’70s debt program finally ending

Long before Princeton University had notions of eliminating student loans entirely, Yale had another type of innovative financial aid initiative — one that, despite seemingly noble intentions, failed miserably.

The Tuition Postponement Option was a student loan program in the 1970s that enabled groups of undergraduates to pay off loans as a “cohort” by committing a portion of their future annual income to pay back money borrowed from the University. Much to the participants’ chagrin, the program did not work as it was supposed to, and most of their loan payments will only stop this year — more than 20 years later — when alumni make their final contribution.

With the program finally coming to an end thanks to a partial 1999 bailout by the University for those who did not default on their loans, a long saga that included lawsuit threats and the fury of thousands of alumni will be over.

“We’re all glad it’s come to an end,” Yale President Richard Levin said. “It was an experiment that had good intentions but several design flaws.”

The Tuition Postponement Option, known familiarly as TPO, was created in 1971 with the help of Nobel Prize-winning economist James Tobin and was discontinued in 1978.

The approximately 3,300 alumni who signed up for the program were to pay four percent of their annual income for every $1,000 borrowed until the entire group’s debt had been paid off. Whether or not the group was successful, TPO was automatically slated to end after 35 years. But decades later, former students were dismayed to find themselves giving up a slice of their earnings to Yale for far longer than they anticipated.

TPO’s major problem was that its participants were set up in groups called “cohorts,” meaning that all members would keep paying until the entire group’s debt was paid off. As inflation mounted, tax laws changed and some participants defaulted, the cohort’s debt burden persisted, deputy provost Charles Long said.

Making matters worse, the wealthier segment of student participants bought out of TPO early, paying 150 percent of what was borrowed plus interest. That left lower-income students with a greater burden to be split among fewer people.

In 1999 administrators were forced to change the terms of the program to address alumni concerns. All former students who have paid regularly will begin making their last payment in the next few weeks and have until Dec. 31 to do so, Director of Student Loan Collection Art Gallagher said.

As part of the agreement, Yale refunded the difference in payments to TPO as a result of a 1986 tax law change and put an end to installments in 2001, several years before most TPO groups were scheduled to stop contributing money.

University officials admit TPO was launched in an era when Yale was undergoing major changes in the composition of its student body and was experiencing financial problems. While Yale receives a sizeable share of blame for TPO, administrators are quick to point out that its failure was not all the University’s fault.

“Everyone shares the consequences of some people defaulting,” Provost Alison Richard, Yale’s chief academic and financial officer said.

But some defaulters said they are still bitter.

“Yale wanted to have more public-school kids and people from lower economic classes, but didn’t want to pay for it,” said Frank Patton, a Yale dropout and TPO defaulter.

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