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Oregon Considers Offering Free Tuition. You Can Pay Them Back Later.

800px-UofOsign

Back in the summer, the Oregon State Legislature agreed to a plan that would allow students to attend public universities and community colleges for free. In return, the student agrees to pay a small percent of his or her income after graduation.

It’s more or less an interest-free loan. After all, from the government’s perspective, the biggest problem with student loans is that they cripple graduating students with debt right as they become fully functional members of the economy. While the terms of individual loans vary, they also all work more or less on the principle that getting a degree means you’ll soon be making money. Recent grads know that’s not always the case.

The consequences of these painful interest rates are far-reaching. The higher interest rates get, the longer it takes graduates to move out of their parents’ house, to buy cars, and to buy homes instead of rent them. Nobody but the lenders benefit.

That’s the reasoning for Oregon’s plan. As the number of students needing to take out loans increases, there’s greater incentive for the government to make sure these future members of society aren’t economically handicapped right out of the gate.

The proposal isn’t without its flaws. The length of the percentage payout is a whopping 25 years, and since it’s based on a fixed (though small) percentage, graduates will presumably pay more as they go along. Even if, statistically speaking, this plan saves you money in the long run, those savings are based on the assumption that you’ll only be making so much money over the next two and a half decades. That’s a hard concept for a lot of people to accept. We all want to be millionaires at some undisclosed point in the future.

There’s the additional problem of enforcement. The state government will have to track the income of every student as they move to different states and different countries. And there are actually restrictions on what data educational institutions can collect on students. More restrictions in education than for credit companies, believe it or not.

But Oregon is moving forward with the pilot regardless, and hopefully they’ll figure out better solutions to these problems as they go along. A number of other states — Pennsylvania, New Jersey, and Ohio — have filed similar proposals with their legislations. So who knows? This weird idea might become the new normal.

Scholarships Replace Parents As the #1 Payment Source for College

The amount of money parents contribute to their kids’ college education is dropping. Or, more accurately, it’s struggling to keep up. As recently as 2010, parents paid for 37% of the total money spent on college education around the country from their own income. Three years later, that amount has dropped 10%, with grants and scholarships now taking over a greater percentage of the heavy lifting.

Student Borrowing 18%, Parent Borrowing 9%, Parent Income & Savings 27%, Grants & Scholarships 30%, Relatives & Friends 5%, Student Income & Savings 11%

How college was paid for in the 2012-2013 academic year. Source: Sallie Mae

Simply put, the cost of college is increasing faster than parents can afford to keep up with it.

To fill the gap, more students need to take out loans (14% in 2010 has become 18% in 2013) or simply fit the bill for their education from their own income and savings (9% in 2010, 11% in 2013). It’s to the credit of colleges and universities that these numbers aren’t much higher than they could be. They’ve upped how much they spend on scholarships and grants, as well as simply offering more full-rides and other financial support, in order to keep the burden on students from getting too overwhelming.

Keep in mind that these numbers are percentages of total money, not of students. In other words, 18% of total amount spent on education last year came from student loans. It’s not that 18% of students took out loans. The actual total number of students graduating with some sort of  debt? Nearly two-thirds.

So what can a student do? Not much, unfortunately. Basically, you can be very grateful to your parents for what they’ve done and go out of your way to find scholarship opportunities. Obviously it’s going to vary greatly from individual situation to situation, but here are a few general pointers:

  • Even if your parents are paying for college, apply for some scholarships. There are tons of them out there, and your parents will certainly appreciate any money you save them.
  • Weigh your options with student loans carefully. While often necessary, they can be very tough to pay off for young professionals. On the other hand, taking the income hit you’ll get from not getting your ideal degree might leave you just as strapped for cash through your 20s.
  • There are a lot of great scholarship resources out there, but no single, completely comprehensive search engine, so don’t limit yourself to Google. Ask around. If there’s some sort of local community group, church, synagogue, mosque, sports team, etc. that you’re a part of, your odds of getting their scholarship are definitely higher.
  • Don’t just look during the summer. Most scholarships are offered year-round, and the earlier you look the more likely you won’t miss an application deadline.
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