Not that long ago, there was a finance plan Oregon had called ‘Pay It Forward.’ It would’ve cost $5 million to $20 million per year to allow 4,000 students to try it out. Oregon obviously has many more than that. But it definitely would’ve been interesting to see how it would’ve panned out. It seems like it would be too good to be true. To an extent, it is. But at the same time, it really isn’t. It was shot down before it had the chance to show anybody whether or not it would’ve worked.
I personally believe that it would have worked. It would’ve been really hard in the beginning, but, it would’ve worked out in the long run had there been donors to fund it.
What it Was
Pay It Forward was a finance plan that would give Oregon students a chance to waive tuition and fees while authorizing the state to incur debt to fund the program. In fact, it wasn’t really a waiver as much as a big IOU. The students would have to agree to pay three percent of their income over 24 years. This bill had a divide between Democrats and Republicans. However, even though the legislature ultimately passed it on to the ballot, it was voted down. One issue that was brought up was the fact that it didn’t solve many of the issues we have in Oregon because students would still have to deal with college loans to pay off.
Funding: Oregon’s Biggest Issue
Obviously, the biggest issue was funding. As mentioned above, it would’ve taken $5 million to $20 million each year for over 20 years. Some states might not think too much about this being an issue. But Oregon doesn’t really produce a whole lot of money that quickly. In 2013, Oregon’s gross state product (GSP) was a little more than $2.1 billion. The state already has an issue with funding its public K-12 educational institutions, so why would anybody think that $5 million to $20 million wouldn’t have been much of an issue?
Future Income Payments + Student Loans = Seemingly Impossible
One issue that was brought up, besides the state needing to pay the schools to cover the “free” aspect of college, was the issue with student loans needing to be taken out. On top of the loan payments, students would then have to pay three percent of their income. To many, this seemed quite impossible. However, if one does the math, it may not seem like such an issue.
If a student graduated and had a job that started out paying $35,000 per year, they would have to pay the state $1,050 annually or $87.50 per month. The average loan payment is about $280 per $25,000 in loans. This leaves plenty of room for students to pay for a home and food. Of course, taxes and student loans would take up a lot more and make it difficult. But there’s much more to consider than how hard it would make life for students. Would the state income tax be lifted from them? I highly doubt it, seeing how Oregon’s main source of revenue is through an income and property tax.
Are Students Better Off Without the Bill?
Currently, as mentioned above, the average student loan payment is around $280 for every $25,000 in loans. The undergraduate tuition (2014 – 2015) at the University of Oregon (UO) is $9,918 per year for residents. The students who cannot live off their loans must work. Students who are dependent may receive up to $31,000 in loans while independent students are able to receive up to $57,500 in loans. In both cases, up to $23,000 may be subsidized. Obviously, students may still receive federal pell grants. This means that the monthly payments could be $347.20 to $644 per month after college if the students received the maximum career amounts.
Life is made difficult because of the UO’s tuition. One year is $9,918. If a student can graduate in four years, tuition alone is $39,672. Some students that need an extra year to graduate pay $49,590. If the student is stuck with a sixth year, tuition for them may be up to $59,508. Don’t forget that students may only take out up to $31,000 or $57,500 depending on their tax status. The biggest issue here is that if students are stuck taking out loans for all of their education, they may end up having to postpone their education, drop out, or attend school part-time with no time for homework because of work scheduling.
Students Would Benefit From the Bill
While the issue of taking a hit on income and student loans would prove to be difficult, there are plenty of benefits to the students. The biggest benefit would obviously be the pressure of tuition lifted during college. If a student made $60,000 per year, they would only have to pay $1,800 each year, which is $150 per month. If only half of the maximum amount of loans were accepted, the dependent student would pay an additional $173.60 per month. The independent student would pay an additional $322 per month. In total, the dependent and independent students making $60,000 per year would pay $323.60 and $472 per month, respectively. The dependent student doesn’t save much, but the independent student saves $172 per month, or over $2,000 each year, with the bill in place.
Students that save money after college this way can put the savings into a savings account or put that money towards other things. The only thing that wouldn’t benefit the student is that the student may end up paying more than their tuition was. However, on the flip side, some students may end up paying only half of their tuition back.
Government Would Benefit From the Bill
What makes this bill great for government is the potential to avoid defaulting students. Whether students took out loans or not doesn’t really matter when the state gets a percentage of their income. If Oregon had 1,000 students in this program and 250 students made $30,000 per year, another 250 students made $35,000 per year, another 250 students made $40,000 per year, and 250 students made $45,000 per year, each student would pay $900, $1,050, $1,200, and $1,350 per year respectively. Altogether, Oregon would bring in $1,125,000 per year, guaranteed.
Pay It Forward has potential to bring in more revenue than the tuition alone. Obviously, not everybody will have a certain amount of money. But after making a spreadsheet that calculates what the state would bring in, it’s interesting to see that if students had made $60,000 per year that each student would pay back Oregon an extra 8.89 percent on top of their original tuition after 24 years. There are many students who won’t make that much money. However, there are also many who will make more.
Obviously, there’s an issue with students who don’t make more than a certain amount because they get off with only paying back half of their tuition. This would need to be changed in order for it to be made successful.
More Rules and Exceptions Are Needed
How many people from Oregon are going to have the opportunity to make a large amount of money within the state itself? This is why it isn’t a good idea to make this available only to Oregon residents or only to those who stay in Oregon. Currently, the median household income in Oregon is $50,036. Oregonians making this salary only pay off 90.81 percent of their tuition after 24 years. Maryland has the highest median income at $72,999 and, after 24 years, a student making this salary would pay an additional 32.48 percent. These students actually pay off their tuition after 19 years. Obviously, not everybody will make this kind of income and it will be hard for the state to recuperate its losses.
The entire point of the bill was to help college students do better in school by relieving some of the stress of tuition through a pay it forward program. Funding is the biggest issue here because the state would have to fund the schools where the students didn’t. One big alternative that could’ve been thought of was the use of donations. It’s no secret that Phil Knight is one of the largest, if not the largest, donor to the UO. I do understand, however, that most schools in Oregon don’t have the same donors. The biggest issue is that the students still won’t be better off without the bill because they will come very close to their borrowing limit in their junior and senior years.