How the Market Can Rein in Tuition Costs

Dave Girouard:

With the costs of higher education rising and almost a third of the outstanding $1.2 trillion in student debt in default, it's time for imaginative solutions. One of the more promising ideas comes from Oregon, where the state senate this summer passed a bipartisan bill to test a new system called "Pay It Forward, Pay It Back."

Students attending public universities in the state would pay no tuition at all. Instead, they would commit to repaying 3% of their income for the next 20 years into a fund that would support the next generation of students.

The idea is attracting attention. Stephen Sweeney, president of the New Jersey state senate, has proposed a similar concept for his state, and U.S. Sen. Jeff Merkley (D., Ore.) says he will soon introduce a bill proposing the same "pay it forward" concept for federal student loans.

Income-based loan repayments are a promising idea, but lawmakers should proceed with caution. On the positive side, borrowers don't generally default on loans because they're irresponsible. They simply have times in their life, perhaps after losing a job, when they can't afford to pay. Income-based repayments sidestep the problem: When you earn less, you pay less. When you earn more, you pay more. And by design, these loans are always affordable.

Posted by Jim Zellmer at October 7, 2013 12:03 AM
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