Today President Obama is announcing a new federal push to make college more affordable. The Oregon state legislature is rethinking the very fundamentals of student loans -- should your loan payments be based on the current system (how much you borrowed times a given interest rate), or should they be a set percentage of your income after you graduate? (See WSJ for details.)
The Oregon plan is called "Pay It Forward, Pay It Back" is modeled after comparable plans in Australia and the UK. It deals effectively with one risk -- uncertainty about income after graduation. Two students could have the same $50,000 debt but have vastly different capabilities of repaying it depending on whether they get good or not-so-good jobs after graduation.
However, there are a bunch of catches -- will students who expect high earnings (e.g., engineering and business majors) participate or not? What does Oregon do between now and 20 years from now in terms of covering the loans? What impact would the repayment obligation have on work effort? No easy answers here.
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