Oregon’s “Pay It Forward” idea spreading to more states!

Hallelujah! A good idea can sometimes survive the inevitable bullshit storm deployed to destroy it and thrive despite it. As many as a dozen state legislatures may consider different forms of the Oregon proposal to allow students to go to school tuition free and then pay a small, set proportion of their earnings after college back to the state to go into a fund to pay for other students tuition. I’ve written about Oregon’s process on this a couple of times. 

In the months since Oregon passed the bill, Burbank says he’s heard from at least half a dozen states—including California, Maine, Maryland, and New Jersey (which just established a commission to study it)—that are intrigued by Pay-it-Forward. Larry Seaquist, a Democrat, a state representative in Washington state wants to implement a version of the plan faster than Oregon’s. Lawmakers in states that don’t have a recent history of progressive innovation—Pennsylvania, Colorado, Ohio—have expressed interest in Pay-it-Forward and many are working on bills. 

There are critics who cite the fact that tuition is only 40% of the cost of going to a four year school for some students. Also, warnings that this shouldn’t erode support for need-based financial aid, or Pell Grants and other financial aid.

There is a good case to make that need-based aid should be maintained even if states transition to Pay-it-Forward: Students starting college from a low-income home will still struggle more than their middle-income peers after graduation—relying on intergenerational wealth as they transition into adulthood isn’t an option. 

Even Dembrow—the sponsor of the Oregon legislation—was cautious about how much promise the idea has. “I don’t think it was ever seen as the solution,” Dembrow, says. “I think it was seen as a solution, and a solution to be explored … We’re obviously not going to do this if, after careful study, it doesn’t pencil out.”

Don’t let the perfect be the enemy of the good. No plan to help such a fucked up system is going to be perfect. But my friend with $150K in student debt would have loved to have this plan as an option.

Student loan legislation going, how you imagine it would.

So I wrote back on May 11th about Sen. Warren’s no-brainer proposal to head off oncoming increases in federal student loan interest rates by allowing students to borrow money at the same rates as banks.  As of July 1st, without some intervention the rates will double from 3.4% to 6.8%.

So what do the Republicans in the House do?  Propose a law that potentially actually jacks up the rates.  John Kline (R-MN) introduced a bill that links the rates to the rate of U.S. borrowing, or a “market-based” approach. (Head smack) Yeah, markets. Great.

Kline’s bill would replace the current fixed interest rate system with rates based on the yield of the 10-year Treasury Note, which was 1.97 percent as of Monday. Kline’s bill would tack on:

  • 2.5 percent for subsidized and unsubsidized Stafford Loans, with a cap at 8.5 percent (current rates are 3.4 percent and 6.8 percent respectively);
  • And 4.5 percent for graduate and Parent PLUS loans, capped at 10.5 percent (the current rate is 7.9 percent).

The rate borrowers pay would vary year to year, but students would have the option of consolidating their loans and locking in a fixed rate after graduation.

Are they kidding?  No, they never are.

Important News on Discharging Student Loan Debts in Bankruptcy

Now don’t go running off to file bankruptcy, but…

Student loan debt is exploding but is virtually impossible to get discharged in bankruptcy. But a case in the 7th Circuit may have made some progress on this issue. The problem is that the standard for discharge has been the so-called “Brunner Test,” which requires:

  1. The debtor cannot maintain, based on current income and expenses, a minimal standard of living for the debtor and dependents if forced to pay off student loans;

  2. Additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and

  3. The debtor has made good faith efforts to repay the loans.

In a case (Susan M. Krieger v. Educational Credit Management Corp, 7th Cir., 2013) that went to the 7th Circuit, they found that the Brunner Test was too harsh and that like any debt the test should be an “undue hardship” rather than the difficult standard of Brunner. On April 10, 2013, the Seventh Circuit reversed the District Court decision and reinstated that of the Bankruptcy Court that ruled in Krieger’s favor.  

Susan Krieger was a destitute 53 year old who had spent 11 years paying off loans taken out to take paralegal courses. She never found work as a paralegal and had quite little income or prospects. The Bankruptcy Court found that her student loan should be discharged. The District Court used Brunner to reverse. But the 7th Circuit took a more sympathetic view. 

If you have excessive student debt this case could be a step forward to help.

http://boeinglaw.com/7th-circuit-relaxes-requirements-on-discharging-student-loans-in-bankruptcy/

The Chief Justice’s opinion:

http://indianalawblog.com/archives/2013/04/ind_decisions_7_619.html