US States Consider Australian Style Student Loans

The US state of Oregon has introduced legislation for government subsided loans for college students. The bill is called "Pay It Forward" (HB 3472) and has some similarities to  the Australian subsidized "HELP" student loans scheme. Other US states, such as "An Act to reduce the cost of college education for Massachusetts residents" (Bill H.3631, Referred to Massachusetts Joint Committee on Higher Education, 19 August 2013). However, the Oregon bill is not legislation to enact a specific funding scheme, but just to have the state's Higher Education Coordinating Commission formulate the details of a scheme.

Under the Australian scheme, loans only need to be repaid in installments based on the student's income and after it reaches a set level (currently $51,309 Australian dollars a year). This is a relatively low cost scheme to administer as repayments are handled as part of the income tax system. It lessens the worry of debt repayments, as the students know they only have to repay when they have a higher income. But the scheme is not without problems (such as students who leave Australia and never repay the debt). Also the scheme assumes that education leads to higher income. The Australian government has a set of other schemes for quality education and to inform students, but this does not guarantee higher wages for graduates.

Some of the proposals for the Oregon scheme, as described in 'OREGON'S “PAY FORWARD, PAY BACK” PROPOSAL' (by Terrance Adams and Alan Shepard, Connecticut Office of Legislative Management, 6 August 2013), differ from the Australian model and do not look like a good idea to me. In particular, one proposal is for a lower rate of repayment if the student does not graduate. It is not clear why the rate is not based simply on their ability to pay and the amount the course cost. Having lower rate for students who do not graduate will complicate administration and invite manipulation of the system.

One useful way to encourage students to study is to allow multiple exit options. In this way the student does not have to commit to many years of study with the risk that if the do not complete all years they receive no reward. Instead they can be granted a lesser qualification for part completion of the program. However, under the Oregon proposal, it would not be clear if this counted as "graduation". Also there would be the temptation for the student to game the system by withdrawing shortly before completion, moving out of Oregon and using their course credits to graduate elsewhere, and avoiding the higher repayment rate.