Decreasing Student Debt: Pay It Forward College Financing

One of the key issues surrounding higher education is affordability. No matter what side of the fence politicians sit on, they agree that something has to be done to ensure everyone gets a college education.

Just as important as availability and affordability is the need to make certain that the levels of student debt do not continue to rise. One way of addressing this is a model called “Pay It Forward” financing.

What is “Pay It Forward” or “Pay Forward, Pay Back?”

Pay It Forward (PIF) or Pay Forward, Pay Back originated in 2012 as part of a student-led project that took place at Portland State University. Although this particular concept originated there, it has already been used in other forms in other countries including the United Kingdom and Australia.

It is a financial model that allows students to attend higher education without paying money up front. Instead, they have the option of paying it back later when they graduate and obtain a job. In order to take advantage of this financial option, students have to sign a contract, which states that they will pay a specified portion of their income.

Why Pay It Forward?

The idea behind Pay It Forward is simple. It involves deferring payment based on potential earnings in the future. It is favored by politicians of many stripes because it:

• Removes the financial barrier for many low-income individuals
• Keeps the level of debt created by obtaining an education manageable
• Wealthier graduate students will subsidize those whose earnings following graduation are not as high
• Introduces various market concepts into the ivory tower of college and university financing
• Can result in the removal of all taxpayers subsidies into the education system
• May be the means through which all colleges and universities can become privatized by decreasing the state role in providing funding to educational facilities

Yet, not everyone agrees that applying this type of financial fix is the way to go.

Don’t Pay It Forward

While PIF was a very popular topic in 2013 and early 2014, and 26 states continue to show interest, enthusiasm has since waned. This may in part be the result of the potential problems with PIF. They include the following:

• Increased Cost: Experts in the field have projected that the overall costs to students will be actually more than projected.
• Transfers the Financial Burden: PIF may actually increase the burden on individuals as well as prove ineffective in covering the cost of education for future students.
• Cost of College: While PIF is aimed at affordability, it does nothing to address the reason the cost of higher education is up – high tuition fees and other expenses faced by college and university students. The plan does not reference other student needs, such as books, residences, classroom supplies and transportation, and may actually drive those costs higher.
• Other Costs: The lack of tuition and student fees will prevent the flourishing of extracurricular activities and other organizations that contribute to the overall college experience and create a positive social and community environment.
• Selectivity: Students may be selected on the basis of their ability to graduate and pay high sums.

Some researchers feel the system simply will not work because it is based on faulty economic theory. An analysis by the American Association of State Colleges and Universities found that while the plan could be promising, it wouldn’t likely benefit students, universities or taxpayers in the end.

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