While in Portland, Oregon the past few days, I was struck by the news that the state’s legislature passed a bill to “Pay It Forward, Pay It Back,” allowing students to attend college for free initially, then paying tuition as a percentage of their income for a set number of years.
Many of the national news reports were incorrect. The state’s government passed a bill that only recommends a study of the proposal. No one is going to state college for free yet, and it’s pretty unlikely that the Pay It Forward proposal will go into effect as it’s currently designed.
Here is how it would work. A student going to a state (public) college in Oregon would not be charged tuition, but would still have all other expenses related to attending college, like materials and room and board if not living with parents. In order to pay for the education, that same student would, after graduation, pay an additional tax to the state of 3% of annual income. That would be 0.75% for each year of college completed.
Earlier this year, the country asked whether it was fair that banks could borrow money from the government at ridiculously low rates as they have through the recession while students would be faced with a doubling of interest rates on July 1. I assumed that Congress would follow its pattern of voting to reduce the student loan interest rate or continue the already low rates at the last minute, but neither happened. Now students are facing higher interest rates on new loans, effective on the same day that Oregon voted to consider the “Pay It Forward” plan.
What the experts will find when they evaluate the plan as it exists today is that it is systematically flawed.
Free college education should be available to anyone who wants it. It’s in the best interest of the country — and the world — for as many citizens as possible to be prepared for intellectual labor with the skills and cognitive abilities that fuel the economy of the Information Age.
- Societal economic benefit. A well-education population meets the needs of society that continues to advance from a technological perspective.
- Familial economic benefit. Tertiary education enables upward economic mobility. It provides the opportunity to break the multi-generational chain of poverty or low socioeconomic status.
- Personal economic benefit. While high levels of unemployment are still problems today, the college-educated are more likely to be employed than those without degrees. Recessions hurt households with college degrees less, and individuals with college degrees, for the most part, earn more than those with high school diplomas over the course of their lives.
From an economic perspective, free education is impossible. Everything that goes into providing a degree costs money, and funding for those expenses must come from somewhere. The beneficiaries of college degrees are society, future generations, and individuals. Somehow, the cost of an education population must be shared among these beneficiaries.
The proposal in Oregon addresses part of the problem in its desire to reduce the burden of an education. It creates new problems.
A tax is just another debt. The aggregate amount of student loan debt in the United States is outpacing credit card debt. As mentioned above, student loan interest rates have just doubled for new loans. While Oregon’s Pay It Forward reduces relying on the federal government to pay for college, it has just substituted one type of debt for another. For twenty-four years after completing at least one year of college, former students will be paying for their education in the form of a state tax.
While the tax won’t be counted as “debt” for the purposes of credit rankings and mortgage qualifications, it’s still a financial burden.
A state tax is difficult to collect. There’s no doubt that Oregon is a beautiful state. After a conference this past weekend, a few friends and I drove to the coast, taking in a type of natural experience I don’t normally see on the east coast. But people don’t always continue to live in the state that provided their college education. How will Oregon collect the tax on student who move out of state?
It’s progressive. Should an electrical engineer pay more for his degree than a social worker? In today’s education model, if both attend the same school, they pay the same. In Oregon’s model, and this may be by design, the cost of a degree is a factor of the salary over the first twenty-four years of working. Anyone seeking high-paying careers or anyone thinking they’ll be taking executive-level positions won’t be interested in attending Oregon’s state colleges if this 3% tax is a mandatory result.
The plan only covers tuition. Tuition is just one reason students borrow money to attend college. Students need to pay for materials, housing, and food, not to mention other expenses that come into play just by being a young adult. All of these costs are factored in when students take out loans. Even with Pay It Forward, some students might still need to borrow money from the government. As a result, they’ll have a student debt burden when they leave college in addition to the 3% tax.
The change to cash flow is destructive to the institutions. Institutions rely on tuition receipts to pay their own expenses, like professors’ salaries and campus maintenance. I’m not familiar with the situation in Oregon specifically, but in general, state colleges are receiving less funding from their states and don’t have multi-billion dollar endowments. Delaying tuition payments due today in favor of a trickling of cash over the next twenty-four years will make the operation of state colleges a challenge.
With some significant modifications, the Pay It Forward plan for Oregon’s state college system might be able to work. But is this a good approach in the first place? Should we be finding ways to make college more affordable for the benefit of society at large, or should education be available for only those who can best afford it?
Photo: Luke Landes
Published or updated July 11, 2013.