Is debt-free education the answer to student loans?
It’s difficult for cash-strapped students in a recovering economy to see the bright side lately — particularly as government-backed student loan interest rates have doubled since the beginning of the month. But the good thing about problems (like, for example, super-expensive college tuitions) is that they can often be the catalysts to ingenuity and change.
John Burbank, Executive Director of the Economic Opportunity Institute, a non-partisan think tank, believes that they have found a way to make a fund for higher education that replenishes itself. Using the “Pay it Forward” model, which is expected to be in a pilot stage in Oregon as early as 2015, students bank on future generations.
“We thought we needed to start thinking outside the box,” he says. The non-partisan think tank’s plan “will allow students to go to college debt-free, and then as a quid pro quo for that, they contribute 3 or 4 percent of their income … to a public higher education trust fund.”
Ideas like this are starting to gain traction nationwide, with private companies like Pave and Upstart also allowing students to commit a portion of their future earnings in exchange for the ability to go to school debt-free.
Burbank is emphatic about the difference between “Pay it Forward” and a system of student loans. “It is not debt insurance, and it is not a loan. Think of it more as a social insurance program,” he says. “You contribute for a predetermined number of years at a certain rate of income and it’s something you can anticipate.” Burbank also stresses that three percent of any income is a small price to pay, and would allow students to focus on following their interests instead of chasing the benjamins.
For now, Burbank says that several states nationwide have shown interest in “Pay it Forward,” including New York, Maine, Pennsylvania and California.
Q and A:
How do you feel about the recent increase in federal student loan interest rates?
It’s unfortunate that congress is more willing to give a break to the banks rather than to students, so that’s too bad. Unfortunately, with the recalcitrance of congress, it’s necessary to look to the states as laboratories for democracy and for solutions that actually work. We believe that “Pay it Forward” will work.
How how much will the students have to give back after graduation with “Pay it Forward”?
It’s the same percentage rate and contributory period across the board. I don’t pretend to have the final answer on this, but let’s say you earn $10,000 and you’re contributing 3 percent, that is $300 a year. If your income is $100,000 it’ll be $3,000 a year — it’s accessible.