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, Hands free access, 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 real time Location system — 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.
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