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Michigan’s plan to decrease student debt may cost students more

By web

Section: News

March 28, 2014

Legislators in Michigan have proposed a “pay it forward” bill that aims to decrease the burgeoning educational debt that students face. House Bill Number 5315, also known as Smarter Michigan and Retaining Talent Program (SMART), is a tuition grant program that would allow Michigan residents to attend state community colleges and universities tuition-free before being required to pay back an interest-free percentage of their yearly gross adjusted income (GDI).

SMART would allow Michigan residents to attend in-state public community colleges or universities while receiving free tuition, books and required academic fees. For every year of taking part in the program, a student will have to pay a percentage of their income for five years after graduation or disenrollment. Community college students would need to pay two percent of their income each year, while university students would pay four percent per year. Additionally, these students would be able to take part in the program for a maximum three years and university students for five years. Students in this program will be required to have a 2.5 grade point average and are ineligible if their marks dip below this benchmark for more than one term or semester. Only those whose household incomes are below $250,000 can apply. Participation in the program will be optional.

Students will contribute a portion of their income beginning in the first calendar year that they obtain employment after graduation or cease attending the college as long as their income is above the federal poverty level. The state treasury department would be tasked with tracking students’ payments and verifying their income. The funds gained through the program would go toward paying for future students’ tuitions.

The bill was proposed to the Michigan State Legislature on Feb. 12 by Democrats David Knezek and Theresa Abed of the State House of Representatives and Jim Ananich of the State Senate. All three of these politicians graduated from public universities in Michigan as state residents. The proposal will need approval by the state legislature before the $2-million tentative pilot program is put into place. The proposed bill calls for an initial program to take place that would include 100 eligible community college students and 100 eligible university students. Legislators hope to receive most of this preliminary money from federal funding.

In stating the purpose of the program, Knezek told The Detroit Free Press, “The goal is to remove every financial barrier to high[er] education. We’ve increasingly placed the financial burden of college on the backs of the students. This is a no-interest plan that allows you to pay back as you go and as you can afford it.”

John Burbank, executive director of the Economic Opportunity Institute furthered Knezek’s call to action saying, “with disinvestment in higher education by states, there’s tremendous financial pressure on students. When they take out large loans, trying to pay them off can really hurt their ability to do other things,” according to U.S.A. Today.

Some experts believe that the pay-it-forward bill is not a solution. One issue that the state would have to deal with is how the universities would operate early-on during the program before students are able to pay a large enough portion of the tuition back. A more impactful caveat of the plan is that students will be required to return a consistent percentage of their income even if they have already paid back the cost of tuition. Susan M. Dynarski, professor of public policy at the University of Michigan, believes that the state’s plan is unsustainable and would deter students with high aspirations.

“As a result, those who expect to earn a lot won’t participate. If the future starving artists flood into pay it forward and the future engineers shun it, the program will spiral into insolvency. An easy fix is to denominate debt in dollars rather than years. When a borrower finishes paying off her loan, she stops paying it,” said Dynarski according to The Detroit Free Press.

Dynarski’s adjusted plan calls for students to pay interest on the loan, but “if a borrower instead runs into hard times and still owes money after 25 years, the balance will be forgiven.”

Nearly 20 states are looking into a program similar to Michigan’s approach. Most states are merely in the process of studying the viability of the program, and Oregon is further than most. An idea that began at a senior capstone course at Portland State University has been reported to Oregon’s Higher Education Coordinating Commission about testing a program with newly admitted college students in the 2016-2017 academic year. The group has expanded to include a representative of the state treasury and financial aid agency, financial aid experts and a local college affordability researcher. Limitations similar to Michigan’s plan have been pointed out in Oregon’s program as well.

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