Oregon's Student Loan Deal Is A Long Way From Reality

Is this a solution to the student loan crisis, or will it just burden alums with payments for decades down the road?
By MainStreet Team ,

By John Sandman

NEW YORK (

MainStreet

)--The buzz surrounding Oregon's plan to let students attend college now and pay later is understandable. Dubbed "Pay It Forward, Pay It Back," it was spelled out in a bill passed by the state legislature last week that would let students attend any public college in Oregon without first getting a

loan to pay it

. The eventual cost would come out of student paychecks--after they graduate and find jobs.

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While Congress fiddled

--

and let Stafford loan rates double

--here was a tangible-sounding alternative. The speed with which the bill flew through the Democratic-controlled state assembly surprised many observers.

"This is what thinking out of the box looks like," State senator Mark Hass, chair of the state education committee and sponsor of the bill, told an ABC News Portland affiliate on July 5. "Somebody's got to come up with something. Look at what U.S. Senate did. They couldn't even resurrect the status quo, which wasn't working. If we don't do something dramatically different, we'll continue sticking kids in college who aren't able to pay for it."

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What's the catch? There are several. Democratic governor John Kitzhaber has not yet signed the bill, although the current legislative session will not likely be over until the end of July. But once the governor signs--most observers think he will--the state's Higher Education Coordinating Committee must figure out the next steps. "Pay It Forward, Pay It Back" is a pilot program that would start with one state university and one state community college. How quickly a beta version would scale up to accommodate all state schools remains to be seen. 2015 is the current target date for implementation.

No one involved is calling this a "loan," but students must sign a contract obligating them to pay a fixed percentage of their adjusted gross incomes once they find work. Students taking this deal may face an unsavory reality:

paying for the cost of college into their 40s

. According to a model developed by Barbara Dudley, professor at Portland State University's College of Urban and Public Affairs, community college graduates will have 1.5% of their annual salaries deducted from their paychecks. For students getting a four-year degree, the rate will be 3%.

Dudley estimates the payoff period will be about 20 years. Assuming "Pay It Forward" goes live in 2015, an 18 year-old graduating from a four-year college with a B.A. in 2019 could be 42 by the time the pay-off is done. Oregon-based WebProNews estimated that someone making $80,000 a year will have paid about $48,000 in a 20-year scenario. Not taken into account is any likelihood of unemployment or other economic hardships during a pay-off period that could span three decades.

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According to Dudley, the upside is that since "Pay it Forward" is not technically a loan, it doesn't have an impact on your credit score. "Essentially, what it does is allow you not to carry a debt load," she said. "It's not a debt you graduate with. Your debt-to-credit ratio is not mucked up and you can participate in the economy," she told ABC. How the credit bureaus--Experian, Equifax and TransUnion, and consumer lenders would evaluate "Pay It Forward" remains to be seen.

--Written by John Sandman for MainStreet

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