New student loan model won't cost you until you’re hired

A growing number of states and organizations are launching experimental student loan programs that charge no interest or fees, requiring repayment only after graduates secure employment above a minimum salary threshold. The pay-it-forward model creates revolving funds where loan repayments finance future students, potentially multiplying the impact of limited financial aid resources.

Joshua Alferos, an electrical engineering student at the University of Hawaii, discovered the program when he was about to drop out two semesters before graduation due to financial constraints. The Hawaii Renewable Learning Fund provided him with the necessary funding to complete his degree. "It's pretty empowering, because you can help future students," Alferos said.

The Hawaii program targets engineering students from low-income families through a $2.5 million revolving fund supported by the Harold K.L. Castle Foundation and other donors. Repayments begin only after graduates earn $50,000 or more annually. Major engineering firms in the state have agreed to assist new employees with loan repayment to improve recruitment in a field facing chronic shortages.

California plans to implement similar initiatives, with San Diego County launching a program this fall focused on behavioral health professions. The program addresses an 8,000-worker shortage in the region by targeting majors, including clinicians, practitioners, and psychiatric nurses. Graduates who work in behavioral health for five years or more will receive complete loan forgiveness.

Pay-it-forward programs have launched or will begin this fall in Colorado, Massachusetts, New Jersey, New York, and Miami. Each program concentrates on high-demand fields experiencing worker shortages, including healthcare and information technology in Colorado and New Jersey, and climate careers in Massachusetts. A separate national program supports nursing students at Western Governors University across 24 states with registered nurse shortages.

"What you need to be looking at is where there is enduring demand for particular credentials or degrees," said Kirstin Hill, president and chief operating officer at Social Finance, a nonprofit that designs and manages pay-it-forward funds nationwide.

The programs address growing concerns about traditional student debt. Americans currently hold more than $1.7 trillion in student loan debt, with undergraduate federal-government-subsidized loans carrying interest rates of 6.53%. Millions of borrowers have defaulted on their loans and face aggressive federal enforcement measures.

"It's a new way of thinking about scholarship support that lets you extend your dollars" further than traditional grants, said Alex Harris, vice president at the Harold K.L. Castle Foundation. The revolving nature allows funds to be loaned repeatedly once repaid.

The model faces substantial challenges. At least 24 states have considered such programs, but high startup costs and implementation issues prevented launches. Illinois conducted a feasibility study for a universal pay-it-forward fund but determined it would require billions in startup capital and decades to become self-sustaining.

Research by the Illinois Student Assistance Commission identified additional concerns. Zero-interest loans might encourage colleges to raise tuition prices. The focus on higher-paying careers could discourage students from pursuing important but lower-compensated fields such as teaching and social work. Complex questions remain regarding taxation and bankruptcy procedures.

Student skepticism presents an unexpected obstacle. Many students have experienced misleading financial aid promises from institutions, changing federal loan rules, and unresponsive loan servicers. Brennon Morioka, dean of the University of Hawaii College of Engineering, received no responses to his initial program announcement email.

Since launching in fall, the Hawaii program has enrolled 17 engineering majors, fewer than anticipated. "I thought it was too good to be true, but I took a chance," said Melanie Habon, a structural engineering student whose immigrant parents from the Philippines supported her career choice.

Habon worked on campus graduate housing construction as an intern with a participating firm. "I like that there's a direct line from being a student to working in your industry," she said. "And I like that I know where my money will be going."

Massachusetts and New Jersey have combined public funding with private sources to support their programs. Google has created a similar initiative for students pursuing certificates in data analytics, digital marketing, information technology support, and project management.

Advocates argue current college financing systems are equally complex and expensive while discouraging many Americans from pursuing higher education. The pay-it-forward model attempts to address these barriers while targeting workforce shortages in critical industries.

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