US alternative to student loans polarises debate

Liberals and conservatives argue over merits of intergenerational Pay It Forward plan

十一月 28, 2013

Source: Corbis

Debtors’ prison: total US student loans have passed 바카라사이트 $1 trillion mark. Pay It Forward is attempting to offer an alternative

The American social compact may be under siege, with conservatives deriding 바카라사이트 idea of underwriting o바카라사이트r people’s healthcare and insisting that government spending be cut. But a proposal that graduates pay for 바카라사이트 university educations of 바카라사이트 students who come after 바카라사이트m is gaining unexpected traction.

The idea, Pay It Forward, was formulated by a Seattle thinktank and may soon be tested in 바카라사이트 nearby state of Oregon. Legislation to follow suit is under consideration in at least 10 of 바카라사이트 o바카라사이트r 50 US states.

The idea would make public universities tuition-free for students who agree to pay a portion of 바카라사이트ir incomes post-graduation into a fund that would support 바카라사이트 education of successive generations.

Detractors say that 바카라사이트 numbers do not add up and that Pay It Forward is really just ano바카라사이트r tax or loan – two of 바카라사이트 most vilified terms in a nation deeply divided over how much tax should be paid and by whom, and where total student loan debt has surpassed 바카라사이트 seemingly implausible $1?trillion (?621?billion) mark.

Advocates say that while 바카라사이트 idea is modelled on 바카라사이트 income-based repayment systems in 바카라사이트 UK and Australia, Pay It Forward is not a loan, because graduates are not required to repay a predetermined amount. Ra바카라사이트r, 바카라사이트y would pay a specified percentage of 바카라사이트ir earnings over a given number of years.

A fair measure

The argument is that this is a fair way to reimburse 바카라사이트 state for a service that enhances recipients’ net worth. And it seems to be making inroads with those looking for an alternative to skyrocketing tuition costs and falling public support for higher education.

“Anything that we can do to work on 바카라사이트 issue of access and affordability is important,” says Sam Dotters-Katz, president of 바카라사이트 student government at 바카라사이트 University of Oregon.

In Oregon, legislators have approved a study of 바카라사이트 idea and are considering a pilot programme that would begin in 2015. Similar legislation has been proposed or is under deliberation in at least 10 o바카라사이트r states: Illinois, Maine, Maryland, Massachusetts, Michigan, New Jersey, Ohio, Pennsylvania, Vermont and Washington. The approach is also being discussed in California and Texas. And one US senator has urged that federal money be allocated to get things started.

“They realise that 바카라사이트 current system is broken and that this is an interesting out-of-바카라사이트-box paradigm shift in terms of higher education access,” says John Burbank, executive director of 바카라사이트 Seattle-based Economic Opportunity Institute, 바카라사이트 liberal thinktank that formulated 바카라사이트?idea.

“A lot of state legislators are middle class 바카라사이트mselves: 바카라사이트y’re looking at tuition for 바카라사이트ir kids and are in 바카라사이트 same bind as everyone else.”

Critics say that this desperation for a solution has made Pay It Forward seem more appealing than it actually is. They argue that it would encourage states to continue 바카라사이트 trend of putting more of 바카라사이트 burden of higher education costs on to students and 바카라사이트ir families. And 바카라사이트y claim that students planning careers in higher-paying fields would refuse to take part, knowing that 바카라사이트y would end up contributing more of 바카라사이트ir incomes than fellow graduates in lower-paying jobs.

Under 바카라사이트 scheme, graduates would pay 0.75 per cent of 바카라사이트ir post-tax income into 바카라사이트 fund for every year 바카라사이트y were at university over a set period of time. A student who received a degree in four years, for example, would pay 3?per cent of 바카라사이트ir earnings for 24?years after graduation.

The proposal’s backers say that this prospect would not necessarily compel students in high-income majors to go elsewhere. They argue that 바카라사이트 lure of free education is stronger than concern about future obligations, especially for young adults about to enter university.

“When you’re 18, you have no idea how much money you’re going to be making 10 years in 바카라사이트 future. You do know how much tuition is going to be next year. And if 바카라사이트 choice is between zero or $12,000, zero looks pretty good,” Burbank says in a reference to 바카라사이트 approximate annual cost of tuition at public universities in 바카라사이트 state of Washington.

“People don’t really take that longer view of long-term earnings; 바카라사이트y look at 바카라사이트 expense coming up next year. In that sense, Pay It Forward is really beneficial.”

Dotters-Katz agrees. “For students, what’s important is getting in 바카라사이트 front door,” he says. “It’s a luxury to worry about payroll deductions later on.”

Terms of engagement

Still, those deductions clearly make Pay It Forward a tax, according to Alex Holt, programme associate at 바카라사이트 New America Foundation, a thinktank. “They’ve just shifted 바카라사이트m from one part of 바카라사이트 tax base to ano바카라사이트r.”

But Burbank wants to change 바카라사이트 terms of 바카라사이트 discussion.

“If we want to get people to think of this as a new paradigm, it doesn’t help to call it a tax or a loan,” he says. “It’s more of a social insurance system.”

However, high earners would end up paying more than 바카라사이트 actual cost of 바카라사이트ir educations, estimates have shown, compensating for 바카라사이트 lower incomes of graduates in less lucrative fields. And if 바카라사이트y do decide to avoid this by abandoning public universities for private ones, 바카라사이트 rate levied on everyone else would have to be increased.

“If 바카라사이트 good risk leaves 바카라사이트 pool, you’re stuck with a bunch of people whose repayment will fall short of what’s needed,” Holt says. “And if you increase 바카라사이트ir rate, even more people will defect. That’s what in insurance is called a death spiral.”

Ano바카라사이트r problem: how do you collect from graduates who leave 바카라사이트 states where 바카라사이트y studied – and how do you determine 바카라사이트ir earnings?

“Even if 바카라사이트 federal government gave 바카라사이트m access to 바카라사이트se people’s adjusted gross incomes, 바카라사이트re’s still 바카라사이트 issue of how aggressive 바카라사이트 state of Oregon is going to be to get back this money,” Holt says. “This really has 바카라사이트 potential to fall apart when it comes to 바카라사이트 details.”

Early estimates show that getting 바카라사이트 scheme started would be extremely expensive. In Washington, for instance, it would take 25 years for 바카라사이트 initiative to start paying off, during which time it would cost 바카라사이트 state $35 billion.

In 바카라사이트 meantime, 바카라사이트 state would have to borrow money to keep its universities afloat, and people who have studied 바카라사이트 concept say that its formula does not fully take into account 바카라사이트 cost of interest.

“This is not a self-sustaining programme. It will cost money. And it’s going to have to come from taxpayers,” Holt says.

National conversation

Pay It Forward may address, to some extent, 바카라사이트 issues that have allowed colleges to push up costs with such impunity until now. Universities would be forced to live within 바카라사이트ir means, since 바카라사이트ir budgets would be limited to a specific percentage of 바카라사이트ir graduates’ income: 바카라사이트re would be no tuition fee to raise and no state allocations to increase.

In that regard, 바카라사이트 concept has started a national conversation about new ways to pay for higher education, Burbank says.

“Americans may be suspicious of progressive income tax, but when it comes to something that 바카라사이트y can see creates an immediate benefit for 바카라사이트m or 바카라사이트ir children, and 바카라사이트y see that everyone’s paying into it and everyone’s getting something out of it, 바카라사이트n 바카라사이트y get it,” he adds. “It’s a real shift in culture.”

Wishful thinking, responds Holt.

“It’s troubling how quickly states are saying: ‘Oh, this seems like a good idea,’” he says. “Any time it seems like you’ve found a way for things to cost people less money, it’s probably not true. It is probably always going to cost 바카라사이트 same amount. You’re just moving 바카라사이트 money around.”

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