Ending Crippling Student Debt


Cecil W. Stoughton/White House Press Office
President Lyndon Johnson, who was acutely aware of the relationship between education and poverty, being sworn into office.

When you look into the faces of your students and your children and your grandchildren, tell them that you were there when it began. Tell them that a promise has been made to them. Tell them that the leadership of your country believes it is the obligation of your Nation to provide and permit and assist every child born in these borders to receive all the education that he can take.
President Lyndon B. Johnson’s remarks at Southwest Texas State College upon signing the Higher Education Act of 1965.

Before President Roosevelt signed the G.I. Bill into law in 1944, higher education was a privilege reserved for the wealthy. This sweeping piece of legislation afforded veterans the ability to pursue higher education with a monthly stipend and tuition support of up to $500 per year. Servicemen and servicewomen suddenly had a better chance at prosperity. The program was an immense success, with 7.6 million Americans taking advantage of the opportunity by 1956.1 Most of the civilian population, however, was still uneducated: less than 10 percent of the population 25 years of age or older held a four year degree.2 Poverty was also rampant, with almost one in four people affected.3

When President Johnson took office almost two decades later, he was acutely aware of the link between education and poverty, in part from his experiences teaching at an impoverished South Texas school. “Poverty has many roots, but the taproot is ignorance,” he declared in a message to Congress in 1963. In 1965, he signed into law the Higher Education Act, which widened access to postsecondary education for millions of Americans by means of scholarships, grants, and government-backed low-interest loans for the small minority that required them. This same year, the Social Security Act (SSA) was expanded to cover the costs of education for 18-to-22 year olds with a parent receiving Social Security benefits. This way, the SSA became a substantial grant program, the impacts of which were only surpassed by the Pell Grant.

Over the years, however, the Higher Education Act has been amended six times, often sacrificing the rights of borrowers to increase profits for lenders. Many consumer protections have been removed, including bankruptcy protections, refinancing rights, and statutes of limitations.4 In 1981, Congress voted to eliminate the provision of the SSA that extended benefits through parents to students. By 1985, this provision, the second largest grant program, was completely phased out. Public investment in higher education decreased drastically through anti-tax measures. To balance the funding equation, colleges increased tuition to the point that tuition inflation has outpaced the Consumer Price Index two-to-one since the early 1970s.1 Because there is a cap on the maximum amount that Pell Grants can provide and since tuition is at an all-time high, these grants cover much less today than they did upon their inception: only about one-third of tuition versus almost three-fourths of tuition in the 1970s.1 Additionally, only 22 percent of recipients receive the full award, while the average award only covers one-fourth of tuition.5

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Bossi/Flickr
A confluence of events over the last 40 years, from rising college tuition to scaled back education grant programs, has generated a wave of students “burdened by debt the likes of which this country has never seen,” says the author.

By 1982, loans began to outpace grants as the largest form of student “aid,” and have since exploded in prominence: as of 2011, over $1 trillion of our national debt is bound to student loans, surpassing both credit card and housing debt.6 This has contributed to the creation of a student loan industry comprising private lenders that encourage over-borrowing and, on the other side of the coin, a profusion of expensive, for-profit schools. Further, the Great Recession has hit recent college graduates particularly hard, fueling unemployment and underemployment for a generation burdened by debt the likes of which this country has never seen. Inflation-adjusted wages have decreased and rents have increased in major metropolitan areas where the college-educated often seek jobs, generally leading to increased credit card debt. But, like the explosion of student loan debt, this is no accident. Credit card companies have vigorously boosted marketing to college-aged students in the past 20 years, while interest rates and fees for minor infractions have skyrocketed over the same period—the results of deregulation in the credit card industry. In this way, student debt has been transformed from a personal issue to a systemic one, causing decreases in homeownership, child bearing, and entrepreneurship among recent graduates. If current trends continue, student debt could prove disastrous for our national economy. A bold, new approach is required if we wish to realize the educational values that President Johnson spoke of in 1965: for “every child born in these borders to receive all the education that he can take.” Such an approach may be under consideration right now by the Oregon state legislature—an approach that was born, in no small irony, within a university classroom.

From Classroom to Capitol

As a transfer student at Portland State University, I was unaware of what a senior capstone was until I scheduled my final year of classes. It’s a program in which students in a given capstone work with community partners to apply their four years of classroom learning towards benefiting the local community. I chose the capstone entitled “Student Debt: Economics, Policy, and Advocacy.” Mary C. King, a professor of economics, and Barbara Dudley, an adjunct professor in the Hatfield School of Government and a founder of the Oregon Working Families Party (WFP), created the capstone to investigate policy options and grassroots advocacy strategies for providing debt-free college education in Oregon. From its inception, professors King and Dudley placed public education, advocacy campaigns, and a legislative hearing, as “likely projects” alongside conventional research.

After spending the first few classes researching the history of the student debt crisis, financial options available to students, and proposed federal initiatives regarding student loans, the capstone shifted to state-level action. Three plans were presented to the class: the Oregon Opportunity Initiative proposed by Oregon State Treasurer Ted Wheeler; an education plan proposed by the Oregon Education Investment Board (OEIB) chaired by Gov. John Kitzhaber; and a program called “Pay It Forward” proposed by John Burbank, executive director of the Economic Opportunity Institute in Washington State. Though both Wheeler’s and Kitzhaber’s initiatives have their advantages, they ultimately propose little in the way of systemic changes to the issue of student debt, including predatory lending, the repercussions of defaults, and unstable interest rates.

The capstone course of 13 students unanimously adopted the Pay It Forward model introduced by John Burbank. Under this model, students do not pay upfront costs to attend public universities or community colleges. Instead, students agree to pay a fixed percentage of their income for a given period of time after graduation. Like Social Security in reverse, graduates pay into a fund that finances tuition and fees for students currently enrolled. Professors King and Dudley enlisted the help of Jason Gettel, policy analyst of the Oregon Center for Public Policy, to crunch the numbers in order to ensure the program’s solvency. Gettel found that if graduates pay 0.75 percent of their adjusted gross income for each full-time academic year attended for 24 years after graduation, the program would sustain itself, achieving a positive balance on the 25th year that grows annually thereafter. This means graduates holding a four year bachelor’s degree would incur a 3 percent “tax” on their income for 24 years, while graduates holding a two year associate’s degree would incur a 1.5 percent “tax” for the same period.

In practice, startup funding remains a challenge since tuition support would begin before graduates’ contributions to the fund. A commitment to start the fund through bonds and philanthropic contributions, however, could prove successful. Further, Pay It Forward is a program that calls for shared responsibility, presupposing that state appropriations for higher education remain constant instead of continuing on their downward trend.

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Curtis Cronn/Flickr
The library at Portland State University. In a course entitled “Student Debt: Economics, Policy, and Advocacy,” 13 students developed a policy aimed at reducing student debt statewide. Their project has since been signed into Oregon law.

Despite these issues, the class agreed on the use of this model—both bold and practical—and shifted its work towards grassroots efforts, with the formation of a working group called Students for Educational Debt Reform (SEDR). Honing ideas presented to us through texts and our community partners, Jubilee Oregon and the Working Families Organization, the class conducted focus groups with fellow students, lobbying efforts with state representatives, and “tablings” (sharing information on a table) on campus to spread word of the program. We received overwhelming support, even from expected opponents. Those leaning left tended to support the program because of its goal to widen access to higher education while, in the long run, increasing funding. Those leaning right offered support because, as opposed to grants, Pay It Forward is not a government handout but rather a contract, a transaction between the student and the state. Week after week, fellow classmates would return with positive news from meetings with members of Congress or their aids.

These efforts culminated with a legislative panel hosted by Representative Michael Dembrow, chair of the Oregon House higher education committee. Students presented the current state and national history of student debt, policy evolution and recommendations for current federal initiatives, state policies and appropriations for higher education, and finally its recommendation for a Pay It Forward model. The legislators in attendance embraced the plan resoundingly, each one pledging his or her support to push the plan into the State Legislature. Representative Dembrow introduced a bill to the Oregon State House of Representatives that directed the Higher Education Coordinating Commission to consider a pilot program for Pay It Forward. The Oregon Working Families Party made the bill a legislative priority. Professor Dudley along with WFP campaign manager Sami Alloy tirelessly lobbied for the bill, gaining support from the Portland State University Association of University Professors, the Oregon Student Association, the United Food and Commercial Workers union, Jubilee USA, and Teamsters Local 206.

On June 27, 2013, the bill passed through the Oregon State House, and on July 1, 2013, it passed through the Oregon State Senate—a unanimous vote in both cases. On September 16, 2013, Governor Kitzhaber signed the bill into law. Alloy sums up the feelings of all of us who worked toward this goal: “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 unanimous. The reason this has struck such a chord is that people are hungry for a solution to the student debt crisis.”

Pay It Forward is still in its very early stages. The bill will first lead to the creation of a pilot program, likely at Portland State University and Portland Community College, that will then be put before the 2015 legislature for evaluation. It is up to the Oregon Higher Education Coordinating Commission to determine how the pilot program will be funded before it reaches solvency. Because of the national attention the bill has received, Oregon Senator Jeff Merkley recently revealed that he will soon introduce legislation in the United States Congress seeking federal assistance to develop Pay It Forward pilot programs that would affect between 50,000 to 100,000 students in up to five states.7

The Path Forward

The philosophy behind Pay It Forward goes beyond simply eradicating student debt. As the Federal Reserve Board declared in March, the student debt burden is a risk to national economic growth. Many recent graduates are unable to buy a home because of student debt, which is delaying recovery in the housing market, according to The Wall Street Journal. The American Medical Association has noted that the pursuit of medical degrees is likely hampered by student debt. Moreover, the fear of debt prevents those from lower socioeconomic backgrounds from pursuing higher education. Almost half of college-eligible low-income students choose not to enroll in four-year colleges because of tuition prices, according to some experts.8 Eliminating upfront costs breaks this barrier for those students. Further, the number of students that graduate within six years increases by 23 percent for low- and middle-income students if grants cover over three-fourths of the cost of education, as opposed to one-fourth, which is the current average. By eliminating the need for grants altogether, we can infer the results would be similar.1 For students who fear underemployment or unemployment when loan repayments are due, Pay It Forward also erases that concern: if your income is $0, a 3 percent payback is $0.

The ultimate goal of Pay It Forward is much like President Johnson’s goal of widening access to higher education for the underprivileged. The program promotes investment in human capital, whose returns are often overlooked. According to Joe Cortright of Impreza Economics, there have been fiscal returns from the increased educational attainment of Oregon’s population that have resulted from increased tax revenues alongside lower state expenditures on health care, incarceration, and the social safety net.9 There is reason to believe that this would hold equally true for the other 49 states. Further, the model promotes social mobility: the wage premium earned by college graduates relative to those with only a high school diploma or the equivalent in the United States is higher now than it has been for almost 100 years as a result of the shift from a manufacturing-based industry to a service-based industry.10 According to Enrico Moretti, professor of economics at the University of California, Berkeley, the benefits of a college education extend further than the direct beneficiaries. Even those without a college degree who participate in labor markets with a relatively high proportion of college graduates earn higher wages and are more productive. Moreover, the reduction of social costs related to crime, more or better healthcare for college graduates, and a higher likelihood to vote (and be informed on issues) are all positive externalities of wider access to higher education.11

Pay It Forward is a step forward. It does not solve the problem of disinvestment in higher education at the state or federal level. It does not forgive or restructure outstanding debt. It is a commitment to future generations, encouraging enrollment at public universities and opening the door to a better future.