If the thought of a free college education sounds like an impossibly distant dream, new legislation in Michigan is looking to make it a reality -- but with a catch.
According to the proposal, a ‘pay it forward’ paradigm would be introduced through which students would have to pledge a fixed percentage of their eventual earnings to a dedicated fund. This fund would then continue to finance tuition for future students.
While 20 states are reportedly analyzing various versions of the plan, the Michigan bill contains a pilot program that drills down implementation.
University students would be required to give back 4 percent of their post-collegiate income, while community college students would have to give back 2 percent. The length of the arrangement would be determined by how long a student is in school; for every school year, the payback commitment is five years.
This means that a student who graduates from a four-year university making $30,000 her first year would have to pay back $1,200 (4 percent) that year. If her salary were to increase to $40,000 the next year, she would then owe $1,600. Because she spent four years in school, she would have to commit for 20 years.
“This is a no-interest plan that allows you to pay back as you go and as you can afford it,” state Representative David Knezek told the Detroit Free Press. “ It takes the monkey off the student’s back.”
(Knezek is the one who introduced the SMART Act -- which stands for Smarter Michigan and Retaining Talent -- last month alongside Representative Theresa Abed and Senator Jim Ananich.)
In the event of unemployment or job loss, participants are not required to contribute to the fund until they obtained gainful employment that pays above the federal poverty level, Knezek's office confirmed to Entrepreneur.com.
The bill calls for a testing group of 200 total students and also sets aside $2 million to jumpstart the fund, which would ultimately be supervised by the state Treasury Department.
In order to participate, students must maintain a high GPA, and eligibility is capped at three years for community college students and five years for university students.
Supporters of the bill note that, unlike student loans, subsequent payments are interest free. And also that with a fixed percentage across the board, payments will scale in accordance with income.
Detractors point out that, given that payments are fixed by a certain amount of time, graduates run the risk of repaying their tuition many times over -- if they go on, for instance, to become multi-millionaires. The program could dissolve if it becomes ravaged by starving artists and avoided by -- for this very reason -- future engineers, doctors and the like.
Tell Us: What do you think of the bill? Would a ‘pay it forward’ model provide a welcome alternative to students beleaguered by seismic loans? Or does it turn the prospect of financial achievement into too much of a risk? Share your thoughts in the comments below.