Maine is joining more than a dozen states in taking up the latest big idea in college affordability: the “Pay It Forward” model.
First hatched in Oregon, where the governor this summer directed a commission to study the model, Pay It Forward proposes allowing students the option of attending public two- or four-year colleges, tuition-free, in exchange for paying up to 3 percent of their income for about 20 years into a state fund.
While there is much interest and support for the idea, there is no working example of it in practice. Critics and supporters note that the startup costs are considerable – billions of dollars for larger states – and verifying incomes and ensuring proper payments from graduates over a 20-year span pose challenges.
States would likely have to borrow to start the fund, but designers of the plan say it will eventually sustain itself.
Two bills before the Legislature, one sponsored by a Democrat and one by a Republican, suggest that Maine study Oregon’s model and determine if it could work here.
“Pay It Forward is a really out-of-the-box concept born in the state of Oregon and we at least should be taking a very hard look at it,” said Sen. Roger Katz, R-Augusta, who sponsored one of the bills. His bill calls for the Legislature to form a study group and come up with a proposal for a pilot project, perhaps testing the model at a single campus, or limiting it to a certain percentage of students.
“More and more jobs require a college degree, yet college is increasingly becoming out of reach for more Mainers,” said Senate President Justin Alfond, D-Portland, who proposed a similar bill, directing the Legislature’s Education Committee to study Pay It Forward and several other college affordability models. “We need a new approach to make college more affordable.”
The basic concept behind Pay It Forward was created at the Economic Opportunity Institute, a Seattle-based nonprofit. Students in Oregon were studying the idea, invited a state legislator to class to discuss it, and the legislator wound up introducing a bill proposing the study that is currently underway.
Institute Executive Director John Burbank said he’s not surprised at how many states have contacted him with questions about whether the model will work in their states. Since the Oregon legislation was introduced, Burbank said he’s heard from officials in Maine, Vermont, Connecticut, Maryland, New Jersey, Pennsylvania, Illinois, Ohio, Michigan, Washington, Oregon and California about the possibilities for their states.
Soaring tuition, declining state investments and the growing number of students graduating with increasing debt loads have “created huge barriers” to higher education, particularly for the middle class.
“This is a system that is broken and is literally shutting the doors of higher education to a lot of people, or in some way impoverishing them,” Burbank said. “That’s why we needed to find a new way of re-envisioning and re-funding higher education, which can be done through Pay It Forward.”
Burbank compared the overall idea of Pay It Forward to “Social Security in reverse,” with students getting the fixed benefit up front and then paying a portion of earnings over time.
Across the nation, college tuition has skyrocketed in the last two decades, according to the College Board. The average cost at public colleges, including room and board, has increased 20 percent in the last five years to $18,391. As tuition increases, concern about the amount of student debt graduates carry has escalated.
In Maine, 71 percent of college graduates had debt upon graduation in 2011, with the average debt load $26,046, according to the California-based Institute for College Access and Success.
Pay It Forward could benefit students’ families, which typically contribute a significant amount toward college. An annual survey released earlier this year by loan giant Sallie Mae found that parents’ income and savings covered 27 percent of college costs and student loans covered 18 percent. The survey found that one-fifth of parents worked longer hours to pay for their children’s college education, and half of students increased their work hours, too.
Several students at Southern Maine Community College in South Portland said it sounded like an interesting idea.
“I would have gone for it,” said Nicholas Gallup, 18, who already has about $7,000 in college debt and is still in his first year studying mechanical engineering. For now, Gallup is looking for a job – as are many of his friends, he said – and plans to transfer to a four-year college. Finding the money to pay for college is a big concern, he said: “Being able to not have to worry about money would help.”
Adeleana Bayreuther, a freshman at SMCC studying to be a medical assistant, said a lot of her friends worry about high college costs.
“I think a lot of people would take advantage of it,” Bayreuther, 18, said about the Pay It Forward model.
Some critics of the model argue that wealthy families won’t participate and too many low-income graduates won’t be able to provide the necessary revenue to sustain the model. Others say the startup costs are too big to overcome.
Burbank said the model, if anything, is conservative and that it can work even in a low-population, low-average-income state like Maine. Startup costs are a challenge but could be tackled in various ways, depending on the resources and appetite of state leaders and voters.
Another concern is verifying a graduate’s income every year to ensure proper repayments. Burbank said he is in discussions with the Internal Revenue Service to determine if the agency would be willing to partner with states under a Pay It Forward plan. There are also proposals to get federal legislation or funding to back the model.
“The devil is in the details,” Burbank acknowledged. “How do you make sure that contributions are tracked and maintained over a 15- to 20-year period? In the event the IRS is not forthcoming, there’s a number of those kinks that need to be worked out.”
Burbank said states are coming up with their own ideas about how to cover startup costs, from seeking voter approval for multibillion-dollar bond proposals in larger states (a Pennsylvania proposal considers paying off a bond with a tax on fracking) to one state considering tapping into existing college endowments to jump-start a program.
“There’s no one approach that necessarily will work,” Burbank said. “There are different ways for states to make it work.”
In Maine, a small population and low wages are issues. The entire undergraduate student population at all campuses of the University of Maine System and the Maine Community College System is only about 45,000 students. Maine workers between the ages of 25 and 34 earn an average annual wage of $31,932. For workers between 35 and 44 years old, it increases to $43,164, according to U.S. Census figures.
A calculation using those figures reveals potential pitfalls of the plan: Tuition alone at the University of Maine in Orono is $8,370 a year, so the bill for four years would be $33,480. But 3 percent of the average annual wages over 20 years would generate only $22,528 in payments – almost $11,000 short of the state’s investment in a single student.
Burbank notes that the model accounts for a range of low- to high-wage earners paying into the system, and workers with college degrees generally earn more money. But studying those details is key.
Everything is still on the table in Maine, according to the sponsors of the two bills.
“All the bill would do is commit us to a study,” said Katz, who is optimistic the bill will pass. “I think everyone is intrigued by it. Everyone understands we need to do something different.”
Katz said his bill doesn’t specify who should do the study. It could be the Education Committee, the Muskie School or a new group made up of stakeholders, he said. And the proposal could be modest, he said. Perhaps the idea could be tested at a single campus, or for a certain percentage of students instead of being open to the entire student body. All of these possibilities are issues to be hashed out in the working group, he said.
Katz also acknowledges the challenges and has only begun to think about possible solutions.
“The real issue is the initial funding for the thing,” he said. “There’s a number of possibilities. A revenue bond. Or a consortium of banks could put it together. There’s a lot of creative thinking there.”
Alfond’s bill also looks at scholarship programs with incentives for degree completion, tuition guarantees where students pay the same tuition rate for four years while they attend a public institution, and dual enrollment programs, which allow students to attend a community college for three years and then transfer to a university for one year.
Both bills simply suggest that the programs be studied and a recommendation returned to the Legislature.
“It sounds like a really cool idea,” said Rosa Redonnett, who oversees the UMaine System’s enrollment as executive director of student affairs. But she has many questions: How do you fund it? When does the state begin to recoup a student’s payments? Do you attach his earnings? Would the IRS really share that information? How do you track it?
“It’s a really creative idea and we need creative ideas to help our citizens. But the logistics get in the way,” said Redonnett, who says the idea should be explored in any case. “Maybe it’s not the right idea for Maine, but it’s the right idea to talk about it.”
Maine Community College President John Fitzsimmons agreed that a Pay It Forward model raises cost and administration issues. But the bills give the state a chance to decide if the model would work here.
For Katz, a lawyer, the idea had a familiar ring to his own path to college, and eventually, a doctorate.
“I remember very clearly being about 10 years old and sitting at the kitchen table with my parents and trying to say to them, ‘If you pay for my college tuition, I’ll give you 20 percent of my income for the rest of my life,’ ” he said with a laugh. “When I heard this idea, it was kind of deja vu.”
Critics have suggested that the Pay It Forward model could reduce the number of students aspiring to high-income fields like engineering or medicine, opting instead for low-paying pursuits like poetry or philosophy. But the reverse could also be true, Katz suggests.
Reducing upfront college costs means some students might not have to hold jobs during college and would have time to focus full-time on academically challenging fields. More students could also see graduate school as a possibility since they won’t spend all their resources getting an undergraduate degree.
“It really allows people to pursue their dreams,” Katz said. “If they want to be a doctor, OK. On the other hand, if they want to be an artist, they can pursue that.”
Having no tuition costs up front could help students focus on school, said Harleyanne Hustus, 20, who is in her third year at SMCC studying early childhood development. She plans to get a bachelor’s degree from UMaine but came to SMCC first because it was less expensive.
“Working and interning – it’s a lot,” said Hustus, who currently works 20 hours a week, interns 12 hours and is taking 15 credits of schoolwork.
There are private companies, such as Palo Alto, Calif.-based Upstart, that have similar models. Upstart matches students with individuals willing to invest in specific students based on their online profiles, essentially crowdfunding education costs in exchange for 1 percent of that student’s income for five to 10 years. A single investor might back multiple students, or one student might have multiple backers.
The Senate chairwoman of the Legislature’s Education Committee says the legislation is likely to pass.
“There’s a lot of interest in this in the Legislature, and it’s a natural progression of the conversation we’ve been having,” said Sen. Rebecca Millett, D-South Portland. Completing a higher education degree or certificate is increasingly an imperative for success, and critical to Maine’s economy, she added.
Studying the model is “a pretty benevolent way of starting the conversation,” Millett said.
“Once you get this started, you’re going to have a waiting list of students to get in,” Burbank said.
Noel K. Gallagher can be contacted at 791-6387 or at: