Ed Trust Measures “Pay It Forward” Plan With Impossible Standard

November 7, 2013 | Economic Opportunity Institute

This is a guest post from Jason Delisle, director of the Federal Education Budget Project at the New America Foundation.

The proposed “Pay It Forward” financing program in Oregon continues to pose an existential dilemma for much of the higher education advocacy community. Take Education Trust’s opinion piece by Kati Haycock in Inside Higher Ed today. The organization decidedly opposes the plan, making points that are representative of the criticisms education advocacy organizations have listed generally against the Pay It Forward idea.

As a refresher, the Pay It Forward plan, which is still in its conceptual infancy, with many key details yet to be worked out, would have graduates of Oregon public universities pay a flat tax on their future earnings instead of paying tuition up front, partially eliminating the need to borrow. Ed Trust criticizes that arrangement because:

Pay It Forward proposes to tax graduates’ income at a certain rate every year (say 4 percent) for up to 25 years, graduates will end up paying very different amounts for their education — often more than what that education actually cost.

See the existential dilemma? Ed Trust has just argued that a key flaw in this higher education financing mechanism is that it charges people different amounts for the same public service, based solely on their incomes. If you thought Ed Trust would favor a system where higher income graduates pay the most for their educations, think again. One wonders how Ed Trust would feel about a financing mechanism for higher education where everyone was charged exactly the same amount regardless of their financial situation. They’d likely be the first out the gate to oppose it. So we are all left wondering how the higher education finance system should work if Ed Trust says it should not charge people different fees and it should not charge them the same fees.

Wouldn’t Ed Trust champion a state legislator who proposed a new 4 percent income tax to help finance public higher education? Yes, most certainly. You can almost hear the advocacy campaign starting up now. But today we learn that Ed Trust opposes a flat tax to finance higher education because people who earn more would pay more.  

Admittedly, the Pay As You Earn plan would tax only those people who attended the state’s universities, not everyone in the state. Maybe that’s a reason to oppose it, but the alternative doesn’t sound like something Ed Trust would advocate for either: College graduates, and those who never attend, sharing equally in the burden of financing public higher education? That seems quite regressive.

The Ed Trust statement above also suggests that it would be particularly bad if anyone paid more than the actual cost of their education. But if someone doesn’t pay more, how can there be any money for someone to pay less? That is the fundamental premise for a system of government taxation and subsidization. Someone pays more, usually based on his income, either in taxes, tuition, or both, which makes it possible for someone to pay less in taxes, tuition, or both.

Pay It Forward is no silver bullet, to be sure. It has serious flaws and is misunderstood. But not even Ed Trust can argue with this important point: Pay it Forward eliminates some of the worst consequences of financing a higher education with debt – borrowers can never default and their payments are always affordable. Moreover, it’s much more progressive than a subsidized loan system. High earning graduates have to pay more and cannot collect the same public subsidies as their lower earning peers.

But Ed Trust isn’t measuring Pay It Forward against student loans, progressive principles, fairness, efficiency, or the like. That’s not the debate it wants to have. Instead, it’s measuring the proposal against a large increase in general tuition subsidies. Period. In short, Ed Trust says Pay It Forward is bad policy because it is not a large increase in general tuition subsidies. Pay It Forward is off message.

Ed Trust is right to criticize Pay It Forward proponents for over selling their solution. But the program need not provide larger tuition subsidies to be a good idea, or even an idea that aligns perfectly with all of the principles Ed Trust would support on a different day.

Via Ed Central by the New America Foundation 

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