Pay It Forward Tuition Model Introducing Increased Equity in Access to Higher Education

Post Secondary Market Without Tuition Regulation Q P P* Q* SD

Barriers to Post Secondary Education Entrance Qualifications (varied) Tuition/miscellaneous Cost + living expenses Temporary time barrier to employment – Difficult to maintain employment while attending school full time Existing Equity Strategies Scholarships Requires exceptional condition, grades or combination Financial Aid Need or merit based Can require repayment or work

Pay It Forward “The goal is to remove every financial barrier to high education,” said state Rep. David Knezek Student face no up front cost but pay a set % of their income for 5 years for each year of enrolment 2% for Community College and 4% for University Current student loan interest rates range from 3.86% to 6.8% Payments would not begin until student’s income exceeds federal poverty rate State would contribute $2 million to start pay it forward fund – 200 student pilot program Questions: How will accidental deaths, partial year attendance, and incomplete degrees be handled?

How will Pay it Forward work? One year of undergraduate tuition on a four year track (15 credit hours per semester) costs approximately $12000 Repayment period: 4 year degree = 4*5 = 20 years = 0.04(5X) X= Q P P* Q* SD P** D** Income Poverty Line College University As Cost Increases income needed for repayment increases As Cost Increases income needed for repayment increases

Potential Drawbacks “According to Susan Dynarski, a professor at the University of Michigan and an expert on higher education finances.” expert “A borrower who does well in the labor market could end up paying back many times the cost of his or her education.” “As a result, those who expect to earn a lot won’t participate. If the future starving artists flood into pay it forward and the future engineers shun it, the program will spiral into insolvency. An easy fix is to denominate the debt in dollars rather than years. When a borrower finishes paying off her loan, she stops paying.” Assumption: That those who will pay the most have an alternative to the Pay it Forward Program and are confident enough in their short term graduate performance that student loans can be repaid fast enough that they cost less than the pay it forward program.

Easy Fix or Complete Brake? Program could cause tuition rates to rise as barriers to demand are removed Some students will not make enough to repay their tuition in set period Students who repay more than their tuition are also and still receiving increased benefit from education. Some students will: die prematurely, receive injuries limiting their earning potential, have insufficient earnings ( fairly high minimum earnings) Tying repayment to initial tuition cost removes Pay it Forward aspect and makes program an interest free loan leaving either the state or institution to cover those who cannot pay and the discount rate even for those who can. Undermines programs Intent. State believes value added to labour through higher education in aggregate warrants initial investment.

Sources WS06/ /Pay-it-forward-Plan-would- allow-Michigan-students-to-attend-college- for-free- WS06/ /Pay-it-forward-Plan-would- allow-Michigan-students-to-attend-college- for-free-