea needs refinement.

    • Andrew Allison

      Not to mention the small problem of actually collecting the 3% from students who move out of state.

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