My twitter feed has been abuzz lately with stories of Oregon’s deceptively named “free tuition” system. After working in higher education policy for a few years, I learned to put on my skeptic hat whenever I see a government plan with the words “free tuition” attached. This isn’t because I think these plans have all been bad, nor is it because free-tuition is a bad idea (though the term is a bit oxymoronic; “no tuition” would be more accurate). Rather, I’m skeptical because “free tuition” usually means “no-upfront cost to students,” which inevitably means the costs go elsewhere.

The idea behind Oregon’s proposed pilot program is fairly simple: cease charging students up-front fees at participating institutions, but instead charge a flat rate of 3% on a student’s take-home pay for twenty four years to pay the costs of higher education. The plan will carry substantial up-front costs to Oregon’s government, but will (in theory) become fairly inexpensive in the long run as graduates begin to pay their contributions to the system.

While similar to the idea of an income-contingent loan, the open-ended nature of a student’s potential financial contribution to higher education makes Oregon’s proposal more similar to a tax. This isn’t a particularly new idea, but it’s been fascinating to witness the higher education community wrestle with the reality of potentially implementing it. From my perspective, there are a number of elements to this system that should weigh into anyone’s thinking about it.

Some students will pay much more in the long run, but some will pay less

It’s pretty easy to see that, under Oregon’s new system, some graduates will pay a lot more for post-secondary education than they are currently. Average tuition for an Oregon resident is around $8,500, making the current cost of a four year-degree program $34,000. Higher earners will end up paying much more than current total. For instance, a graduate taking home $80,000 per year will end up paying $57,600 for their four-year degree; representing a massive increase. However, the median income of Bachelor’s degree recipients in Oregon is $41,800. A student making this much every year would end up paying $30,096; less than the average current cost of a four-year degree.

Lawmakers are kidding themselves if they think that middle-high and high income families will not react negatively to a payment model where they will end up paying much more in the long run. I’m a big believer in the potential for progressive cost recovery in this system (which I’ll explain below), but many will rightly perceive this plan as a massive tuition increase on some students.

It’s potentially a more progressive system than tuition payment

Obviously, the rich pay more than the poor in Oregon’s proposed tuition model and all up-front tuition costs are eliminated. This is an exciting proposition for those who believe higher education should be universally accessible and progressively funded.

However, there are problems with charging a flat tax rate to students at any income level. First, most economists agree that flat-tax rates end up benefitting the rich. This is because low and high-income earners must spend resources on the same basic necessities, leaving low-income earners with a lower proportion of personal resources to devote to taxation. For example, both rich and poor people have to buy toothpaste, but a rich person has a way bigger budget after the toothpaste expenditure than a poor person does.

Oregon’s system could be made more progressive by adding tiers of graduate taxation, as was been proposed by the UK’s National Union of Students in 2009. This would ensure that all graduates are charged an amount commensurate to their spending power. Australia has worked progressive repayment into their income-contingent loan system.

It’s also worth noting that, though Oregon’s new system will still require student loans to pay for living costs, overall levels of debt and loan default will likely decrease. Given the incredibly averse impacts these two occurrences have on low-income earners, I would consider this a decidedly progressive development.

A graduate tax pretty much permanently enshrines a large student contribution to the costs of post-secondary education:

There are many who will never be pleased with Oregon’s plan however, despite it’s progressive elements, due to the fact that it makes permanent a very substantial student contribution to university costs. For those looking for truly free post-secondary education, this plan simply comes down to charging students on the back end. Graduate taxes avoid some of the regressive elements of student loans, but don’t eliminate high student costs.

Personally, I’m reasonably sure that this will get eaten alive from both ends of the political spectrum. The maintenance of high student fees, coupled with the likelihood that middle and high income earners will pay more tuition will make this an easy idea for many to dislike. However, I don’t believe it should be dismissed out of hand, especially with ideological arguments. Post-secondary finance is unsustainable worldwide, and this is a serious idea to fix some of our longest-standing problems.

This is a serious idea; it’s worth some serious discussion.

Chris Martin
Director of Research