5 State-Level Ideas to Keep College Grads Out of Crushing Debt

NEW YORK (MainStreet) — For the past 30 years, states have been anything but allies to college students. Their share of higher education funding has dropped by 31.2% per student since 2001, according to the State Higher Education Finance Officers Association, leaving the college-bound and their families to shoulder an ever larger share of tuition costs. And those costs have become a problem. Student debt ballooned by 20% since the end of 2011 to reach almost $1.2 trillion in May of 2013, according to the Consumer Financial Protection Bureau.

But state lawmakers across the country are now looking for ways to address the problem of crushing student loans.

"There's more of a focus now because the debt issue and the issue of affordability have become so pronounced," said Mark Smith, higher education policy analyst for the National Education Association.

Of course, most bills introduced at the beginning of state legislative sessions never become law. But here's a look five measures various state legislatures are considering to help lower graduates' debt.

1. 'Pay It Forward'

Lawmakers in more than 20 states have filed bills that would put states on a path to scrapping college tuition altogether, said Dustin Weeden, policy specialist for the National Conference of State Legislatures. Instead of taking out a loan to pay tuition, students would graduate debt free, and then pay a set percentage of their income, probably in the range of 1% to 4%, to the college for a set period of time, like a tax. It's a compelling idea, ensuring that no student will owe more for their education than they can afford and proposals are spreading like wildfire across state capitols.

But passage of the program, dubbed "Pay it Forward," on any large scale is far from certain. Most of the bills that have been introduced would only authorize studies into the income-based payment scheme. And the financial barriers to implementing the program on a large scale are significant: universities would face a payment lag during the initial switch and less predictable funding long-term.

2. Zero Interest Loans

A twist on the 'Pay it Forward,' lawmakers in Washington and Pennsylvania are weighing offering no interest loans to college students, said Weeden.

The Pennsylvania proposal would require that graduates make income-based, no-interest payments until their loans are fully paid back. The program would be funded through a 5% natural gas severance tax on some of the state's wells. The Washington state program would require a study into a program where students who earn more than $30,000 to pay 1% of their income for 21 years or until they pay back the cost of their tuition and no interest is added to the amount due.

3. Free Community College

What's better than paying no interest on your loan? Paying no tuition at all.

At least three states are weighing the idea of giving residents years of post-secondary education without paying a dime.

During his recent state of the state address, Republican Tennessee Governor Bill Haslam proposed using revenue from the state lottery to give students a free-ride to go to community colleges. Likewise, Mississippi's House of Representatives passed a bill that would set up a two-year pilot program that used state money to pay the tuition of new high school graduates going to two-year colleges or technical schools. Oregon's House and Senate this session passed a measure to study the viability of making community college free in their state.

4. The '$10,000 Challenge'

Republican Texas Governor Rick Perry first called for his state universities to offer a four-year degree that cost no more than $10,000 in 2011. Florida Governor Rick Scott followed suit in November 2012.

But before you pack up and move South, beware: so far, only a limited number of degree programs are available for $10,000 in the two states. Perry announced in May that 13 schools had "announced or implemented a $10,000" degree, a claim Politifact found "mostly false" because most of the colleges require that students enter with significant college credit. Still, four, including one that's only offered online, offer some degrees for $10,500 or less, Politifact said.

Likewise, Florida's state universities haven't yet offered the plan. Colleges that used to be two-year schools but now offer four-year degrees have agreed to offer a limited number of students degrees for $10,000 or less.

5. Tuition Freeze

Maryland lawmakers will consider a measure that would study a freeze in college tuition for students at the freshman year rate for the next three years. The program would be modeled after a similar program, proposed but not yet approved in Florida, known as "Finish in Four."

States have already experimented with freezing college tuition for four years, but have found it difficult to implement the programs because they limit universities from reacting quickly when state aid or other funding gets cut, said Weeden. The University System of Georgia, for instance, ended its tuition guarantee for incoming students in 2009.

--Written by Simone Baribeau for MainStreet

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