Oregon Students Fight Back Against Debt, And Win
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Last week Congress allowed the interest rate on subsidized federal Stafford student loans to double from 3.4 percent to 6.8 percent. This was just the latest in a series of indignities for students, whose debt burden has skyrocketed to $1 trillion as higher education costs continue to climb upward. Faced with a lifetime of crushing debt they cannot escape—student loans cannot be refinanced or discharged in bankruptcy, and even their Social Security payments can be garnished—these borrowers often delay the major purchases that drive growth, like houses or automobiles. Even the Federal Reserve has cited student debt as a drag on the U.S. economy.
With Congress inert, one state has stepped forward with an idea. The same day federal student loans doubled last week, Oregon’s legislature unanimously passed HB3472, or the “Pay it Forward” debt-free higher education plan. Once the bill is fully implemented—a process that will require votes from the legislature and the public over several years—Oregon high school graduates will be able to attend public colleges or universities in the state for free, and have a small percentage of their future income taken into a fund to pay for the next generation. It’s almost an inverse of Social Security: Instead of paying to ensure a measure of dignity in retirement at the end of life, Oregonians will pay to ensure an investment in student learning at the beginning.
The bill’s passage did not result from a multi-year coordinated effort hammered out by elite policymakers. Incredibly, it started just this past fall, with a college senior project at Portland State University. The 6-credit “capstone” course was called “Student Debt: Economics, Policy and Advocacy,” and it sought to combine deep research of the history of student debt with the real-world experience of actively seeking potential remedies. “We wanted to propose a solution to begin to resolve the issue on the state level,” said Ariel Gruver, one of the 15 students.
The instructors for the course were Mary King, an economics professor, and Barbara Dudley, a longtime political activist and co-founder of the Oregon Working Families Party. Created in 2006, the Oregon WFP nominates candidates for the state legislature that sign on to its policy agenda, which focuses on issues of economic justice. (Instead of a separate ballot line like the party uses in New York, the Oregonian party cross-nominates candidates so their party affiliation reads “Democrat, Working Families Party.”) The party has emerged as an important political force in the state. Of the 90 members of the Oregon House and Senate, 35 are cross-nominees of the WFP, including two Republicans. “We have become a valuable name to have on the ballot for Democrats and Republicans,” Dudley said. “On our issues, the parties don’t just line up like a football team.”
While students analyzed the student debt crisis, Dudley cast around for possible solutions. The process brought her to the Pay It Forward plan, the brainchild of John Burbank of the Economic Opportunity Institute (a Seattle-based liberal policy shop). Under Burbank’s plan, students would matriculate at public colleges and universities for free, and pay 3 percent of their future earnings for around 20 years into a fund to pay for successive students. Community college students would only have to pay 1.5 percent. The payments would come out as a pre-tax payroll deduction, and the more money graduates make over time, the more they would pay.
This creates an incentive to choose a career based on personal fulfillment, rather than one that earns lots of money to pay down student debt. Income-based repayment exists at the federal level, but it’s a higher percentage of income (capped at 10 percent of discretionary income) and it merely pays off individual student loan debt. It does not have Pay It Forward’s element of universality, where everyone pays into the program and attends college tuition-free.