Free college is still a potent rallying cry for the stalwart Bernie Sanders youth. Hope for debt-free education ought to be wilting along with Sanders’ campaign—and yet, not unlike the delusional conviction of the socialist senator’s young devotees, it has yet to fade.
For all the histrionics of campus grievance culture, many college kids face a remarkably grown-up problem: crushing debt. As long as rising tuition costs and federally (mis)managed college loans take their toll, railing hard against student debt will remain a political necessity. Tuition costs at public and private colleges and universities continue to rise, unmitigated by the 2010 federal takeover of the student loan market in the midst of the great recession and the failure of federal reforms. Hence the $1.2 trillion college loan “crisis” every candidate had to address.
It’s key to Sanders’s support among millennials, and Hillary has been running to catch up. Minus Sanders’ $75 billion per year promise of free in-state tuition at public schools, their proposals match: Both advocate refinancing and relieving existing debts and reducing interest rates on student loans. Clinton’s comparatively moderate student debt policy positions are in fact so close to Sanders’ that her own family mixes up their platforms.
At his June 9 rally in Washington, Sanders hit the problem of college debt and continued to promise free college, shouting that debt-free education is a human right. His young supporters weighed in: Rob, who’s got a free ride to UChicago in the fall, and Jessica, in debt from a two-year program she never finished, think of Bernie as a rockstar, but their support stems from the same issue that’s got so much of their generation to sit up. “I have so many friends who are not getting the deal that I’m getting,” Rob told me—of Jessica, “She’s not getting the deal that I’m getting. She dropped out of community college… You shouldn’t have to need college.”
Neither will likely waver in their ardor for Sanders, but many of the candidate’s supporters hope for practical reforms (at least as an intermediary step toward the final revolution and new world order). Student loan activist Alan Collinge, for one, came to the rally carrying a hand-painted sign—Student Loan Justice Now! He acknowledged Bernie Sanders’ free college proposals are “duplicitous, because while tuition may go to zero under the plans, schools will quite frankly have carte blanche to raise their other billable items, like dormitory items, et cetera.” But he’s grateful for the national attention to student loans’ lack of consumer protections and to the extent of loans’ worsening under Barack Obama.
A new Manhattan Institute study by Max Eden illustrates how candidates’ proposals and federal solutions have managed to miss the real problem: Reforms proposed by Clinton and Sanders, some of which the Obama administration has already partially enacted, help wealthier families send their kids to the most expensive schools and leave students whose families can’t cover even a sliver of in-state tuition to make the difference with high-interest private loans. Private lenders offer more money but at much higher interest rates.
Free in-state tuition falls victim to the same ironic set-up: It’s good for the rich, bad for the poor. Sanders’s proposal depends on a naive faith that families who can afford to will pay more to private universities—when in reality, more and more spots at “free” state schools would go to the children of whiter, wealthier families shelling out big bucks for inflated room and board. Free college could bankrupt the states and would only widen the achievement gap, as Eden’s paper points out:
Eden also argues that the worst suffering victims of the college debt curse are not graduates but dropouts—those, like Jessica, who went back to school in the midst of the recession, didn’t finish their degrees and never earned enough to pay back their loans. Dropouts from low quality two-year programs or private for-profit universities, like the crumbled Corinthian Colleges, are particularly doomed. And who’s to blame? The sketchy for-profit institutions for taking these poor souls’ (federally loaned) money in the first place, apparently.
On June 13th, the U.S. Department of Education proposed washing its hands of the whole mess. As Politico reported, the administration “unveiled a sweeping 530-page proposed regulation that sets new standards for student loan debt relief, bans mandatory arbitration agreements, and gives the Education Department new tools to crack down on financially-troubled colleges.”
Included in the regulation package: a plan to cancel all debts on federal loans to attend for-profit colleges. But the administration’s not just sticking up for indebted dropouts. Obama’s DOE has fought federalism and private enterprise from day one. The federal takeover of student loans, unpopular with colleges and students alike, meant a quick fix for Obamacare appropriations and an epic win for the president’s agenda. And since then, in addition to targeting shady for-profit schools, the administration has begun to offer a handful of experimental income-based repayment (IBR) plans as a step toward reforming the trillion-dollar debt crisis it wrought.
Federal IBR is a watered-down version of the reforms former congressman Tom Petri (R-WI) proposed to make income-based repayment the default plan for all students. IBR, unlike the standard slate of federal loans currently available, lets borrowers pay back their loans at a rate determined by how much they earn. One key difference between Petri’s original proposals and the government’s passing nod to reform is that the current federal IBR plans, despite their expansion in 2015, comprise only a small fraction of the federal student loan structure. And while Petri’s plan charges no interest, government IBRs only charge more interest as struggling borrowers stretch out their repayment.
Hoards of Sanders supporters will tell you it’s all because the greedy government loves to turn a profit on the backs of poor students. And yet, in a carefully executed income-based system, profiting on the backs of poor students works in their fiscal favor—naturally, it works best if they don’t stay poor too long. In an effective income-based system, profits earned on the most successful graduates pick up the slack for lower-earning classmates and reward investors—yes, investors. Lower-earning classmates pay back less, and no interest, in the long term, while profits from the highest-earning alumni keep the repayment system chugging along. Pitch Petri’s moderate repayment plan to the Sanders youth, underlining the “zero interest” clause, and they can’t argue.
Abigail, a recent college graduate who came to the June 9 Sanders rally with the Baltimore transit workers union, wants a new workers’ party to take up the Bernie banner—and wants relief from her tens of thousands of dollars in student loan debt: “The excitement of getting into college kind of clouded my ability to know I’d be in lifelong debt because of it… Our generation is screwed. People our age got into college right at the end of the recession, and I think we’re wounded from that. Not mention, it’s really hard to find a good paying job right out of college.” When I pitched her a privately maintained income-based repayment system, she balked at first—citing the 6.7 percent interest collected under the draconian federal version of IBR. For many borrowers, expansion of these programs is all that the “refinancing” Hillary Clinton champions would ever amount to, hence Sanders supporters’ cynicism. “No interest?” Abigail was taken aback, “I’m fine with that!”
The purest version of the income-based repayment plan currently in practice, the income share agreement (ISA) at Indiana’s Purdue University, really does work. Purdue president and Republican former governor of Indiana Mitch Daniels froze tuition for the fifth year in a row this April. Bucking inflation elsewhere, Ohio State University, University of Washington and University of Missouri have recently installed in-state tuition freezes and cutbacks of their own—the argument being that the best form of student aid is a lower tuition bill.
But there’s more to Purdue’s plan than belt-tightening. Undergraduates who need financial aid automatically receive funding from a private foundation that “backs” undergraduates through income sharing “under which a student contracts to pay investors a fixed percentage of his or her earnings for an agreed number of years after graduation,” in Daniels’ own words. Investors and hardworking ISA alumni foot the bill for current students, who will pay back into the fund once they’re working. Repayment takes a set number of years at a scale and amount determined by the student’s chosen major—how much they’re likely to make. The monthly repayment amount is greater for an engineering major than a religious studies major, but a religious studies major is likely to pay a higher percentage of their income.
And if the religious studies major—or the engineer, for that matter—isn’t earning enough, or anything at all?
“If the graduate earns less than expected,” Daniels wrote in a Washington Post op-ed last year, “it is the investors who are disappointed; if the student decides to go off to find himself in Nepal instead of working, the loss is entirely on the funding providers.” It’s an overhaul of a soul-crushing federal system set up to feed on and inspire work ethic, gratitude, and a sense of school spirit.
Whether income-based repayments like Petri’s partially adopted proposal and Purdue’s ISA become the national norm—as a bill introduced in the House last summer would have it—or quietly continue to lead the way in state-school-by-state-school reforms, they’ve set a promising precedent for working solutions to a trumped-up catastrophe. And if systematic reforms like Purdue’s continue to prove effective, as the phantom of “free college” fades in the rearview, we’ll start to see growing student debt for what it is—needlessly politicized and overdue for an uncomplicated response.
