Learn Now, Pay Later

Instead of bemoaning college costs, many a U.S. student may soon calmly tell the bursar's office, "I'd like to charge that for the next 30 years." The clerk may answer, "Sign here--but skip the total. How much you pay will depend on how rich you become."

Already adorned with a suitable acronym, PAYE (Pay As You Earn) is an intriguing scheme for putting a college education in roughly the same class as a house mortgage. Yale and consortiums of medical and business schools are trying to set up small pilot versions of the idea. To convince banks to provide capital, the planners are asking foundations like Ford and Sloan to help guarantee any unforeseen losses. The result has stirred widespread controversy. The major issue is who should pay for the benefits of education--society or the students themselves.

Repaying by Tithe. One widely discussed version of the plan would first be offered to graduate students, who are better financial risks because their future incomes are easier to predict than those of undergraduates. Whether a student's family were rich or poor, he could borrow up to $10,000, repaying each $1,000 at the modified tithe of .45% of his adjusted gross income. After 30 years, he would stop paying, whether or not his loan had been fully retired.

One major advantage, says Princeton Provost William Bowen, would be that "the student who enters a relatively low-paying field would not be saddled with a huge debt." If a graduate student borrowed $2,000 and later earned $10,000 a year, he would repay only $90 annually. In that case, PAYE would recover $2,700 after 30 years, not enough to repay his debt and its interest completely. PAYE would be in the hole.

Who would make up the difference? Prosperous graduates, who would pay more out of their higher incomes and thus subsidize the others. If a $20,000-a-year man had borrowed $2,000, for instance, he would repay $180 annually, or a total of $5,400 over the 30-year period. Those expecting to become affluent would have an incentive to join the plan at the beginning of their education as insurance against financial problems later. If they had enough money at midcareer, they could "buy out" their obligation for twice what they had borrowed, plus accrued interest.

Negative Dowry? Wives who did not work would bring their husbands a "negative dowry" of unpaid obligations, but under one version of the plan, their repayments would be limited and only taken out of the first $ 10,000 of the family's annual income. The hypothetical payback rate of .45% is adjusted to anticipate a standard death rate; if a participant died, his estate would not be liable for his payments. PAYE statisticians calculate that each year's group of students would keep the plan in the red for their first 13 years out of college. After that, their incomes--and repayments--would begin rising toward a high enough level to make the plan break even 30 years from its start.

PAYE's most energetic champions are Yale President Kingman Brewster Jr. and M.I.T. Physicist Jerrold Zacharias, a fiery curriculum reformer. They and their supporters originally hoped that the scheme would help colleges to ease their financial squeeze by raising tuition. In turn, PAYE would help students raise the cash.

That hope for a campus cornucopia is still far off. Unless a PAYE system became nationwide, private colleges that raised tuitions much higher would run the risk of driving good students to low-tuition public institutions. Still, even a limited plan could allow both private and public colleges to spend less of their scarce funds on scholarships. Like all loan programs, PAYE would help a student to afford any institution willing to take him, encouraging free choice. Another possible result: the prospect of lifetime payments might turn some activists into more dedicated students.

Usury Laws. Skeptics raise countless questions. Would payments conflict with state laws against usury, for example? Could a student beat the system by declaring himself bankrupt? Would his debts make him a bad credit risk later on? Most important, public campuses fear that any big increase in student loans might weaken low-tuition public higher education. Although one impetus behind the plan is the recent slowdown in the growth of state and federal payments for higher education, opponents suggest that PAYE could have the ironic effect of encouraging legislatures to cut still further. Already some black educators say that PAYE in effect tells poor people: "The public paid for everyone else's education, but now you'll have to pay for yours yourselves." If the PAYE plan gains momentum, the debate could be as stormy and protracted as the one over federal aid to education during the 1950s.

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