Student Debt Statistics Are Worrisome, But New Innovations Might Hold the Key
With an average $26,000 in post-graduate debt saddling student borrowers, and the price of attending a public four-year college increasing at over 5% each year, affordability of higher education has been at the top of the legislative agenda. On July 5, the Oregon legislature passed HB 3472, an innovative bill called “Pay it Forward, Pay it Back,” that initiates a pilot-program to provide free tuition to students while they attend community college or public school.
The catch: students would have to pay a small percentage of their incomes (3% for public school graduates, 1.5% for community college graduates) back to the state for the next 24 years.
To me, its certainly an interesting concept. With the income gap between college grads and non-college attendees at an all-time high of 85% (this is not controlling for differences in group characteristics, but still), the plan at first glance seems like resourceful higher education financing. Allowing students to reap the benefits of higher education with zero obligation, is remarkable. And though 3% of income for 24 years might seem steep, benefits would be profound for the college graduate and for the state treasury.
Detractors of the initiative argue that the repayment scheme is unfair because future high-earners, those aspiring to be financial analysts, would pay way more back into the system than future low-earners, those aspiring to be teachers; one blogger at The Atlantic calls this “the engineer problem.” Detractors also note that logistics of the program aren't feasible — not only is $9 billion upfront needed, but record-keeping and potential for fraudulent earnings reporting could set additional hurdles.
As a concept, I support “Pay it Forward” completely. But, there is certainly room for improvement. I recently stumbled upon a new venture called Upstart. The concept is simple and fascinating: Private backers invest in recent college graduates (“upstarts”) for a portion of their future earnings. Applying an Upstart framework to fund undergraduate education trumps the current “Pay it Forward” methodology. Here’s why:
First, Upstart spits out a projected future earnings for each individual based on a statistical model that accounts for educational institution, grades, major, and other academic and professional characteristics. As a Cornell University senior studying economics, the site projects that I can raise $6,000-$8,300 for every 1% of my income that I pledge for the next 10 years. Surely the model is imperfect (let's be real, I am worth at least 8,600!), but the model provides some sort of framework to ensure risk and payout are consistent among different “upstarts.” Translated to the “Pay it Forward” program, a statistical model, once refined, could help to mitigate “the engineer problem.”
Second, Upstart provides investors with the capacity to enable investee success. Through mentorship and networking, investors become intimate agents in their investee’s future. Likewise, when the investor/investee relationship becomes personal, the “upstart” will have less incentive to forge his income. Both these ideas can be readily transferred to the “Pay it Forward” program as well.
Of course, further obstacles must be overcome to seriously consider this methodology. Primarily, incentives may clash and pressures may escalate if the investee decides not to pursue the lucrative path. Still, if enough backers are interested, crowdfunding higher education may prove to be an intelligent move. So, would you invest?