Lawmakers want a 'pay-it-forward' college tuition system in Michigan

Mar 19, 2014

A pair of bills in the Michigan House and Senate are setting their sights on getting rid of tuition bills.  

Rather than paying off installments on a loan package, the proposed legislation would allow students to pay off school with a fixed percent of their future incomes — as long as their income is above the federal poverty line.

A $2 million pilot program would be established to fund 200 students at community colleges and public four-year universities.

From David Jesse of the Detroit Free Press:

So a student who went to the University of Michigan and graduated in four years would have to pay 4 percent of his or her income back every year for 20 years.

The so-called “pay-it-forward” bills have gained some legislative popularity after Oregon launched a study last July to examine the feasibility of such a proposal.

Michigan joins Oregon, Florida, Washington, and some 20 other states considering the "go now, pay later" plan.

State Rep. David Knezek, D-Dearborn Heights, a sponsor of the House bill, says the plan is a good step forward for families struggling to afford rising college costs.

“This plan would move away from the old formula in which students pay based on the amount of money loaned, instead developing a new model where students will pay based on the income generated by the education they are able to attain.”

The plan would mean students don't have to worry about changing interest rates. And students would be insured against leaner times, such as the first few years after graduation.

But some experts aren't so sure that the bill is the best step forward.

Susan M. Dynarski, a public policy professor at the University of Michigan, wrote a blog post about the proposal for the Brookings Institution.

Dynarski says while it’s smart to link college payments to income, the “pay-it-forward” solution is unsustainable on the whole. Because the plan is based on making payments for a fixed amount of time, she says, someone who makes the big bucks after graduation could end up paying off more than they owed in college.

From the post:

Economic theory – and history – shows that loans funded by a graduate tax won’t work because those expecting high earnings won’t participate. Yale famously attempted a graduate tax in the 1970s, lending money to its undergraduates and then having them pay back a fixed percentage of their income for a fixed number of years. What happened? Yale students who expected high earnings (e.g., aspiring investment bankers) shunned the program, while those who expected low earnings (e.g., aspiring artists) embraced it. Yale’s program spiraled into insolvency.

– Melanie Kruvelis and Noah Gordon, Michigan Radio Newsroom