Paying It Forward on Student Debt

AP Photo/Jacquelyn Martin, File

Next month, lawmakers will return to state capitals around the country, and as many as a dozen legislatures could consider a new proposal to tackle the growing student-debt crisis. The plan, dubbed "Pay-it-Forward" by its creator, would allow students to enter college without having to pay tuition upfront: In exchange, they would agree to pay a small and set percentage of their income after college into a public fund allowing the next generation to do the same. Senator Jeff Merkley, a Democrat from Oregon, released a plan Friday that would help provide seed money for pilot programs across the country using this model.

Almost all of the new initiatives were inspired by Oregon, where the state legislature passed a bill introducing a Pay-it-Forward scheme unanimously on July 1. Barbara Dudley, an adjunct professor at Portland State University who in 2005 helped co-found the Oregon Working Families Party—a third party that has also been influential in New York and Connecticut—was watching the vote from her office. The successful vote was a personal victory. She and her students had helped write the bill.

Dudley’s seen firsthand how education costs have ramped up over the past few decades. In California in the ’60s and ’70s, when Dudley attended Stanford University and law school at Berkeley, public higher education was virtually free. But at the working-class, commuter public university in Portland where she’s taught since 2000, she’s seen the vast majority of her students take on debt. “I’ve been watching my students at Portland State just get hammered,” she says. She thought students would organize around it, especially in the late 1990s and early 2000s, when activism heightened around the World Trade Organization. However, student debt protests never materialized. When she helped found the Working Families Party in Oregon, they made it a platform issue.       

The problem isn’t only Oregon’s. In 1984, tuition covered 22 percent of state universities' budgets. It's now 36 percent. Two-thirds of college students who graduated in 2011, the most recent year for which data is available, financed part of their educations by going into debt. These students owe, on average, $26,600. College debt is the primary way students fund their educations, according to the Institute for College Access and Success, which tracks data on student loans.

The problem became accute during the Great Recession, when states, including Oregon, made deep spending cuts—especially on non-mandated programs like higher education. Tuition at Portland State University is now $7,800 a year—$2,250 more than would be covered by the maximum Pell grant award. Worse, many of the students who have graduated during the downturn cannot find the kinds of jobs that would enable them to make the payments to pay off their debt.

Dudley decided to make student debt the subject of her first senior Capstone class at Portland, a course that’s meant to help students apply their academic studies to real-world problems and arrive at solutions. She taught “Student Debt: Economics, Policy, and Advocacy” with an economist named Mary C. King. Dudley cast about for a potential state-level solution, but she and her students quickly settled on a proposal devised by the Economic Opportunity Institute in Washington and promoted by its president, John Burbank.

The idea was borrowed from loan-repayment programs in Australia and the United Kingdom in which a student’s monthly payment was capped at a small percentage of his or her income. Burbank and his colleagues applied that idea to student loans. A repayment plan like that could be used to finance tuition at public higher-education institutions, which would prevent students from having to pay before they go, and keep an invested group of alumni involved in how their alma maters are financed. “Essentially what you’re establishing is a new social insurance system, but upside down,” Burbank says. “In this case you get your benefits starting out and then you know that you will be contributing at a pre-determined rate for a pre-determined number of years, and that those contributions go then to enable the next generational cohort to participate in higher education.” For Burbank, this will help make funding for higher education more secure. “Social security has withstood assault after assault after assault, and it remains an extremely popular program.”

It was Dudley’s students, however, who tried to make the idea into a reality. “We all thought we were just going to propose this piece of legislation, this idea, and they wouldn’t do anything about it,” says Tracy Gibbs, one of the students. Early on, they met with Representative Michael Dembrow, a Democrat and the chair of the state education committee, who worked with them and helped devise a plan. “After the initial meeting, with all the interest … we were just like, ‘Oh, this could really be something,’” Gibbs says. Dembrow wrote the legislation, the students addressed a panel of lawmakers, and Gibbs and other students stuck with the issue and lobbied lawmakers even after the class ended.   

The bill the Oregon legislature passed asks the higher education committee to devise and price out a pilot program, perhaps at one or two colleges, to see if Pay-it-Forward could work. Burbank is advising the committee. In November 2014, Oregon voters will consider a ballot initiative that would allow the state to issue bonds for human capital improvement, much as it does now to pay for work on roads and bridges, to finance a pilot program. Dembrow says the involvement of the students who could speak to the debt-burden they and their friends faced—and lobbying lawmakers on the hill—made the issue urgent. “They brought their personal experience,” Dudley says. “The legislators listened to them.” Most important, Dudley’s history with activism and relationships with the legislators meant that the students’ ideas would be heard. In Oregon, 35 of the 90 legislators are cross-nominated by the Working Families Party. “It’s really a great example of the dynamic, the political dynamic being changed by having a third party that’s seen as having some sort of significance in terms of electoral power,” Burbank says. “I think that their work as the Working Families Party was really instrumental in terms of maneuvering and moving this along.”  


In the months since Oregon passed the bill, Burbank says he’s heard from at least half a dozen states—including California, Maine, Maryland, and New Jersey (which just established a commission to study it)—that are intrigued by Pay-it-Forward. Larry Seaquist, a Democrat, a state representative in Washington state wants to implement a version of the plan faster than Oregon’s. Lawmakers in states that don’t have a recent history of progressive innovation—Pennsylvania, Colorado, Ohio—have expressed interest in Pay-it-Forward and many are working on bills. The speed with which some states are rushing to adopt Pay-it-Forward worries Sandra Schroeder, vice president of the American Federation of Teachers in Washington. But it doesn’t surprise her. “Legislators are going to jump all over it because it gets the problem off their back,” she says. “But it doesn’t get it off their students’ back.”

What problems do critics see with the Pay-it-Forward legislation catching fire across the country? First, as Sara Goldrick-Rab wrote for the Century Foundation, the Oregon bill and some of the early proposals elsewhere only cover tuition, which only makes up about 40 percent of what it costs a student to attend a four-year public university. Room, board, and fees comprise the rest. If students have to take out loans to finance these costs, the Pay-it-Forward bills will just add another monthly fee after graduation. “Students could well face two bites out of their income,” says Lauren Asher, the president of the Institute for College Access & Success, an organization that shares the concerns outlined by the American Federation of Teachers.

Critics are also concerned the bill could erode support for need-based financial aid. In many states, including Oregon and Washington, many low-income students already go to college with the help of federal Pell grants and other state financial aid. Some systems have generous grant programs that low-income students never have to pay back. Low-income students still need more help—overall, Pell grant recipients are more than twice as likely to take out student loans, and have an average of $3,500 more in loans than their peers—but with Pay-it-Forward, they might have to pay more. 

There is a good case to make that need-based aid should be maintained even if states transition to Pay-it-Forward: Students starting college from a low-income home will still struggle more than their middle-income peers after graduation—relying on intergenerational wealth as they transition into adulthood isn’t an option. But over time, would these programs come to be seen as a “giveaway” to the poor? Since the payback scheme involves a percent of income for a set number of years—basically a flat surtax on graduates—people who earn higher incomes after they graduate will ultimately pay much more for their education than their lower-earning counterparts. The price of a student’s college education would vary by how much he or she earned afterward, which could encourage some to try to wrangle out of the deal. Even Dembrow—the sponsor of the Oregon legislation—was cautious about how much promise the idea has. “I don’t think it was ever seen as the solution,” Dembrow, says. “I think it was seen as a solution, and a solution to be explored … We’re obviously not going to do this if, after careful study, it doesn’t pencil out.”

Pennsylvania’s proposed plan may have found a way to address some of these questions. State Senator Daylin Leach is working on a bill he hopes the legislature will take up when it returns in September. A Democratic gubernatorial candidate, John Hanger, also wants to make Leach’s plan part of his platform. Each has devised a system that would help residents with tuition at the state’s public colleges and universities based on need. The amount of help students receive would be determined on a sliding scale. Students would pay back what they owed after graduation, and payments would be determined by their income. Rather than erase a set-price tuition for everyone upfront, the state would lend students who can’t pay tuition what they need, and they would make interest-free, affordable payments back until they’d covered the cost. It extends the financial aid idea into the middle class, which is the group of college-bound students who receive less help than low-income students but are no more able to afford college. “Our economy has never worked for the poor,” Hangar says. “What’s remarkable about the last 30 years is that it’s stopped working for middle-income families.”

Critics’ fundamental problems, though, are more philosophical. Rather than seeing it as a social program like Social Security, AFT's Schroeder thinks the program is debt by another name, and that it will exacerbate the problem of government divestment in higher education that started the whole rising-tuition, rising-debt cycle in the first place. “This goes against our basic philosophy of trying to convince people that higher education is a public good,” she says. The economist Milton Friedman floated a similar idea in the 1940s. This plan doesn’t involve those who do not go to college but who nevertheless benefit from the existence of public universities, and could be likened to shifting the funding for highways entirely to a toll-based system instead of a tax. For Schroeder using the issue of student debt to mobilize people to lobby for increased public spending on colleges—and decreased tuition costs—is the ideal way forward.

Dudley and other supporters of Pay-it-Forward believe objections like Schroeder’s ignore the realities of current education policy. “The progressive thing, if you want to use that word, would be to have fully-funded, publicly-funded, higher education, but we don’t have it, at least in any state that I know of,” she says. In the meantime, students are hurting. “This is the only solution that you could implement on a state level, besides just standing there hollering, ‘You have to raise taxes.’ We’ve been trying to raise taxes for 40 years now.”

The fight, though, gets at a bigger debate within the progressive movement. “Can we do two things at once on the left instead of criticizing ourselves?” Dudley asks. If the average American family cannot afford to send its children to college, it bodes ill for the sorts of jobs the next generation will be able to get, and is a dire problem for the American middle-class as a whole. Would critics forgo the only feasible solution because it doesn’t solve every problem? “I don’t think it’s a good answer to say, ‘Things have changed and that change is inevitable and permanent and we can do nothing about it, so we should start chipping away at values that we would otherwise not chip away at,’” Schroeder says. The idealism versus political realities question is one progressives have bemoaned before: the trade-off between a public-sector health-insurance plan for one that subsidizes the private market, or the support for charter schools that have now eroded support for public Kindergarten through twelfth graduate education.

Interest in Pay-it-Forward is likely to spread, whether progressive groups in other states organize around it or help promote legislation or not. Even before Senator Merkley released the outline for his bill, Dembrow attended an annual meeting of the Council of State Governments at the end of July, and was asked to give a presentation on Pay-it-Forward. “I think it’s a sign of people’s desperation,” he says. “People are struggling to find an answer to this question of what is the proper split between individual students and the state in terms of their investment in higher education.” 

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