Ryan Nelson: Income-based repayment shows promise for use by state school systems

Who wants to invest in Ryan Nelson Inc.?

I’m tall, healthy, studying environmental sciences at UCLA,
and have a knack for recalling David Duchovny and Marvel comic book
trivia.

Thanks to an effort by companies such as Pave and Upstart, a newly established marketplace allows people to invest in other people, instead of stocks, that they believe will pay dividends in the long term.

Essentially, prospective students or entrepreneurs sell their talents to a group of people who choose whether or not to invest in them. This money can be used for multiple purposes, but a growing trend has been to use this tool to pay off student debt and tuition. Think of it as a Kickstarter funding your education instead of a disappointing “Veronica Mars” movie.

All that’s required is a small portion of your future paycheck due to your backers (although “shareholders” may be a better word).

It’s a small trend that’s making a big impact. Income-based repayment is being toyed with in Oregon as an alternative to tuition. And on Capitol Hill, Sen. Marco Rubio (R-Fla.) and Rep. Tom Petri (R-Wis.) have introduced legislation that would create a more strict and well-defined legal framework to protect the rights of those who choose this path to fund their education.

However, if any significant change is to come from this new funding model when it comes to paying for school, it has to be institutionalized in the vein of Oregon’s plan.

Under Oregon’s tentative blueprint, a person who attends a public college in the state wouldn’t pay any upfront tuition costs. Instead, the university would take a small percentage of said graduate’s income for about 20 years. The plan, in a perfect world, would allow students to graduate debt-free and start paying for school as they start making money.

It’s designed to be self-sustaining, and over the course of the repayment, chances are the person will pay more into the program than his or her own costs of attending. These extra payments are crucial to keeping the program healthy and accessible.

So you have the potential to increase the number of people who can contribute to the economy, considering that they don’t have $100,000 in debt hanging over their heads, preventing them from buying cars, houses or even starting businesses. That’s not even mentioning the auxiliary effects of having a more educated population.

Contrast this plan with the private options available now, and some concerns arise.

Currently, you have to sell yourself to these “backers.”It’s a private enterprise, which, by definition, isn’t in the game for loveof education.These people want their cash back – and then some. Both Upstart and Pave promise around a seven to eight percent annual return on what they invest in a person.

The state doesn’t care about turning a profit. Under the Oregon plan, the public school system essentially takes a chance on every student there, regardless of race, gender and economic condition.Under most scenarios, you’ll have a few extremely successful graduates whose repayment subsidizes the costs of those who didn’t do so well after college. Most will fall in the middle.

This begs the question, why should someone who does well be forced to subsidize someone who hasn’t? If a person can’t succeed, that’s their fault, not mine, says the imaginary debater in my head.

Which is a fair criticism. However, the payoffs can be great.Eliminating the tuition burden can provide more accessible higher education for low-income and impoverished students, and a college degree is one of the most necessary steps for moving up the socio-economic ladder.

As the adage goes, a rising tide lifts all boats.

Will this structure work across the board, especially when considering the relative sizes of places like California and Oregon? There’s no real way to know until we try.

But, if anything, the presence of private-sector companies funding education through income collection signals that, at least on a small scale, pilot programs in the spirit of Oregon’s could be promising endeavors.

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