Tuition-Free in Oregon: Lawmakers Pass ‘Pay Forward, Pay Back’

Legislation designed to keep student loan interest rates down is working its way through Congress, but opponents believe the bill will do little to help students and families deal with the escalating cost of a college education. The bill would provide immediate relief as it reverses a July 1 decision that doubled interest rates on subsidized loans. Students would be required to pay the current yield on the 10-year Treasury note plus 2.05 percent. Treasury notes are at historic lows and the newly proposed 3.86 percent on subsidized Stafford loans, up modestly from 3.4 percent, would likely increase exorbitantly in the future. The Obama administration supports the bill.

The states are not betting that Congress will solve the problem. Oregon lawmakers passed legislation this year that could radically change the way students pay for higher education.

The Oregon legislation instructs the Higher Education Coordinating Commission to consider developing a pilot program for a “Pay Forward, Pay Back” funding model, which would eliminate tuition and fees for students in the state university system ­– so long as students agreed to pay roughly three percent of their income for the next 20 years to help finance the education of future students. The commission has 18 months to develop the plan and present it to lawmakers for consideration in the 2015 legislative session. Oregon is one of a handful of states in which the legislature meets in regular session every other year.

Portland State University students proposed the Pay Forward, Pay Back idea, building on a model developed by the Economic Opportunity Institute of Seattle, Washington. Rep. Gene Whisnant, R-Sunriver, sponsored the bill. University of California Riverside students proposed a similar plan to the California legislature last year, though there has been little discussion of the idea in Sacramento.

Students from low-and middle-income families would presumably fare better under the new plan, as they tend to be more dependent on loans to pay for college. Proponents argue there the legislation addresses a fairness issue as well, as high earners would pay more than low earners.

Others argue though that it would punish students who major in high-yielding fields, such as engineering and finance, while students who end up in less lucrative professions would contribute far less to the funding pool. These opponents add that the plan would push wealthier students to private colleges or out-of-state universities where the lending rules would not apply.

Oregon has a serious problem. It has seen enrollment grow 36.2 percent over the past five years, more than any other state, according to a higher education finance report released by the State Higher Education Executive Officers Association (SHEEO). In the same period, faced with a need to cut overall spending, Oregon reduced its educational appropriations by 32 percent. Seven states, including New Hampshire and Florida, have slashed funding more severely.

Opponents argue that the states do not need innovation; they simply need to spend more on higher education. But cash for program expansion in the states remains limited to say the least. The states are still fighting their way back from the recession years when revenues collapsed and budgets were slashed. The Oregon model is, at a minimum, symbolically important. It signals that legislators recognize the cost of higher education is a growing problem for students, families and the state and that a need remains to embrace new ideas and implement new programs to make it more affordable and accessible.