A proposed program—in which each year of paid public service would cancel one year of college expense—could lift the burden of debt from graduates while supplying capable workers to municipalities and nonprofits.Student loans ; College costs

Elizabeth Warren

Ganesh Sitaraman

Sandy Baum

English

Research Papers in Economics

mericans are a contentious lot. They express an astonishing variety of opinions about 
politics and religion, sports teams and movies, vitamin supplements and workplace dress
codes. Differences on questions of social class, the acceptable level of economic inequality, and the
importance of economic mobility are particularly sharp. But on one idea we are united: 97 percent
of Americans agree that a college degree is “absolutely necessary” or “helpful” to secure
a place in the middle class.1 In fact, Americans see a college degree as the single most important
determinant of a young person’s chances of success, the ticket for admission to the middle class.
A Ticket to the Middle Class:
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Winter  2007 6
Work ng Off 
College Debt
by Elizabeth Warren, Sandy Baum, and Ganesh SitaramanBut it is becoming harder than ever
for families to pay for that ticket. And
as students increasingly try to 
shoulder the burden, many are graduat-
ing deep in debt—tempering the good
news of higher earning potential with 
the higher risks associated with debt.
Many others, including almost 20 per-
cent of low-income high school gradu-
ates with high math test scores, do not
manage to enroll in college at all within
two years of graduation.2
If college is the ticket to the middle
class, then a new financing mechanism is
essential, one that lets students take
responsibility for the cost of their own
educations without burdening their fam-
ilies unduly, forcing them to make career
choices that push them out of public
service, or mortgaging their  futures. Our
Service Pays proposal is designed to give
every student who wants to work hard an
option to pay for college. 
Aid Rises a Little;
Costs Rise a Lot 
Tuition and room and board now cost
more than $12,000 a year at the aver-
age public university.3 Throw in books
and a few other basics, and the bill
pushes $16,000. To pay that, the aver-
age U.S. family of four not receiving
grant aid would have to commit 25
percent of its total pretax income.4
A private education is even more
expensive, averaging almost $30,000 a
year for tuition, fees, and room and
board. Even though grant aid is avail-
able to the majority of students, many
pay a high price for the opportunity to
study in these institutions, often more
than $100,000 by graduation. Despite
the cost, some students need the choic-
es private colleges often offer in terms
of size, admissions standards, fields of
study, religious affiliations, or geogra-
phy. Less expensive state schools may
therefore not be an option. 
The numbers keep getting worse.
After adjusting for inflation, in-state
tuition and fees at the average state uni-
versity have doubled in 15 years.5 In
fact, the price of college has grown
twice as fast as the price of health care. 
Grants and scholarships once were
reserved for the poorest students, but
today almost two-thirds of all full-time
undergraduates receive them. Even so,
this aid is insufficient to close the grow-
ing gap between price and family abili-
ty to pay. As charges at the average pub-
lic four-year college grew by almost
$5,000 over the decade from 1994 to
2004, grant aid per student grew by
only half that.6 So students and fami-
lies have increasingly turned to loans.
More than 60 percent of public college
graduates and nearly 75 percent of pri-
vate college graduates have taken on
debt to pay for college. The median
debt load for public college graduates
who borrow is $15,500; for students
from private colleges, $19,400.
Although federal education loans top
$60 billion, they cannot meet demand,
and students are taking private loans
with less favorable terms—now about
18 percent of total education debt. 
An estimated 20 percent to 30 per-
cent of college students have debt 
burdens so large that they are difficult to
manage.7 Students who choose public
service or other low-paying careers, who
come from low- and moderate-income
families, or whose education does not
open the anticipated opportunities
often begin their adult lives with debts
that completely outstrip their earning
potential, creating a financial hole from
which they may never escape.
For years, policymakers have wor-
ried about how to make college accessi-
ble to the poor. Today the middle class
is worried, too. Denise Robinson, a
Texas schoolteacher, describes putting
her daughter through college: “You
don’t make enough that you’re [rich],
but you don’t qualify for financial 
aid. We were probably out at least
$100,000.”8
Making College 
Affordable for All
College students can shoulder educa-
tional costs if they are assured of
opportunities to repay loans. A pro-
gram that features four years of loans,
followed by four years of public service
to forgive those loans, would be such
an opportunity. It would significantly
diminish the burden of education debt
and keep open the option of public
service and other lower-paying but
interesting jobs for grads. 
• The federal government would
increase the amount students can
borrow in the unsubsidized Stafford
loan program, offering money for
four years of college tuition, fees, and
room and board to any student who
wants it, on the same terms as current
student loans.9 Under Service Pays,
students who work in community
service after college would be forgiv-
en one year of college expenses for
each year of public service work. 
• College loan forgiveness would be
available to anyone graduating from
any two-year or four-year accredited
school, public or private. 
• The dollar amounts of the available
loans would be pegged to average
prices at public four-year colleges and
universities. Students would have
four years to work off those loans. 
• Any student, regardless of family
income, could borrow the money, but
the debts would have to be repaid by
ordinary loan repayment or through
community service.
With Service Pays, typical stu-
dents would begin adult life debt-free
at 26 with a college diploma and four
years of work experience. Students
could buy their own tickets to the 
middle class. 
Serving the Country
The community service aspect of
Service Pays is as important as access to
a diploma. America has critical needs 
in national preparedness, community
infrastructure, and education. Many
& Banking Communities 7
The Service Pays
proposal is 
designed to give
every student who 
wants to work hard 
an option to 
pay for college.young people would like to do public
service, but the low pay combined with
college debts often makes it impossible.
Service Pays would open new avenues.
Service at Home. Community service
workers could be assigned to the states
to work in public schools, run after-
school tutoring programs, clean up
public buildings and parks, rebuild
roads and bridges, improve the envi-
ronment, computerize state adminis-
trative systems, assist municipal police
and firefighters in administrative 
functions, and organize communities
to reduce crime and develop the local
economy. Students who work
for nonprofits such as Habitat for
Humanity or Teach for America would
also be eligible.10 For each year of
community service after college, one
year of loans would be forgiven. 
Military Service. Active-duty service
would qualify for loan forgiveness.
Each year of active-duty service would
offset one year of loans. Eight years of
reserve service plus six months of active
service would translate to four years of
loan forgiveness.
International Service. The U.S.
Foreign Service, an expanded Peace
Corps, and an international aid corps
(to address emergencies such as
tsunamis) would also qualify for loan
forgiveness. Each year of service would
result in one year of loan forgiveness. 
Service Pays would reduce the
impact of Baby Boomer retirements
from government and could help
strengthen community spirit, promote
patriotism and service, and improve
perceptions of America abroad. 
Service-based debt-forgiveness
programs that already exist are limited.
At AmeriCorps, for example, loans
may be forgiven only up to $4,720 per
year. Service Pays can build on past
successes by expanding educational
benefits and directing more energy
toward national challenges.11
Costs
What are the costs? We begin with one
central idea: educating our young peo-
ple will pay off. The GI Bill helped 
2.2 million returning  World  War II 
soldiers become engineers, scientists,
entrepreneurs, and business leaders,
fueling the economy and raising the
standard of living.12  It cost $7 billion
(about $240 billion in today’s dol-
lars).13  For every dollar invested,
however, about $5 were returned over 
35 years in higher productivity and 
tax revenues.14  
The country would derive similar
returns from Service Pays—the services
themselves plus increased tax revenue.
The average college graduate pays over
$5,000 more each year in total taxes
than a high school graduate.15 It is
short-sighted to lose long-term benefits
by failing to make higher education
financially accessible. 
In the current school year, 
students will receive 1.5 million bache-
lor’s degrees and 680,000 associate
degrees. Roughly two-thirds of the
bachelor’s students and half of the 
Winter  2007 8
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master’s students will graduate with
debt. If 10 percent participated in the
Service Pays program and paid off their
entire student debt, the cost of forgiv-
ing their loans would be about $3 bil-
lion. This cost would be borne by tax-
payers as an investment in our future.16
Some jobs created for the students
would be compensated by the federal
government; others would be paid with
state or local government funds or by
the nonprofit organizations that
employ the students. Jobs would be
entry level, with corresponding wages
and benefits. Some of the federal posi-
tions would be in the military, but
those costs would not be attributable
to the Service Pays program. Funding
for the Foreign Service and the Peace
Corps would be driven by policy deci-
sions. The possible combinations of
opportunities make cost estimates dif-
ficult, but a federal investment of $500
million could support 25,000 gradu-
ates at $20,000 each.
For state and local governments
there would be the cost of moving an
influx of college graduates into public
service jobs. Although some federal 
support might help create the new 
jobs, the principal burden should be
borne by the organizations—whether
states or nonprofits—that benefit from
the workers. The states could consider
in-kind payment as well, such as hous-
ing in unused college dormitory space,
surplus housing at closed military
bases—or for environmental projects,
some on-site housing.
At a time when some state budgets
are under sharp fiscal constraints,
absorbing new, short-term workers
could be difficult. But states recognize
the long-term benefits to the local econ-
omy of a talented workforce. In effect,
Service Pays would ask the states to
decide if they wanted to recruit college
graduates to put down roots in state; if
some states did not participate, others
might expand their job offerings.
A well-educated workforce is our best
hope to grow the economy, remain
competitive internationally, and fund
government needs for health care and
retirement. We are living through a
time of big challenges. And big chal-
lenges call for big solutions.
Elizabeth Warren is the Leo Gottlieb
Professor of Law at the Harvard Law
School. Sandy Baum is a professor of
economics at Skidmore College and a
senior policy analyst for the College
Board. Ganesh Sitaraman is co-author
of the 2003 book Invisible Citizens:
Youth Politics after September 11.
Endnotes
1 John Immerwahr and Tony Foleno, Center
for Public Policy and Higher Education, Great
Expectations: How the Public and Parents—White,
African American, and Hispanic—View Higher
Education (Washington, DC: Public Agenda,
May 2000), table 1.
2 David Ellwood and Thomas Kane, “Who Is
Getting a College Education? Family
Background and the Growing Gaps in
Enrollment,” in Securing the Future, eds. S.
Danziger and J. Waldfogel (New York: Russell
Sage, 2000). See also Sandy Baum and Kathleen
Payea,  Education Pays: The Benefits of Higher
Education for Individuals and Society, 2004 (New
York: The College Board, 2004). 
3 Trends in College Pricing (New York: The
College Board, 2005). 
4 Bureau of the Census, “Median Income for
Four-Person Families by State,” http://www.
census.gov/hhes/income/4person.html.
5 U.S. Department of Education, National
Center for Education Statistics, Digest of
Education Statistics, 1999, table 312,
http://nces.ed.gov/programs/digest/d05/tables/d
t05_312.asp.
6 Trends in College Pricing, 2004 and Trends 
in Student Aid, 2005 (New York: The College
Board).
7 Sandy Baum and Marie O’Malley, College on
Credit (Washington, D.C.: Nellie Mae, 2003).
8 Elizabeth Warren and Amelia Tyagi, The
Two-Income Trap: Why Middle Class Mothers and
Fathers Are Going Broke (New York: Basic Books,
2003), 42.
9 Qualifying students would remain eligible
for subsidized loans, which could also be paid off
through the program. Loans that parents take
under the PLUS program to pay for students
could be paid off this way.
10Nonprofits adopt the same standards as
AmeriCorps: “direct service activities must
address local environmental, educational, public
safety (including disaster preparedness and
response), or other human needs.” 
11 The National Security Education Program,
for example, provides scholarships for a summer
($8,000), semester ($10,000), or year ($20,000)
for students to study abroad in regions critical to
U.S.national security. Award recipients must
spend one year serving in a federal department or
agency related to national security (State,
Defense, Homeland Security, Intelligence). In
2005 to 2006, about 130 students received the
scholarships.
12 Suzanne Mettler, “The Creation of the GI
Bill of Rights of 1944: Melding Social and
Participatory Citizenship Ideals,” The Journal of
Policy History (October 2005): 345.
13 Samuel H. Williamson, “What Is Its
Relative Value? Five Ways to Compare the Worth
of a United States Dollar, 1790-2005,”
Economic History Services, http://eh.net/
hmit/compare. The value is calculated as a rela-
tive share of GDP.
14 Subcommittee on Education and Health of
the Joint Economic Committee, “A Cost-Benefit
Analysis of Government Investment in Post-
Secondary Education under the World War II GI
Bill,” December 14, 1988, in The Future of Head
Start (Washington, D.C.: Government Printing
Office, 1990).
15 Education Pays Update, 2005 (New York:
The College Board, 2005).
16 Service Pays would change the incentive
structure in the student loan program in a vari-
ety of ways that would require careful analysis.
Some observers suggest that the increased avail-
ability of student loans fuels increases in college
prices. However, most empirical analyses fail to
find such an effect. See, for example,
Cunningham et al, Study of College Costs and
Prices 1988-89 to 1997-98 (Washington, D.C.:
National Center for Education Statistics, 
2002): 157.   
A well-educated 
workforce is our 
best hope to grow 
the economy.
uThis Communities & Banking article is copyrighted by the Federal Reserve Bank of Boston. The views expressed are 
not necessarily those of  the Bank or the Federal Reserve System. Copies of articles may be downloaded without cost at
www.bos.frb.org/commdev/c&b/index.htm.

A ticket to the middle class: working off college debt

http://www.bostonfed.org/commdev/c&b/2007/winter/collegedebt.pdf

A ticket to the middle class: working off college debt

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