Pay It Forward Plan: “Free” College For Students In Michigan?
The “Pay it Forward Plan” is a new plan being considered in Michigan which would require students to agree to pay a fixed percentage of their post-graduation income — 2% for community college students and 4% for university students — to the fund. They would continue to do so for five years, in exchange for each year that they attended school under the program. The money that’s collected from students that opt into the program would go into a special fund that would help pay other students’ college bills.
For example, a student that attends the University of Michigan, and graduated in four years, would have to pay 4% of their income to the fund every year for the first 20 years after college. The actual “free” aspect of this program applies more to the interest on the loan that the actual cost of college. “You go into the program and as soon as you have a job and are above the federal poverty line, you start paying.”
Having the amount you pay tied to income is important for graduates because it helps protect them against having to pay back a loan six months out of college, if they are unemployed. With the amount you’re paying back directly related to your income would also insulate students against poor luck in the job market, being layed off–down the road, or interest rates ballooning.
It’s a good start! Of course, it’s a new plan and there are a few issues that still have to be worked out.
For instance, the plan could hurt graduates who find a great job directly out of college. Your payments are set for go a fixed number of years, but they don’t stop when a borrower has paid back the total money they borrowed for school. So, if you come out of college with a $90,000/year job and opted into the program for all four years, you’d be paying back 4% on that income for the next 20 years.