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No, Don’t Pay It Forward
July 8, 2013 - 9:42pm

Apparently, Oregon is considering a plan to allow students at public colleges and universities to skip tuition and fees upfront, in return for agreeing to be taxed a set percentage of their income for the first twenty years after they leave college.  It’s known as “Pay It Forward.”

It’s an audacious, innovative, terrible idea.  I love the spirit, but it’s a train wreck waiting to happen.

A similar idea came up in California last year.  At the time, I raised several objections.  (You can read the full version here.)  The highlights:

- Obviously, in the interim between now and payback time, the state would have to pony up far more money than it currently does.  Unless I misread the politics of it, that isn’t likely.

- The political impulse, over time, would be to phase out the state subsidy altogether, and to shift the entire cost burden to students.  (Admittedly, this objection is vulnerable to “as opposed to...?”)

- Higher education would be subjected even more strongly than it already is to the vagaries of economic cycles.  Since recessions hit the young hardest, and this tax would mostly hit people from their early twenties to their early forties, the hit to college budgets in recessions would be magnified.

- Students are stubbornly heterogeneous.  (The positive term for that is “diverse.”)  How would this work for part-time students?   What about students who go back to college at age thirty?  What about students who go on to graduate school and don’t make meaningful money for eight or ten years out?  Transfer students?  Students who repeat courses?

- Scholarships could become irrelevant.  Why a state would want to replace privately donated money with its own is beyond me, but there it is.

- If you think financial aid is administratively complex now, just imagine verifying the income of graduates ten years out who have every incentive to lie.  In the absence of some sort of unit record system, good luck with that.

Since then, I’ve come up with a few more, with help from wise and worldly readers.

- High-earning students would resent what they perceived as overpayment.  (I’m told that this was the experience in Australia, which actually tried something like this.) Since high earning tends to correspond to high influence, I’d expect to see disgruntled high earners use their clout to minimize their obligations.  To the extent that they succeed, they hollow out the cross-subsidy that would have paid for all those grad students and stay-at-home parents.

- Like socialism in one country, a plan like this in one state is doomed.  Students who expect not to make much -- say, the ones who expect to go on to grad school -- would flock to Oregon.  Students who expect to make a lot of money -- the petroleum engineering and computer science majors -- would flee Oregon for more hospitable climes.  That kind of adverse selection would wreak havoc on the cross-subsidy model.

- From an institutional perspective -- come on, you knew that was coming -- separating budgets from performance by five to ten years can’t help but create weird incentives.  Community colleges would get a particularly raw deal, since its high-achieving students tend to transfer, and therefore to make relatively little for the first couple of years out.  (The typical college junior isn’t exactly rolling in it.)  The plan seems to be structured on the assumption that students are either community college grads or four year grads; it isn’t obvious how it would handle students who are both.  When you have a student body with lots of thirty-five year olds, part-time students, and students with developmental and similar needs, the model won’t fit.

- I really don’t think the state has thought through what it would mean to lose Federal financial aid.  Right now, much of what we call “tuition” actually comes indirectly from Federal coffers, whether as Pell grants, work-study awards, or subsidized loans.  That’s money that the state doesn’t have to provide.  There’s a case to be made that as states have cut back their support, they have effectively shifted the burden of paying for higher ed from states to the Feds.  Financial aid is the new state aid.  To the extent that Oregon displaces Federal aid with its own money, it gives its own taxpayers a uniquely raw deal.  Residents of Oregon would still pay Federal taxes, but they’d lose this particular Federal benefit.  As a non-Oregonian, that’s not my problem, but I can see Oregon’s voters getting cranky once they figure it out.

I understand the first-blush appeal of the idea.  But we could get nearly all of the benefit of this system at far lower cost simply by making income-based repayment the default mode for student loans.  There would still be room for scholarships, institutional incentives would be closer to real time, the state wouldn’t lose Federal support, and we wouldn’t have to worry so much about students who transfer (or, for that matter, about students who strike it rich).  If Oregon wants to reduce sticker shock -- a worthy goal -- it should simply increase its subsidies to public higher ed.  It can work; in my own state, for example, we’ve agreed to freeze tuition and fees for next year in exchange for higher state support.  Get it in writing, and it’s not that hard.

Wise and worldly readers, what do you think?  Am I being unjustly harsh, or is this actually the slow-motion disaster it appears to be?

 

 

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