A Third Perspective: Solving America’s student debt epidemic
Published: Friday, February 7, 2014
Updated: Friday, February 7, 2014 01:02
Shortly after President Obama’s State of the Union address, Generation Progress, a progressive think tank, asked Millennials what issues mattered most to them in 2014. An overwhelming majority of respondents indicated that they were most concerned about student loan debt, rising interest rates and their inability to become debt-free.
This is not a new issue; roughly 40 million Americans hold over $1.2 trillion (trillion, with a T) in educational debt, trapping them in economic uncertainty and delaying efforts to buy a house or start a family. Policymakers on Capitol Hill have done little to address this crisis, but students and parents agree that something must be done—and quickly.
Fortunately, state governments are sick and tired of waiting for our sclerotic federal institutions to take action. In 2013, the Oregon legislature passed legislation to study a plan that would allow residents to attend Oregon public universities free of charge and without incurring student loans. The plan, dubbed Pay it Forward, permits any resident to attend an Oregon public university or community college and then pay the state a percentage of income over a 24 year period: 3 percent of income for a four-year university and 1.5 percent for a community college.
The idea resembles social security in reverse, that is, students benefit up front and then “pay it forward” for future generations. This would allow college graduates to enter the job market debt-free and to save for a car, house or family instead of spending their precious entry-level wages on student loan payments.
It is prudent to remember that public universities were initially established for America’s working and middle class, dating back to the land-grant colleges of Lincoln’s era. They were the key to upward mobility for millions of Americans; tuitions were extremely low and state legislatures made consistent efforts to ensure that students did not incur large debts.
Diverting a substantial amount of resources to keep tuition affordable was a smart policy due to the fact that Americans who had college degrees made a greater contribution, on average, to local economies than did those without. States that made their public university system a priority—New York, California, Virginia and North Carolina—witnessed the proliferation of the middle and upper class and a sharp decrease in economic inequality.
As time went on, however, states lost themselves in tax-cutting hysteria and had to compensate for lost revenues, which they often did by shuttling funds away from their public university system. Financial companies like Sallie Mae filled the void by offering student loans to those who needed them and, because the federal government decided to guarantee private loans instead of directly provide them, financial companies still profited if a student was unable to pay (nothing relieves the student of his or her debt—not even bankruptcy).
As if it were icing on the cake, Congress allowed the interest rates on federal student loans – meant for those with the greatest financial need – to double in 2013.
For all of these reasons and more, the Oregonian plan is a godsend. Not only would it free thousands of graduates from the burden of student loan debt, but it would also allow individuals who had never dreamed of attending college—those who can’t qualify for a loan or can’t afford in-state tuition—to pursue a higher education.
There are certainly complications that will need to be addressed. First, Oregon will need to come up with a substantial amount of money in order to get the program started, and university budgets will need to stay intact until the program becomes self-sustainable.
Second, conservatives in the Oregon legislature have wisely pointed out that some graduates would have to pay more than others under this plan. For example, an individual who graduates with an art degree will most likely make a smaller salary than an engineer, but both would be expected to contribute 3 percent of their income over a 24-year period.
Yet if one views the percentage as a voluntary tax, which essentially it is, the program does not appear so unfair. After all, a flat tax is often seen as a fundamentally conservative idea, as proposed by the likes of Milton Friedman. Would a flat tax disincentivize pursuing a degree that leads to a high-paying career, especially when that action doesn’t cost anything up front? I think it highly doubtful.
A better solution, however, may be to place a cap on the amount graduates pay back into the system. If someone has paid his or her fair share, whatever that number is determined to be, then that person is finished with their obligation. Individuals whose income is significantly less would have to continue to pay until the 24-year period expires.
At the very least, Oregon should be applauded for politicizing the issue of student debt and for calling it what it is: an epidemic. States such as New Jersey, Ohio and Pennsylvania have introduced similar legislation and hope to emulate the program, which is a hopeful sign. The United States has always flourished on the power of higher education; to make it inaccessible would destroy our meritocracy—a travesty to America’s founding fathers and an aberration to posterity.