Study Now, Pay Later

Yale undergraduates need $4,400 to pay for tuition, room and board--$500 more than last year. That increase took effect before the Government's price freeze was imposed, and Phase II may allow another hike next year. The university has frozen scholarship funds on its own. Hence Yale has offered strapped students a complex new financing scheme: a chance to borrow $800 this year, and more later, by mortgaging their future incomes for decades.

Under the Eli version of Pay As You Earn (PAYE), students who say "charge it" will repay the debt at the rate of .4% of their adjusted gross income for each $1,000 borrowed. Thus an alumnus who had borrowed $4,000 and had an adjusted income of $10,000 would pay $160 that year. An unusual feature: each class's loans will be pooled, and payments will go on until the whole class has wiped out its collective debt, including interest. Yale estimates the payback period will average 26 years.

Having made the novel proposition last winter, Yale administrators waited somewhat nervously to see if enough students would sign up this fall to make the program practical. No need to worry. Close to one-third of the 1,294 freshmen bought the plan, as did 633 upperclassmen and 212 graduate students. Blacks were fully represented among the borrowers, though skeptics had warned that they would be too unsure of their earning capacity to take on long-term debts. Of Yale's women, 192 have joined, despite the "reverse dowry" that they will bring their husbands if they do not go to work. Future doctors and lawyers with potential high incomes have snapped up loans even faster than students in Yale's other graduate and professional schools.

A rising number of conventional student loans are being defaulted, Yale officials say, because the usual five-to ten-year repayment schedule takes too large a bite from the borrower's income when his earning power is lowest. Because PAYE is geared to long-term income, the plan should keep a number of students out of legal trouble. So far 122 colleges have requested details on how the Yale approach is proceeding. Ohio Governor John Gilligan has proposed that students at the state's public colleges repay the state for their education in similar fashion.

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