Oregon’s Students Are Drowning in Debt

The funding model for Oregon public higher education is in crisis. State appropriations for higher

education have steadily declined over the last two decades, causing tuition and fees to

skyrocket. Oregon is now 45th in the nation for per student state appropriations for higher education,

providing only 56% of the national average. In-state tuition and fees at the University of Oregon

were more than six times as much in 2011-12 than in 1982-83, and as a share of median income,

tuition at the University of Oregon has increased from 10.6% in 1990 to 26.6% in 2010. As a result,

students are relying increasingly on student loans to pay for college, or are deterred from pursuing a

degree altogether. This is detrimental not only to the economic productivity of the individual, but to

the long term health of the economy.

Student Debt is Slowing Economic Recovery

At $1.1 trillion, student debt is now the second-largest form of consumer debt in the country,

surpassing credit card debt and second only to mortgage debt. The New York branch of the Federal

Reserve reports that student debt has tripled over the past eight years. In March, the Federal Reserve

Board called the student debt burden a risk to national economic growth. The Wall Street Journal

reports that student debt is impeding the housing recovery, as many young people are incapable of

purchasing a home. The American Medical Association has written to the Consumer Financial

Protection Bureau about its concerns that undergraduate debt is preventing people from pursuing

graduate education.

A Local Solution to a National Crisis

While the federal government has done little to adequately address the student debt crisis, Portland

State University students, together with Oregon Working Families and local policy-makers, have

proposed Pay It Forward (HB 3472), a state-level solution that would allow Oregon students to attend

an Oregon public university or community college tuition-free. Rather than wait for action at the

national level that may never come, we see this as an opportunity to drive an attainable, state-level

agenda aimed at ending the student debt crisis for Oregon students.

How will it work?

Oregon students attending an Oregon public college or community college would attend school

tuition free. They would instead sign a binding agreement to contribute a fixed percentage of their

adjusted gross income for a fixed number of years after college into a publicly-administered fund that

would allow future generations of students to do the same. The proposed terms are 1.5% for

community college students and 3% for four-year college students, or 0.75% for each year of higher

education attended for a term of 24 years. Individual payments would vary with income, but Table 1

4 year college rate (3% of post-graduation

income)

Payment year after graduation

Average monthly payment

Average annual payment

1 $68 $818

2 $76 $908

3 $84 $1,008

4 $93 $1,119

5 $104 $1,252

6 $110 $1,314

7 $115 $1,380

8 $121 $1,449

9 $127 $1,522

10 $133 $1,593

11 $139 $1,673

12 $146 $1,756

13 $154 $1,844

14 $161 $1,936

15 $166 $1,993

16 $166 $1,995

17 $166 $1,997

18 $167 $1,999

19 $167 $2,001

20 $165 $1,979

21 $167 $1,999

22 $168 $2,019

23 $170 $2,039

24 $171 $2,059

demonstrates the payment scenario for a graduate

making the equivalent of the mean Oregon income

based on 2010 census data.

Organizing payment into the program in this way has

two distinct advantages over the current system:

1. It removes financial lenders from the equation. Currently large portions of a student’s debt payments are consumed by interest and fees that add nothing into the higher education system, and increase the cost of attaining a college education by $9,500 under a standard 10-year repayment plan at 6.8%.

2. It removes the penalty on students pursuing lower-paid professions. Under our current debt-fueled system there is a perverse disincentive against students pursuing degrees in public service oriented professions because the jobs they will attain after graduation will not pay enough to handle their debts. By tying payment into the program to one’s income after graduation, students will not have their career choices dictated by future debt payments.

How will Pay It Forward affect need-based aid?

Concerns have been raised that Pay It Forward might

affect the calculation of need-based aid awards, taking

grant money away from the neediest students. This is

certainly not the intention nor should it be the result.

Pay It Forward could be implemented in a number of

ways to complement existing need-based aid

programs like the Oregon Opportunity grant and Pell

grant. Our objective is to make education as

affordable and accessible as possible for students; we

are committed to working with state and federal

policymakers to ensure that Pay It Forward is

implemented in a way that provides the maximum

possible aid to the students who need it most.

Table 1