Overton: Reversing the student-debt boom

BY JON OVERTON | JULY 24, 2013 5:00 AM

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A portrait of the economy in 2013: Flat wages. Slow job growth. Crippling debt. A ballooning cost of living. Working families have it tough.

Compounding their woes, higher education — the gateway to upward mobility — has become prohibitively expensive, saddling students and their families with tens of thousands of dollars in debt. Dropping out partway through college has become common, as have tales of bankruptcy resulting from runaway debt.

In Oregon, a bill in the House of Representatives seeks to reform the way we pay for higher education. Instead of students paying for higher education with thousands of dollars in loans and accumulating interest, the bill proposes a unique alternative: Students who are residents of Oregon pay nothing for tuition and fees at public universities while they attend, then pay an agreed upon level of income tax for a given number of years. Proponents compare it to Social Security in reverse: receive benefits now and pay later.

It’s an extraordinarily innovative and promising idea and its proposed enactment provides reasonable measures to prevent accidental catastrophes.

The Oregonians who wrote this legislation were not foolish enough to schedule the program to begin immediately. The bill wisely includes a planned a pilot program and a study of how well the state’s public universities could support the program if it continued.

Because there would be a funding gap for universities during the transitional period from traditional loan payments to a retroactive tax-based system, the legislation would also set aside money to pay for the program’s initial 15 to 20 years.

A new way of funding public education is necessary. As the U.S. student debt of $1 trillion would suggest, higher education isn’t cheap, and the current system is on an unsustainable path toward ever-falling public funding, ever-rising tuition, and ever-growing debt. The Oregon plan provides a possible solution.

The Oregon Working Families Party suggests that both private and public grants could help fund this new system and assist students in finding jobs after college to get the necessary income-tax revenue.

If the Oregon plan is to be a viable alternative to the current system, however, the current funding trends for public universities will have to change.

Iowa, for instance, saw a 40 percent decrease in state appropriations for four-year public universities from 2000 to 2011, while tuition rose by more than 75 percent, according to a policy brief from the Iowa Fiscal Partnership.

Also, as the public money was drying up, the budgets for Iowa’s public four-year universities grew by about 30 percent from 2001 to 2013, based on data from the state Board of Regents.

States have cut spending, universities increased spending, and students and their parents got stuck with the bill.

Upward mobility, once reasonably achievable in the United States, has become difficult, and an essential component to that, higher education, is just too expensive.

A policy memo by the Hamilton Project reports that children born in households earning income in the bottom 20 percent have a 43 percent chance of staying in the same income bracket and a 4 percent chance of entering the top bracket. With a college degree, those numbers change to 16 and 19 percent, respectively.

It’s unclear whether the Oregon proposal will pass, but for the sake of equal opportunity and the radical notion that it might be bad to have a bunch of indebted young professionals, I hope it does.

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