A Debt-Free Degree?

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This article first appeared on In These Times.

People walk along the Portland State campus Friday, June 1, 2012, in Portland, Ore. (AP Photo/Rick Bowmer)

Everyone agrees that the $1 trillion in student debt carried by Americans is a problem. Yet on a national level, Congress has only managed a deal that will keep interest rates low for new loans this year, but let them go up in the future.

Now, one state, Oregon, is looking at broader, more far-reaching changes. On July 1, the state legislature unanimously passed a bill that could dramatically alter how public education in Oregon is funded.

The proposed program, called Pay It Forward, was conceived by students and backed by the Oregon Working Families Party, a political party/grassroots organization that promotes progressive, pro-labor candidates and policies. Pay It Forward would eliminate tuition as we know it at the state’s public universities and colleges. Instead of paying up front, students would sign up to pay the state a proportion of their income after they finish school.

It’ll be a few years yet before anything goes into action. The bill instructs the state’s Higher Education Coordinating Committee to set up a pilot plan for Pay It Forward to be considered by the state’s 2015 legislature. But the move has set off a broad debate nationally, with both conservatives and progressives coming out for and against the plan.

Some herald it as a debt-free degree, but that largely depends on how you define “debt.” Students won’t have a fixed sum hanging over their head, gathering interest that’s being skimmed off by a for-profit lender or big bank — but they will be making regular payments of a (small) chunk of their income for a (rather long) time. Though the final details will be hammered out in the pilot program, the bill suggests that graduates of four-year programs pay 3 percent of their income — and grads of two-year schools pay 1.5 percent — for 24 years. The goals are to eliminate the upfront cost of college and to allow students to take jobs that pay less but have more social benefit without worrying about making monthly debt payments. Students who make a lot of money will pay a larger amount into the fund, and each generation will fund schools for the generation after them — hence the name, Pay It Forward.

It’s noteworthy that the proposal came from students themselves. In the fall of 2012, Barbara Dudley, the founder of the Oregon Working Families Party, taught a capstone class at Portland State University on student debt with professor Mary King. The Pay It Forward plan had been considered elsewhere — most recently in Washington state — and the students considered it as along with other proposals for state and national action to solve the student debt crisis. “We fell in love with it,” says Kevin Rackham, who was a junior at Portland State when he took Dudley and King’s course.

The students were deeply involved in every step of shaping the bill, says Sami Alloy, a WFP campaign manager. “They decided that they thought this was a just way to create a shared responsibility model that would remove that initial financial and psychological barrier.”

The students presented their proposal (the full text of which is available on the Oregon WFP’s website) to a panel of legislators and secured a champion in Portland Democrat Rep. Michael Dembrow, chair of the Oregon House higher education committee, who introduced the bill. The Working Families Party made the bill a legislative priority, and the students worked with Alloy and Dudley to lobby for the bill. They were backed by a coalition that included the Oregon Student Association, Portland State University Association of University Professors, Jubilee USA, the United Food and Commercial Workers union and Teamsters Local 206.

“With the hard work of the students and the political power we’ve built as the WFP, we were able to build consensus in the legislature, but I don’t think that anybody expected it to move this fast or to be so unanimous,” Alloy says. “The reason this has struck such a chord is that people are hungry for a solution to the student debt crisis.”

In 2011, the student report notes, 60 percent of Oregon University System students took out loans to pay for education, and the average student graduated with $22,216 in debt, above the national average of about $21,700. According to the students’ report, Oregon ranks 42nd in the nation in terms of state appropriations for higher education, with per-student funding from the state dropping by $2,700 between 1990 and 2010. In same period, published tuition and fees at public universities more than doubled. And those universities are at record enrollment and projected to keep growing.

In 2011, Oregon’s legislature passed Senate Bill 253, which established educational objectives for the by 2025: that all adults in the state have a high school diploma or equivalent, 40 percent have an associate’s degree or other meaningful postsecondary certificate, and 40 percent have a Bachelor’s degree or higher. In other words, the legislature has stated that higher education is a public good and that the state has an interest in ensuring that Oregonians have access to it.

The state is far from reaching its goals. As of 2011, the student report notes, only 29 percent of Oregonians have a Bachelor’s degree or higher (compared to a national average of 30.4 percent), 27 percent have an associate’s degree, 33 percent are high school graduates and 11 percent do not have any degree. While the state also voted to extend the Oregon Opportunity Grant for low-income students to go to college, the students noted that 60 percent of Oregon University System students took out loans to pay for education. The average student graduated with $22,216 in debt, above the national average of about $21,700.

The report estimates that under the Pay It Forward plan, an average student who obtains a bachelor’s degree would pay $39,653 into the Pay It Forward fund, which would cover the value of their tuition and fees, plus another $7,000 or more. In some ways, the plan would function like social insurance, socializing the costs of education and cutting down on the risks for students. If you happen to strike it rich, you will pay much more than your tuition might have cost, but if you’re unemployed (or stuck in a low-wage job), you pay next to nothing. The plan would lower most graduates’ monthly payments, but not eliminate individual responsibility to pay.

This policy seems aimed squarely at students who come from modest means, who are looking at a college degree as their path up the socioeconomic ladder — in other words, students who look at college as an investment in their future, but who know that in today’s economic climate, even a college degree isn’t a clear path to stability and comfort.

However, Sara Goldrick-Rab, a professor of education policy studies and sociology at the University of Wisconsin at Madison, sounds a warning note on the Century Foundation’s website. For most students, she notes, tuition and fees are not the largest part of college expenses. At the University of Oregon, for instance, tuition and fees run about $9,800 per year, while room and board costs more than $10,000 and books and other expenses another $3000-plus. Many students, she writes, would still wind up having to borrow to cover costs without having to work while in school — unless they receive federal Pell Grants or Oregon maintains its Opportunity Grant program for lower-income students.

Goldrick-Rab, additionally, says in a blog post that the system could be improved by creating more incentives for lower-income people to attend college, by making community colleges free for the first year, and by imposing some form of graduated repayment rather than a flat rate, so that students who go to community colleges pay back a smaller percentage of their income than those who go to four-year universities, and those who go on to make above the 80th income percentile would pay a premium.

Alloy and Rackham agree that that maintaining some level of need-based aid for the lowest-income students is important in addition to this plan. “We’ve been working closely with advocates, including the state treasurer, to implement this in a way that would be complementary to need-based aid, to open doors to students in the most accessible way possible,” Alloy says. “We don’t want students who would otherwise get their education for free to be accountable to pay into a fund for 24 years.”

A less-discussed aspect of Pay It Forward is that it would take the profit motive out of state-level student lending. Instead of private lenders (or the federal government, which pays private lenders to administer its direct loans) making money off of the often-steep interest on student loans, students would pay their money directly back to the state, in a process more akin to paying taxes than paying back a loan. Pay It Forward would thus remove the fat interest payments for private lenders and perhaps most importantly, put that money back into the hands of the state to reinvest in the university system.

“We see this as an issue [of] how we prioritize investing in our future,” Alloy says. “Are we funneling money out of the local economy straight to the financial sector or are we putting it into students?”

The current debate on the federal level, she notes, has been limited to renegotiating interest rates or allowing income-based repayment, at least since the Obama administration’s 2010 move to end direct subsidies to private lenders by moving from the Federal Family Education Loan Program to direct lending. But big lenders like Sallie Mae continue to benefit in either of those cases, Alloy notes. To take advantage of income-based repayment and loan forgiveness, you transfer your loan to the federal Direct Loan program — which means the government buys out your lender, and the government, not the lender, takes the loss. Tressie McMillan Cottom, a sociologist who studies inequality in higher education, points out that the devil will be in the details when it comes to getting the banks out of the business. Financial institutions and student lenders are big spenders on lobbying, and will no doubt fight hard against anything that would cut into their profits.

The Working Families Party has made fighting Wall Street a central part of its agenda nationally, and Alloy says that cutting the financial sector out of the process is especially important to them as the plan moves toward implementation.

The ultimate question is whether Pay It Forward will solve the problems with the current system. “This is an admirable political mobilization around this issue, but the plan is very porous in its current state,” says Cottom. “There are a lot of holes, and we should be really explicit about what those are. Whenever you have implicit assumptions, that’s where inequality tends to manifest itself.”

Students who expect to make a lot of money after college — or whose families already have enough to pay for school up-front — may see Pay It Forward as yet another incentive to go to a private university or leave the state entirely. “Higher-income students are never shopping for colleges locally. For them, the college shopping process is a national process, so a state-based focus doesn’t address them at all,” Cottom says. The students who stay in state are the ones who are less likely to see exponential returns from their college degree, she points out. “Knowing what we know about their likelihood of social mobility, I don’t know how taxing those students on their income is sustainable. If you don’t have wealthy people paying into the system I don’t know how it works.”

Those from lower-income families or those who look at the bleak job market and see little to inspire them may still not want to pay 3 percent of their income in an economy where low-wage service jobs are the fastest-growing fields. They may still see the cost of college as too high.

A recent Pew survey found that student debt was nearly a quarter of the household income of the lowest fifth of households by annual income; it is only 2 cents of each dollar that the richest 10 percent make. Pay It Forward would represent a slight increase for the wealthiest, while it would be a major break for the poorest.

In the 1970s, Yale tried a somewhat similar “equity finance” plan for its attendees, who would pay into a fund based on their incomes. While the Yale plan was substantially different from Pay It Forward, it’s worth noting that graduates who wound up well off (as Yale graduates are wont to do) complained about having to pay more than other graduates. Timothy Noah wrote about this at Slate in 1999, noting: “[T]he only significant way the program seems really to have gone awry is in misjudging the gratitude of those who would benefit from it.”

There were also problems with collection, which is also a concern for the Oregon program — particularly figuring out ways to collect payments from former students who then leave the state.

Another problem, pointed out by the American Federation of Teachers in a white paper on Pay It Forward, is that to ensure funding for the program, institutions will have an incentive to admit students who are likely to make more money after graduation. Cottom agrees, pointing out, “An unintended consequence of this is judging how successful the program is based on graduates’ income levels.” One of the biggest questions that the pilot program will have to address is that of start-up funding. If upfront costs are eliminated, schools will face a funding gap until the Pay It Forward fund generates enough money to be self-sustaining. The student report suggests bonds, which would then have to be paid back.

The students and the Working Families Party stress that Pay It Forward is intended as a shared responsibility plan, contingent on the state continuing to fund higher ed through tax revenue. But Goldrick-Rab and Cottom both worry that without incentives to lower the costs of higher ed, students will still end up shouldering most of the burden, and costs will continue to rise.

Perhaps the biggest — and least tangible — question is whether the Pay It Forward plan is a shift back toward a view of higher education as something that benefits the entire society and should be paid for, progressively, by the entire society, or whether it is a further embrace of the neoliberal idea that education is a personal investment that should be paid for by the individual. The advocates for the program — including the students who created it — see it as the former, but they are aware that the bill was able to pass through the legislature unanimously because conservatives see it as the latter.

“We agree that education should be fully funded by the public, our parents’ generation was able to benefit from that priority, that education is a public good,” Alloy says, referring to the steep decline in state investment in higher ed. “States have stripped away that funding. We need to get it back.”

If we think of debt as an obligation to pay back, with interest, an amount of money we borrowed, usually from a bank, Pay It Forward is not debt. Instead, it’s an obligation to pay something back to the state that put you through school, to make sure those schools are there for the people coming after you. It’s still personalized and implies that you owe something for having been educated, but it’s a debt that you pay to sustain a social institution, and that is, to a degree, a shift in thinking.

The students who came up with Oregon’s Pay It Forward plan see it as the beginning of the fight to fix higher ed funding. They endorse the passage of several federal bills, including the restoration of bankruptcy protections for student loans, and a bill that would forgive student loans after a certain number of payments. Knowing that those are unlikely to move anytime soon, though, they’re committed to finding — and helping implement — local solutions.

“Even if, for whatever reason, Pay It Forward ends up not happening, we find out the system doesn’t work, we got something to happen. There haven’t been real big developments in student debt in a long time,” Rackham says. “A lot of the people I’ve worked with are very passionate about staying on board with Pay It Forward. I definitely plan on being very involved with that process.”

Sarah Jaffe is a staff writer at In These Times and the co-host of Dissent magazine's Belabored podcast. Her writings on labor, social movements, gender, media and student debt have been published in The Atlantic, The Nation, The American Prospect, AlterNet and many other publications, and she is a regular commentator for radio and television.
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  • John p

    I stopped at “3% of your income for 24 years.” Are you out of your mind? For a minute I thought this was a European-style socialized education program. This is in a way worse than student loan debt because you are literally an indentured servant. Moreover if you wind up in a high paying career, that adds up to a LOT of money.

  • Anonymous

    I think a cap is reasonable, maybe some low multiple of tuition. There’s a sweet spot where paying X% for X years makes for a nice subsidy from high-earning classmates to lower-earning fellows. But if people are paying 10 or 20 or 30 times their benefit, or millions of dollars, that’s unreasonable.

  • http://www.you-read-it-here-first.com/ John Bailo

    Pay it forward is basically a flat rate income tax. This is not something we want.

  • pemberliegh

    Actually, this is pretty similar to how they manage student loans in Australia and it works pretty well from what I understand form my Australian friends (but if you want to read about it… http://chronicle.com/blogs/brainstorm/does-australia-have-the-answer/41015). Also, as someone actually paying student loans and making a decent, living wage: 3% is significantly less than what I pay right now on a monthly basis. So if I could transfer my loans to this system, I would.

  • pemberliegh
  • Sweet Sixteen~But Wicked Smart

    Good Idea!
    When I graduated Harvard, my ex husb paid the bills
    Then, he gave me $40 Million in the divorce settlement.
    I don’t believe in Lotto. It is a waste of hard earned money–pure and simple.
    If you want wealth, marry it. Then file. Education has very little intrinsic value, however it is a good means by which to meet wealthy elderly men.

  • Jim Osborne

    I have always thought student loans, as of late, were subject to ‘bait and switch’ loan practices, in which the Congress was prodded into agreeing with progressive interest rates by banking lobbies. As it stands, banks now have over a trillion dollars in loans, guaranteed collection by the US Government. If the student falters the payment will be deducted from their pay check until death or payment in full. I call it the new Lend Lease program where the government lends you an education in return for a lease on your life. It is really quite clever how banking always ends up with the American people assuming the risk.

  • Ted Barbaras

    So do you have more of those millions saved or did you use them up already?

  • rain,adustbowlstory

    I like the percentage because graduates who make a lot of money could help offset those who don’t. Nobody should need more than $100,000 a year if they don’t have college debt. My community college students struggle along and graduate with huge debt into an economy that offers few jobs. Yet they persist.

  • dan

    The way to solve the student debt crisis and many other problems is straightforward — allow student loans to be dischargable in Chapter 7 bankruptcy. This step will (1) incentivize the creation of jobs that pay a living wage (i.e. jobs that allow borrowers to make their loan payments plus have money to maintain a reasonable standard of living); and (2) force banks to make prudent loans.

    The second will have several valuable correlate benefits: (a) Discouraging young men/women from accruing mountains of debt for an experience that, at the time of the decision, has nothing to do with becoming an educated individual but instead is a pro forma exercise (i.e. “it’s just what you do” at 18); (b) Eliminate the profiteering, garbage institutions of “higher education” whose degree confers no tangible benefit to its purportedly educated bearer; and (c) Re-establish the value of a high school degree, and as an extension, the public school system. Just to name a few.

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  • Andrew Erb

    3% of 50,000 is 1500 / 12 months = $125 per month, the math is the same for all income levels unless there was a graduated scale for those making more to pay more