Due to Wall Street’s power over the financing of public goods, the neoliberal “solution” to student debt is currently the only game in town. Over the last few years, states have dramatically reduced funding to universities. In response, institutions have raised tuition dramatically. Tuition at four-year public colleges has grown, on average, by 27 percent since 2007–8. But colleges can’t hike tuition fast enough. They’ve also gone into debt to Wall Street (via bond issuances) and forced students to borrow vast sums for the right to an education. The student loan market is incredibly profitable to creditors, to loan servicers, and to the government. To underscore the absurdity of the current situation, the federal government expects to make a $51 billion profit this year on its burgeoning student loan business.

In Washington, the closest thing to a discussion of a massive funding crisis in the nation’s colleges and universities was the recent wrangling about student loan interest rates. Following the logic that has dominated the debate so far, our elected officials linked student loan interest rates to the treasury index, creating a time bomb that will explode once the Fed’s interest rates go up again and students are faced with ballooning payments.

It is within this context that Oregon’s legislature recently passed HB3472, a step towards what has become known as the “Pay It Forward, Pay It Back” higher education plan. Based on a plan outlined by a team of Portland State University students, faculty, and community activists, Pay It Forward (PIF) could change the way Oregon’s public universities are funded. Under the plan, students will not be required to pay anything upfront. Instead, some percentage of their income (likely 1.5% for two-year schools and 3% for four-year schools) will be deducted for a number of years (likely 24) after graduation.

The plan is in the earliest stages and is years from implementation, but it has already generated a great deal of media attention. As we noted above, Senator Merkley plans to propose a similar model at the federal level.

Before detailing our concerns, we want to acknowledge how significant the obstacles are to making colleges and universities free in a capitalist system where financial support for public education is on the decline. But funding higher education as a public good is eminently affordable. According to the most recent estimates, student tuition expenditures (not including room and board) at public two- and four-year colleges total $61.5 billion. To put that in perspective: the amount of money that the Pentagon simply loses due to accounting errors and misappropriations each year is estimated to be around $70 billion. But the $61.5 estimate is actually high. Take away thesubsidies the federal government already spends on higher education and the cost of tuition at public universities is closer to $12 billion. We’ve provided details on all these expenditures on our website. Finally, we must remember that the City University of New York and the University of California system were free or low cost for much of the 20th century. Fully funded public higher education is not a new or even a particularly radical idea. Achieving it is a matter of political will.

We’ve talked with some of the activists involved in Pay it Forward, and they understand the issues and the principles at stake and are dedicated to achieving them. The question is: does Pay It Forward bring us closer to a true publicly funded education solution? To answer this question, we have to ask some others.

Could a PIF education funding model lead to more public debt?

Even assuming that PIF is really a “debt-free” plan and not one that merely repackages student debt, it may still turn out to be a major boon for banks. The program will need money to cover startup costs until the first cohort of students starts paying it forward. How will this money be generated? Salon, one of a number of publications to praise PIF, notes that at the same time the plan was being hatched:

As luck would have it, Oregon Treasurer Ted Wheeler was concurrently pushing a proposal called the Oregon Opportunity Initiative. This would employ bonds to provide grants for low-income college students, using the financial instrument to allow for government investment in human infrastructure in addition to physical infrastructure. With that in place, the Treasurer could also float bonds to kick start the Pay It Forward program, and eventually pay off the bonds as more and more students enter the system.

We wonder if residents of Oregon should really feel “lucky” that their state treasurer was designing a program to allow banks to fund the education of low-income students at the very time PIF was first announced. Wouldn’t it be paradoxical for Oregon legislators to turn to Wall Street to fund a “debt-free” program?

If this is the chosen path, the state will likely be trading student debt for public debt. Bond issuers do not provide their services for free. Funding education via an influx of Wall Street cash will put Oregon further in debt to financiers. Tuition dollars or tax revenues can be used as collateral to secure these funds, which means that either tuition is likely to rise or the public is likely to be further exploited by Wall Street. Bob Meister, council president of the UC Faculty Associations, has explained how the University of California operates in this way. The capacity to raise tuition encourages spending on massive construction projects (like Matthew Knight Arena in Eugene, OR) rather than a higher quality and more affordable education. Steadily rising tuition (or, in the case of PIF, the yearly fee amount) guarantees a good credit rating from Moody’s and other agencies. Indeed, Moody’s recently suggested that the credit ratings of universities would be threatened if administrators did not maintain their power to raise tuition indefinitely.

Could a PIF model lead to further cuts in state funding?

There are other ways in which the Oregon plan, far from cutting out the banks, could function as a Trojan Horse, allowing them to snag an even more lucrative role in the education business. If widely adopted as a model, PIF might well be used to absolve legislators in other states of any responsibility for public support of colleges. Income-based repayment plans could supplant existing programs that encourage wider access to education, replacing them with a one-size-fits-all model that could end up hindering access for underserved communities. Why should politicians vote to fund public higher education when students’ paychecks can be garnished for that purpose? At the very least, legislators could use the model to push off funding questions to the future while turning to financiers for the funding needed in the present. Wall Street has proven more than willing to keep states dependent on them by gaming this dynamic.

What effect might PIF have on the most vulnerable students?

Many commentators on the PIF plan conclude that it will draw most of its funding from the graduates who are most equipped to pay. This is, at best, a partial truth. A flat tax on all graduates is, in itself, a regressive tax. A flat tax that excludes students who can afford to go to private universities is all the more regressive. And while a PIF funding model may initially make it possible for more low-income students to enroll in college, we wonder if the prospect of having their income garnished for over two decades will deter as many students as it attracts.

Moreover, as Dylan Matthews points out, many students who expect to be high earners will avoid the system, judging that a more conventional borrowing plan or a private school or an out-of-state school would cost them less. Alternately, they may well leave the state after graduation, evading collection schemes or rendering collection costs a drag on the system. In their absence, the costs of funding PIF would require either increased cost for lower-income students, deeper reliance on bond issuances, or further cuts in services. Public universities might try to attract higher income students in other ways: by replacing, for instance, programs like Art or Music that don’t produce high revenues with those that are perceived as having a greater economic value.

Could PIF stand in the way of the deeper change we so desperately need?

The activists and students behind PIF did not push legislators to consider full public funding for the state’s colleges and universities. They thought such a proposal would get nowhere. And given the narrowness of the reformist framework, it’s hard to blame them for thinking as much. When our imaginations are thus impinged, any restructuring that seems to alleviate the pain of the indebted feels like a move in the right direction.

Yet we worry that any program that reinforces the principle of individual fiscal responsibility for public services makes it all the more difficult to treat education as, what the American Federation of Teachers calls, “a public good which brings economic and civic benefits to all the community.” PIF could accelerate the replacement of publicly funded goods with a lifetime of indebtedness that the wealthiest can easily escape. Income-based repayment plans were first proposed by Milton Friedman in the 1950s. In fact, PIF is essentially a larger scale, state-run version of “human capital” programs like “Upstart” and CommonBond, the company that counts Vikram S. Pandit as an investor. As mentioned above, such investment vehicles allow wealthy entrepreneurs to claim a percentage of individual students’ future incomes in exchange for upfront tuition payments. PIF takes this idea and modifies it into a kind of mutual fund.

Furthermore, we disagree with the suggestion, made by the Working Families Party, that PIF is comparable to social security. Being run by the state does not in itself make a program a public good. It’s more instructive to compare PIF to the Affordable Care Act, which expands the private healthcare market and guarantees profits to health insurance companies while doing little to address individualized debt burdens.

Considering the dramatic reductions in funding to public education, a program that requires individual students to fund universities out of their paychecks for decades normalizes the idea that education is a personal responsibility. Such a proposal is perfectly compatible with the Wall Street-led restructuring of the economy that has already turned most of us into lifetime debtors. Furthermore, as we mentioned above, students and families are pushing back against the assault on public education. An insurgency of student debtors is on the rise. Politicians and lenders have clearly taken notice. Our biggest apprehension is that progressives will see PIF as a major victory and that it will satisfy those desperately trying to remedy the injustices of higher education funding rather than further galvanizing them.

Truly tuition free public higher education is an achievable goal and a democratic right.  We also need a radical rethinking of what society owes to current student debtors. A restructuring of education funding must include erasing the $1.2 trillion in illegitimate student debts that are already on the books. Free college and student debt cancellation will not be given by politicians without the backing of a social movement that may ultimately have to make its point through a massive refusal to pay illegitimate student debts. We believe that such a refusal is just and justified. Indeed, it may be the only democratic response in a society that is fast becoming ruled by the creditor class.

Like the idea that there is no alternative to capitalism, the neoliberal “solution” to the student debt nightmare deserves to be thoroughly discredited. Free education and a jubilee of all student debt is possible and making it a reality is a goal worth fighting for.