Hillary Clinton’s plan to fix the federal student loan system doesn’t make sense, according to analysis published by the Brookings Institution.
As president, Clinton says she would attempt to cut interest rates on student loans, citing concerns that the federal government earns a profit off student loans. “For future undergraduates we will significantly cut interest rates so they reflect the government’s low cost of lending … so the government never profits when students borrow,” Clinton’s plan says. It’s important to note that she focuses on cutting interest rates only for undergraduates, but says nothing about federal loans for graduate students or parents of undergraduates.
“By Clinton’s rationale, she has targeted the wrong loans,” writes Jason Delisle, director of New America’s Federal Education Budget Project. During the first term of the next president, undergraduate student loans are expected to cost the federal government $7.7 billion. In contrast, the graduate and parent loans will bring in $36 billion on net. Simply put: Clinton targets undergraduate loans, but it’s graduate and parent loans where the government is making a profit.
That puts Clinton in an awkward fix. “To be consistent with her rationale of eliminating government profits, Clinton could propose rate cuts for future graduate students and parent loans instead, but that’s not really a ‘college’ affordability policy if it mostly helps graduate students, nor is it targeted at low-income families putting kids through college given the profile of parent borrowers,” Delisle writes. The necessary rate cuts would bring graduate and parent loan interest rates below undergraduate rates.
Delisle says a student loan system based on income-based repayment would do better than Clinton’s plan. He prefers the plan Jeb Bush had during his presidential campaign to give students access to up to $50,000 of college or graduate school financing. To pay back the loans, borrowers would repay a low share of their income — no more than five percent, depending on how much financing they used.
Delisle says this could be designed to ensure the government doesn’t profit of its loans. Furthermore, it would be simpler and easier for borrowers than the current system, because repayments would be done through income tax withholding.
“The Bush plan does not charge interest, so there is no need to set different rates based on the type of borrower,” Delisle writes. “Moving to an entirely income-based repayment plan is a better way to promote college access and lower loan burdens than Clinton’s plan to target interest rate cuts to undergraduates.”
Jason Russell is a commentary writer for the Washington Examiner.
