No Such Thing as ‘Free Tuition’

When an advertisement says “No money down,” an asterisk and some fine print typically follow. And it’s probably wise to look for that.

That seems to be the case with an Oregon proposal that has generated headlines such as “Plan would make tuition free at Oregon colleges,” “Oregon is doing free higher education the right way,” and “Oregon looking to eliminate tuition and loans for higher education students.”

Despite the headlines, the state didn’t suddenly abandon all plans to charge tuition. Last week the Oregon legislature took the first steps toward possibly implementing a plan that would allow public college and university students to forgo upfront tuition payments in exchange for paying a portion of their wages back to their alma mater for about 25 years following graduation. While it may mean no money down, it could still add up to large tuition bills.

But the program is a long way from actually being instituted. The bill approved by the legislature, if it is signed by the governor, would only direct the state’s Higher Education Coordinating Commission – a relatively new agency created amid broader governance changes in recent years -- to create a pilot program for legislative consideration in 2015. If the governor signs the bill, the commission would work between now and the 2015 legislative session to figure out how to overcome significant logistical barriers to implementation and the pros and cons of implementing such a system.

Despite the limited nature of the proposal, proponents see the legislature’s move as a significant step toward rethinking how to fund higher education in an era of limited state support, competing state spending priorities and reluctance to increase taxes. If, after several years of study, Oregon decides to adopt a plan along the lines of what is proposed, it would represent a fundamental shift in how public institutions fund themselves.

“These are types of creative ideas that we want the state to study,” said Diane Saunders, director of communications for the Oregon University System, which testified in support of the study bill. “There is a recognition that the state funding model is a broken model. No one believes we’ll be going back to the golden age of financial aid where the state provides infusions of billions of dollars.”

But critics of the proposal say the logistical barriers to implementation will likely prove too great for the program even to get off the ground. At the moment there is no plan for how to pay for the proposal’s implementation – the state would have to forgo several years of tuition before it would collect on any returns – and no plan for how to collect funds from graduates. And even if the higher education commission can establish a way to mitigate those issues, critics say there are still aspects of the plan that make it unappealing.

“[This model of] funding of higher education exacerbates the ongoing trend of envisioning higher education as a private transaction that accrues benefits to the individual rather than a public good that brings economic and civic benefits to communities,” the American Federation of Teachers wrote in a paper regarding a similar proposal in Washington state.

Critics say that rather than addressing the root causes of the increasing price of public higher education and therefore increased student loan burdens – including decreased state support, increased labor costs, limited productivity improvements and growing auxiliary costs, among other things -- proposals like the “Pay it Forward” plan simply try to shift the burden of paying for college and disguise the true costs of a college education.

The rapid adoption of the plan, which wasn’t even an idea on paper two years ago, is an indication of the frustration people feel with the status quo. “With higher education finance, like K-12 finance, all you know is that something has to change,” said Sara Goldrick-Rab, a professor of higher education policy at the University of Wisconsin at Madison, who wrote a blog post criticizing the proposal and is working on a paper about the proposal's problems. “People say, ‘Isn’t change better than the status quo?’ In this case it isn’t. This is just a desire to have something be different. It’s change bias.”

A New Idea?

The Oregon plan is similar to, and has its origins in, one proposed by students at the University of California at Riverside that made headlines last year. Since last winter, a group of University of California students have been in talks with the system administration to address some of the logistical challenges raised by the plan, but there has been little public movement.

In contrast, the Oregon plan moved quickly from being an idea to getting legislative approval. Chris LoCascio, one of the students involved in the UC effort, said he and his team worked with the Economic Opportunity Institute, a liberal think tank in Seattle, to help develop the plan. The institute then proposed a version of the plan for Washington.

A Portland State University professor connected with the institute’s executive director last fall to work with a senior capstone class called “Student Debt: Economics, Policy and Advocacy” that semester. The students and faculty in the class modified the Washington proposal to fit Oregon and presented it to lawmakers, who embraced the idea.

Many details of the program would have to be worked out, including the actual percentages and repayment period. The proposal by the Economic Opportunity Institute would have students at four-year institutions sign an agreement to pay back 3 percent of their income and students at community colleges agree to pay back 1.5 percent of their income annually. So a student who makes $800,000 over the repayment period of 24 years would end up paying back about $24,000, while a student who makes $2 million over the same period would pay back $80,000. A graduate who made very little would end up paying much less than the cost of his education, while one who made billions would end up paying back much more.

Officials said the rapid embrace of the plan is a function of the economic strain the state’s public universities have felt since the recession. In the 2011-3 biennium, the university received less funding in actual dollars than it did in 1999-2001, even though it added 34,000 more students.

"Part of the problem is that many people don't realize what bad shape Oregon is in," said Mary King, an economics professor at Portland State and one of the teachers of the class that ended up proposing the plan. "What we provide on a per-student basis for public higher education is near the end of the line."

The idea of basing college payments on graduates' income is not a new one. Some federal student loans are eligible for income-based repayment, in which loan payments can be made on a sliding scale based on the debtor's income. But these payments, unlike the California and Oregon proposals, are repayments for a specific amount borrowed.

The Oregon and California ideas are similar to a program in place in Australia known as income-contingent repayment. But since that program is administered at the federal level, the program can tap into federal tax collection infrastructure and can track students when they leave the state, removing some of the barriers facing the Oregon program.

No Silver Bullet

Oregon higher education officials have given a tentative endorsement to the idea of studying the plan, noting that it is not a panacea for the financial problems facing public higher education.

“We need to do our share at the state level and if Pay It Forward -- or any other idea -- can help make Oregon’s public colleges and universities more affordable and accessible, then it should certainly be studied,” Wim Wiewel, president of Portland State University, said in testimony before the state legislature. “We must also be clear that this idea alone -- even if it were to reduce or eliminate student loan debt -- cannot solve Oregon’s affordability and accessibility challenges. For example, reducing student loan debt will not slow the rising cost of tuition and improve the quality, or increase the capacity, of aging classrooms suffering from decades of unfunded deferred maintenance.”

Unlike the proposal in California last year, which was not widely investigated by third-party groups, the Economic Opportunity Institute and Oregon plans have begun to generate a significant amount of criticism.

One objection is that the plan would shift the burden of paying for college -- currently a burden shared by students, their families, the institution and the general public through taxes and appropriations -- to one that’s squarely on the shoulders of the students.

“This is not just a transfer from the government to the student, it’s a transfer from parents to students,” Goldrick-Rab said. “Instead of holding hands and taking care of each other, this moves everything to the backs of the people waiting to be educated.”

The AFT also expressed concern that the payment structure would lead to an increased burden on low-income students, many of whom currently attend college at little cost due to need-based financial aid. “This is especially problematic when the prospect of long-term debt is cited as a primary barrier to low-income students seeking higher education,” the paper states.

King, the economics professor at Portland State, said that criticism fails to comprehend problems with the current system of student loans. "What students are paying in terms of loans and interest fees, they end up paying so much more than they anticipate, and that’s not going back to higher education," she said. "It's better that they go to school and pay for it than they not go to school and be stuck without an education."

King and Saunders said the post-graduate payment plan envisioned in the bill might have an effect opposite to that feared by critics, noting that students afraid to take out loans might view this as a better option.