An Ambitious Oregon Initiative Creates Hope and Controversy

a radical departure from traditional tuition-based I higher education consumption, Oregon Gov. John Kitzhaber recently signed a law requiring the state to develop and implement a pilot Pay It Forward (PIF) program. The Pay It Forward, Pay It Back initiative - based on the Pay It Forward framework developed by the Seattle-based think tank Economic Opportunity Institute (EOI) - would afford students the opportunity to attend college tuition-free, and then require them to pay back a fixed percentage of their monthly earnings for a predetermined number of years once they have graduated and obtained good jobs.

It's a move that many recognize as a much-needed response to unsustainable growth in student debt load. But whfie it has generated significant media buzz, with such media heavyweights as Salon and The Wall Street Journal publishing relatively positive pieces on the Oregon plan, Pay It Forward has also drawn criticism from a wide range of sources.

The Oregon law, which was passed unanimously by both houses of Oregon's legislature, would essentially eliminate tuition at Oregon's public universities. After graduating and finding jobs, students would then pay a small percentage of their incomes - either 1.5 percent for graduates from community colleges or 4 percent for graduates from four-year schools - for the next 20 years. In order to get the program off the ground, the law also calls for the state to provide initial funding, after which the program would become self-sustaining.

EOI Executive Director John Burbank, who described EOI as a solution-oriented think tank for the middle class, said that the Pay It Forward concept was an outgrowth of a report EOI had released in 2007 examining how higher education funding cuts were feeding the rapidly growing problem of outof-control student debt in Washington. Following the release of the report, Burbank met and spoke with a business professor who recommended that he look at the Australian model of income-based repayment. In the Australian model, called the Higher Education Contribution Scheme, students would essentially be fronted the full value of their tuition, and after graduating, pay back their loans at a rate tied to their income over a fixed number of years, with the remainder of the loan being forgiven afterward. The idea is not new; in fact, Milton Friedman first posed the idea of such an income-based repayment scheme in 1955.

But Burbank wanted to go a step further and eliminate the very idea of student debt from the picture.

"The difference is that the Australian system focused on paying back individual debt." Burbank said, explaining how the Australian model still ties the student to a loan and subsequent debt. "We abolished debt."

As Burbank explains, in the Pay It Forward model, students have money deducted from their incomes at a predetermined rate for predetermined number of years, and placed in a sort of trust fund. Money from this fund would then be used to finance the college educations of the incoming generation of college students.

"It's social insurance for higher education," Burbank explained.

But resistance to disruptive innovations aimed at long-established institutional practices is to be expected. The Oregon Pay It Forward initiative - indeed the very concept of debt elimination via Pay It Forward - has found no shortage of critics.

The criticism comes not just from colleges and universities. A number of higher education organizations - including the American Association of State Colleges and Universities (AASCC), the American Association of University Professors (AAUP), the American Federation of Teachers (AFT), the Education Trust (ET), the National Education Association (NEA), the Institute for College Access and Success, Inside Higher Ed, and others - have formed a coalition in opposition to Pay It Forward.

Kati Haycock of The Education Trust has expressed significant concerns about the basic structure of the Oregon initiative. While acknowledging that higher education is "facing a crisis of affordability," Haycock has expressed concern that Pay It Forward would serve to mask the underlying problems of higher education financing, rather than forcing institutions to institute cost-conscious policies and states to reverse the trend of ongoing disinvestment. She also posited that Pay It Forward would not cover non-tuition-related costs, such as room and board and books. And she worried that according to the Oregon Center for Public Policy, a student could end up eventually overpaying by thousands of dollars.

Other reactions have been more measured. Dr. Miguel Palacios, assistant professor of finance at the Owen Graduate School of Management, Vanderbilt University, recently said in an interview with The Human Capital and Economic Opportunity Global Working Group: "If the problem is that students should not have to pay for higher education, then PIF does not solve the problem. If the problem is that the students' burden of paying for higher education is unmanageable, then PIF does solve that problem."

Jason Gettel, a policy analyst for the Oregon Center for Public Policy (OCPP), provided testimony in support of the Oregon bill that appeared to contradict Haycock's negative take on OCPP's analysis of how the program would work. Said Gettel: "Pay It Forward may not completely alleviate the problems of educational inequality (we still need to increase publie investment in higher education), but it does eliminate a daunting barrier of eye-popping up-front cost. Each student would simply pay in proportion to what they actually gain from their education in terms of income. And it turns out, the program can be self-sustaining, and actually generate revenue, in the long run."

Responding to the criticism, Burbank argued that, for Pay It Forward to work as intended, institutions must maintain stable tuition rates, and ideally have tuition rates decline over time. And of course, by eliminating the entire concept of the loan/debt burden on students, Pay It Forward would improve their economic outlook following graduation.

Despite criticism of Pay It Forward, according to Burbank a number of states are actively investigating the merits of a Pay It Forward initiative, including Massachusetts, Vermont, Maryland, New Jersey, Pennsylvania, Ohio, Illinois, Michigan, Washington, Texas, and California. In Maine, three pieces of legislation are being introduced calling for a study on developing a Pay It Forward initiative. Pennsylvania is considering a program aimed specifically at community colleges. In New Jersey, legislation was introduced last August calling for the establishment of a seven-member commission to study the idea.

The Pay It Forward concept is getting more attention at the federal level as well. Oregon Sen. Jeff Merldey has drafted legislation, titled "The 'Pay It Forward' Guaranteed College Affordability Act of 2013," that would establish funds to cover some or all of students' costs for a twoor four-year college education. The act would establish an alternative to federal Direct Loans and provide program funds, up to per-student Stafford loan limits, for states agreeing to start a pilot Pay It Forward program; allow states to select which schools would participate; defer students' postgraduation contributions to Pay It Forward until their incomes rise to a level that makes their payments affordable.

Back in Seattle, Burbank's organization has been hard at work garnering support from a number of unlikely partners - particularly businesses such as automobile dealerships that are being pinched by the lack of growth of middle-income consumers. And while getting resistance in higher education circles -where, as Burbank described it, the focus is primarily on maintaining the status quo and preserving the health of the overall institution - EOI is focusing its efforts to garner support at the secondary school level, where the focus is on maximizing higher education enrollment out of high school.

"We are looking at the high school level to say everyone with over a 2.0 average can go to college," said Burbank.

EOI hasn't yet called upon to look at the specific needs of MSIs or HSIs. Nevertheless, Burbank said, his organization is broadly concerned about shrinking middle-class opportunity - and would-be students of lowerto middle-economic means being squeezed out the higher education market are a big part of that concern.

"The biggest barriers for would-be students are financial and psychological barriers," said Burbank, explaining that Pay It Forward all but eliminates the issue of debt aversion. "Once this gets going it will appeal to would-be students. Pay It Forward is opening the door to a much larger cohort. If we want higher education to be available to anyone who wants it, we have to put mechanisms in place that make it available."