Report: A Look At The “Pay It Forward” College Financing Proposal

By Laylaa Randera, Communications Intern 

The rise in higher education costs has encouraged policymakers to search for alternative options students can use to finance their college years—one of the proposed solutions is the “Pay It Forward” (PIF) college financing concept. Some researchers contend this is not an effective solution to addressing college affordability, according to a new report released by the American Association of State Colleges and Universities (AASCU). 

The report, The “Pay It Forward” College Financing Concept: A Pathway to the Privatization of Public Higher Education, summarizes the history of PIF, explores common elements of PIF legislation recently introduced in state legislatures, and offers questions for lawmakers to reflect on before stepping forward with the PIF policy. 

Although at present it’s only a proposal, PIF has garnered national attention in the sphere of higher education. Ideally, PIF “would eliminate up-front tuition and fee payments at public colleges and universities in exchange for students agreeing to pay a pre-determined, fixed potion of their annual earing for an extended period of time following graduation,” according to the report. Once in motion, PIF would be continually self-funded— graduates make payments which in turn cover tuition and fees for students still enrolled in college.

Advocates from the left and right of the political range favor the proposed PIF policy— left-leaning supporters from a social perspective, and right-leaning supporters from an economic perspective. But the perspectives mentioned in the report “are not mutually exclusive, as PIF could redistribute earnings of college graduates while simultaneously diminishing the state’s role in financing public higher education.” 

The report takes a look at the history of income-share agreements. Similar college financing models have been implemented in the past—some deemed a failure, such as the Tuition Postponement Option launched at Yale University in the 1970s, and others a success. 

According to the report, PIF supporters believe the model would alleviate “financial barriers to college entry and completion; unmanageable post-college debt; and restrictions on graduates’ career choices stemming from low salaries in some occupations that leave borrowers with little opportunity to pay down their loan principal.” 

However, the report’s author, who highlights 13 problems the proposed policy may cause, notes that “[o]ne PIF analysis revealed that graduates earning a median salary ($55,000) with annual 2 percent salary increases would pay $3,000 more than the standard 10-year loan repayment plan at 6.8 percent interest,” states the report. Other college financing realities the report suggests could result from PIF include:

  • Most students could pay more, not less, for college;
  • Considerable uncertainty would be introduced into campus budgeting and planning efforts;
  • Students from sectors with the heaviest student debt burdens would be ineligible to participate;
  • The class divides in public higher education, and more broadly, in American society, could intensify;
  • PIF’s start-up costs would be enormous;
  • Payment collection would be costly and challenging;
  • Underlying college cost drivers would not be addressed; and
  • Support for maintaining existing state investment in public higher education would erode, creating a pathway to privatization.

The report also attempts to address the unknowns of PIF through a series of questions and answers. “PIF represents a radical departure from the current higher education finance system, with many unanswered questions that are worthy of consideration before any pilot programs commence,” the report said.

 

Publication Date: 7/28/2014


Tracy H | 7/28/2014 11:39:11 AM

Most of us who work at public institutions know that we are no longer state-funded and barely state-supported these days. As much as the media wants to claim that our upper administration staff are making big dollars, those of us in the trenches and doing the work are certainly not! Unless the states are going to dump a bunch of money in these programs to start it up and then continue to provide us with administrative allowances to fund it, the cost of this program just doesn't pencil for trying to meet our operating expenses.

Allison V | 7/28/2014 9:13:14 AM

When first reading the article, I thought no way. However, if collection of the funds could be pre-taxed and come out of your pay check like social security, and federal taxes, then I think why not? This could actually work

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