"Pay Forever or 'Pay it Forward'" – The Alternative to Student Debt

Written by Elisabeth Balachova

Oregon proposes a piece of legislation that mimics social security in respect to college tuition. Students will have a percentage of their future income used to pay for tuition instead of taking out loans to attend community and state colleges.

 

The irony is that a college degree is supposed to promote economic and financial prosperity but many of our graduates are entering the uncertain workforce with an unbearable amount of debt. There have also been funding cuts for education, which are contributing to higher tuition costs. Any “Business101” class will tell you that educational institutions are running a business and seek profit before providing education.

At the beginning of summer interest rates on Federal Stafford loans literally doubled, from 3.4% to 6.8%. This increases concern for the amount of debt that is being piled on college students. Senator Jeff Merkley of Oregon has pushed the legislation of a pilot program called ‘Pay it Forward.’ It is currently limited to state residents of Oregon and will replace tuition costs with a binding contract that forces state university students to pay a certain percentage of income tax for approximately 20 years after graduation. 
The plan is similar to Social Security. Graduates will contribute to a pool of money that will be reserved for future college students, and when those future students graduate, they will continue adding to the pool. Outside funding will be needed to start the program and pay for the original students who will start contributing to the pool.

‘Pay it Forward’ is a pilot program without set tax percentages but has an estimate that is open for adjustment.  The Oregon Working Families Party is an organization that originally pushed the bill. They propose that community college graduates be taxed around 1.5 percent and four-year state school graduates be taxed around 3 percent.

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To put it in perspective, a state school graduate earning $30,000 a year will be taxed $900 and if their income was to increase to $60,000 they would be taxed $1,800.

 

Flaws:

A flaw of this program is that it will only cover tuition. That leaves paying for room and board, books, and other expenses that drive the cost of education higher uncovered. Some students will still have to take out loans to cover these costs, leaving them with both student loans and a tax deduction from their income for 20 years.

Some students may argue that their hard work should not be taxed, since the higher their income is, the higher they will be taxed. It may be more costly for doctors and engineers to be in this program than taking out student loans.

Graduate schools and private schools are not included in the discussion at all, leaving Pace students out of the loop. One possibility is that private schools will feel a competitive edge and will have to reduce their tuition costs. Some students and employers, however, may still fall for the “brand name” of certain schools, leaving a demand for some institutions and no decline in tuition costs.

The Economic Prospective:

 Besides reducing student debt, this could promote an educated population that would overall provide a better economic society. Graduates can stimulate the economy with the incomes they earn and what they contribute to society with their degrees.  

The Wall Street article, Millennials Face Uphill Climb, points out that our generation is delaying adulthood because of the current economic stance. This means many are forced to work minimum wage jobs and live at home with their parents, preventing them from buying houses and cars that can help stimulate the economy. The ‘Pay it Forward” act can alleviate this crisis by allowing graduates to have an income invested in the housing market instead of student loans.

The question is what can the rest of the country do? Many European countries provide free education while we are behind in student debt. This could be our alternative. Even with the flaws, it is better to take action and work on perfecting it than wait for someone to come up with a better idea. The only concern is if congress will put aside their differences and actually work to better our economy and educational system. 

Senator Mark Hass, representing the 14th district of Oregon, is concerned that this proposal will take away the attention for better solutions. He is interested in making community colleges free and increasing the number of students who earn college credits in high school, which could decrease the price of a college education.

In 2015 (unfortunately when I graduate) the law will be reviewed and a decision will be made as to whether or not it should be implemented. When that date comes, should it be passed to all states? I vote Aye.


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