Sen. Jeff Merkley: Ending student debt with “Pay It Forward”

The U.S. Department of Education reports that the average total cost of going to a public, 4-year college for one year was $21,000 for in-state students in 2011-2012.

And while college costs are spiraling upward, so is student debt. The Institute for College Access and Success finds that 7 in 10 college seniors graduating in 2012 have student loan debt, and that the average debt burden per borrower is $29,400. All told, the Federal Reserve reports total outstanding student debt to be $1.08 trillion in the fourth quarter of 2013, the largest category of consumer debt after home mortgages. Moreover, 11.5 percent of student loans are 90-days delinquent or in default.

To help tackle these challenges, Sen. Jeff Merkley (D-OR) recently introduced S. 1884, the Pay It Forward Guaranteed College Affordability Act, which would expand an innovative college affordability model being developed in his home state of Oregon. Under the “Pay It Forward” approach, students can choose to receive grant funding for college in exchange for their pledge to pay a portion of their future earnings back to the state to fund future grants.

 

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R3.0: How did “Pay It Forward” come to your attention and why do you think it’s promising?

Sen. Merkley: A group of students at Portland State University had a class seminar and developed this model as an idea to present to the Oregon state legislature. The Oregon state legislature then voted unanimously to have the details developed and returned as a bill for the 2015 legislative session next year.

The heart of the [proposal] is that instead of getting a student loan, you would get a “Pay it Forward grant.” And instead of making loan payments, you agree to pay a small percentage – roughly 2 to 4 percent of your income over the next 20 years – into a “Pay It Forward” grant fund.

If you earn a very modest amount, your payments would be a very modest fraction of what you’re earning, so you’re not caught between high loan payments and low pay. And if you earn a great deal and are the next Bill Gates, you get the blessing of donating a billion dollars or more to the education of the next generation.

R3.0: What would your legislation do?

Sen. Merkley: My legislation would help a small number of states run a pilot project to essentially convert [federal] Stafford Loan [funds] into Pay It Forward grants and create the initial pool of funds to launch the program.

We’ve heard expressions of interest from around 15 states, and I’m hoping at least five or six will go through the more complex process of designing an actual pilot to test what would work.

This would not only provide a benefit to the students who participate in the pilot but help us understand whether this model could work more broadly in America. This challenge is everywhere in the country, and this anxiety goes right to the heart of working America. It is a huge factor in the success of our children and the future of our economy, so I think we’ll have many more states interested.

R3.0: Why did you decide to introduce this legislation?

Sen. Merkley: I grew up in a blue-collar community. I still live in that community, and my children go to the same public high school I did.

I’m surrounded by folks who face the challenge and the uncertainty of whether they’re going to be able to afford to pursue their dreams. And I personally have walked through the process of being worried about the cost of college; I was the first in my family to go to college.

‘What I’m hearing right now is a great deal of fear and intimidation from both parents and students who are concerned that if they go and pursue their dreams, they’ll develop a substantial debt equivalent to a home mortgage that’s a millstone around their necks. They worry that the wages they might earn in the future might barely cover their debt payments, and they’ll be squeezed between those monthly debt payments and their income.

This is a concern that is rooted in the reality of working America. We can see it now with students who are returning to live with their families because they can’t afford an apartment due to their college debt, [and with young people] who are postponing getting married because they cannot afford to be independent. It’s having a major impact in dismantling the aspirational American vision that if you work hard, there is a path to fulfill your full potential and thereby enhance your own life, your family’s life and our entire future economy.

This bill is all about ending that fear of being trapped between lower wages and high debt payments.

R3.0: How do you respond to some of the criticisms that have been leveled at this approach, for instance, that it isn’t “fair” to higher earning students who may end up paying more than their tuition actually cost?

Sen. Merkley: Nothing is more unfair than a system in which every student does not have the opportunity to fulfill their potential. And right now we have a system where higher education is for the affluent. That is absolute contrary to our vision of opportunity in America.

This is not a mandatory program. This is a choice: “Would you rather have a loan or would you rather have a grant?” To take away the opportunity for someone to eliminate this fear of being trapped and to take away the ability for folks to free themselves to pursue their potential – that would be unfair.

Someone was saying to me that what they didn’t like about Pay It Forward is that it would replace grants that kids were getting and thereby force them to pay for grants that they were currently getting with no [obligation for] repayment. That is not the vision at all. The vision is to replace the loans that are creating a future burden and relieve that burden with Pay It Forward grants.

We also have a continuity of support requirement so that states [can’t stop funding current grant programs and] essentially dump their responsibility on to the student. If Oregon is providing grants now, they would have to sustain that effort.

I really want to emphasize how significant this challenge is. When I was in high school in my working class community, many kids believed they couldn’t afford college. It affected how they behaved in high school as well as whether they pursued more difficult classes and earned grades that might help prepare their path to higher education. Now here we are a generation later, and the problem is worse.

Real incomes have essentially been flat for working America since the mid-1970s – since I’ve graduated from high school – while the real cost of college has risen many times.

We cannot simply keep our heads in the sand and say, “Well, that’s just too bad.” That’s an unacceptable answer. Let’s experiment with alternative approaches that could solve this problem. This is certainly a very promising approach, so let’s test it out.