New ‘pay it forward’ college loan plan allows students to pay for college contingent on their future earnings

Katie LaPotin, Red Alert Politics, October 4, 2013

Imagine this scenario: Two college graduates borrow the same amount of money for school. One of them, however, earns $100,000 over the ten years following graduation, while the other one earns $30,000. Thus, the first student ultimately pays back significantly more for his college education than the second student.

Under a new scheme proposed by the Economic Opportunity Institute, a nonprofit organization that focuses on promoting educational opportunity and good jobs for those in Washington state, this would be possible. As part of the “Pay it Forward” program, enrolled students would attend college with no upfront tuition or fees, and then contribute a small, fixed percentage of their income for a predetermined number of years following graduation. The contributions would then be placed in a public higher education trust fund that would pay for future generations of students to attend college.

“What ‘Pay it Forward’ is suggesting is a complete paradigm shift, a systemic paradigm shift,” John Burbank, the executive director of the Economic Opportunity Institute, said during a standing room panel on the topic at the New America Foundation in Washington, D.C. Friday. “So students going to school would pay no tuition, period.”

“These students are not paying for their own education, they’re paying for the education of the next generation. They are developing a community of responsibility,” he added.

Proponents of the program stress that it removes the largest cause of student loan debt – tuition – and, thus, the financial and psychological barriers that prevent students from either attending college or attending their dream schools. They also stress that by linking the contributions directly to the students’ incomes, it allows graduates to choose jobs based on their interests and skills rather than feel forced to take a higher-paying job to pay off their debts.

By doing so, the advocates argue that it shifts the burden of paying the debt to those who are most likely to do so without straining their finances – the high-earners in society.

“What it attempts to do is shift the burden of those costs to likely high earners, which is a noble concept – there’s actually nothing fundamentally wrong with that,” Dave Girouard, the founder and CEO of Upstart, an organization that lets you raise money in exchange for a small share of your income for 10 years.

“We’re actually saying no, we don’t care how much your family is worth, we don’t care how much you have today, we don’t even care how much you’re earning today,” he added. “We want to see signals of your full potential, and we make access to private capital…available based on signals of what you’re likely to earn in the future.”

As Burbank later noted: “If you’re any student coming from a family of income of $100,000 or less, you’re gonna find ‘Pay it Forward’ very attractive. If you’re over that amount – say you’re at $150,000 to $200,000 – you may not, but most likely you’re kids who would not have gone to public education in the first place, they would have gone to private school.”

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