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States Aim To Protect Students From Being Swallowed Up By College Debt

By Kirsten Gibson, Guest Contributor on July 8, 2013 at 1:15 pm

"States Aim To Protect Students From Being Swallowed Up By College Debt"

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Credit: Wall Street Journal

Although an attempt to address student loans remains unresolved in Congress, politicians in Oregon and New Jersey are forging plans to prevent students from carrying crippling debt.

In a 15-page report on ending childhood poverty released Monday, Newark mayor and U.S. Senate candidate Cory Booker (D) recommended the federal government help contribute to a college fund for children whose families are low income. Meanwhile, the Oregon legislature recently passed a proposal that would allow students to go to a community college or public university at no cost if they agree to pay a certain percentage of their income post-graduation. These programs give students a viable alternative to taking on masses of debt by reducing the cost of college upfront.

In Booker’s plan, the federal government would contribute $400 per year to an account for a child whose parents receive the earned income tax credit. Additionally, it includes up to a $100 match each year if families, states, or philanthropists contribute money for the accounts. This could lead to $10,800 in college savings after 18 years if the maximum federal funds are used.

Oregon’s legislature passed a bill on July 1 — ironically, the same day student loan rates doubled — that would charge the state’s Higher Education Coordinating Commission with developing a pilot program known as “Pay It Forward, Pay It Back.” Students from Portland State University helped conceive the plan, which could be implemented as soon as 2015, and one model proposed that all community college students pay 1.5 percent of their incomes and all four-year public university students pay 3 percent for a 20-year period after graduation.

The private sector version of this idea, “human-capital contracts,” has already taken off in the U.S. and abroad. The company Lumni offers an option similar to Oregon’s plan in that it also pays for an education if students agree to pay a fixed percentage of their income for a period of time. So far, the company has helped 2,000 students in Chile, Colombia, Mexico, and the U.S. access higher education.

Changing how Americans pay for college could help stifle or even eliminate the student debt that continues to negatively affect in the economy. The class of 2013 graduated with an average debt of $35,200, up from $26,000 in 2012. Debts have climbed as tuition has sky rocketed past inflation and legislatures continue to cut funding for public universities and community colleges.

It could also help low-income students afford college, as they have few debt-free options to pay for it. For example, Pell Grants now cover only about a third of the cost of a public four-year university.

Kirsten Gibson is an intern for ThinkProgress.

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