Congress has been inflicting a lot of pain on the country over the past several years, but rarely has it been as glaring and destructive as its failure to prevent the interest rate on student loans from doubling. A college education is already beyond reach for many Americans; with Congress’ failure to act on this problem, the cost is only going to rise even higher.
The Republican House and Democratic Senate and President Obama are all at odds over the best approach to hold down those interest rates, which had been at 3.4 percent. Democrats say the House plan balances the budget on the backs of students, while Republicans note that the Senate hasn’t done anything at all.
A solution appeared in sight last week with a tentative agreement that seemed to give both sides some of what they wanted. But a Congressional Budget Office estimate that it would cost $22 billion over 10 years scuttled the plan.
Unless Congress acts before students return to their schools this fall, the rate increase on subsidized Stafford loans could mean an extra $2,600 for an average student, according to Congress’ Joint Economic Committee.
One possible solution is that Congress will kick the can down the road by renewing the expired system for another year.
That would be better than nothing, though a permanent fix is also required. Such a fix would require Washington to take a completely different approach to the issue. For guidance, it can look west to Oregon and even farther west to Australia.
The Oregon Legislature has proposed an “investment approach” to student loans. Tuition at public universities would be free, but students would agree to pay 3 percent of their earnings for the first 25 years after graduation. Those who earn very little would pay very little, perhaps much less than the cost of their educations. Those who make a lot of money could end up subsidizing the system, but still earning enough money to make it palatable.
It’s an interesting approach, based on a system that Australia adopted nearly a quarter-century ago. There, repayments are based on student income as recorded by tax authorities. It’s a voluntary system that most students there choose. The repayment can reach as high as 8 percent of income, according to Inside Higher Ed (www.insidehighered.com), but only when incomes top the U.S. equivalent of $35,000 a year.
The plan has been successful enough that it has been copied in New Zealand, South Africa, the United Kingdom and Hungary. Other countries, including Ireland and Malaysia, may soon follow.
In 2007, the federal government adopted a law that was meant to have a similar effect. Called Income Based Repayment, it ties some students’ repayments to their income, but it also requires constant monitoring. Marriage, divorce, childbirth, promotion, job loss and other life events need to be documented to the government. Just qualifying for the program is complicated, and confusing rules have held down participation.
Oregon and Australia appear to be on to a better idea. The Oregon Legislature and governor’s office are in Democratic hands, but the vote in both chambers of the Legislature was unanimous. Nathan E. Hunt, one of the students who proposed the plan, told the New York Times that the approach appealed to conservative members “because it’s a contract between the student and the state, so they see it as a transaction, not as a grant.”
One of the points of our federalist system is for the states to act as laboratories in which good ideas can bubble up to other states, and even Washington. Oregon is bubbling with a great idea that has been successfully tested in many other countries. Washington should take a look.