Prompted by Senator Bernie Sanders, presidential candidate Hillary Clinton made two promises to student-loan debtors. First, if she is elected President, all Americans with a family income of $125,000 or less will be able to get a college education for free from a public institution. Second, if elected, Hillary will slash interest rates on student loans.
These are both good ideas, and I endorse them wholeheartedly. But even if Hillary gets elected and keeps these promises, the student-loan crisis will still be one hot mess.
A Free College Education for Families of Modest Means: A good idea
Hillary has promised a free college education at a public institution for everyone whose family income is $125,000 or less. How much would that cost?
Catharine Hill, president of Vassar College, estimated that Bernie Sander's free-college plan would cost about $70 billion a year. The Clinton campaign estimates that her plan will cost less---about $50 billion a year.
Currently, the federal government gives out around $100 billion a year in student loans, and roughly a third of this money goes to for-profit colleges and private institutions. So if the government replaced $50 billion in loans with grants in the same amount, that would go a long way toward giving middle-class families access to a free college education at a public university.
But Clinton's plan faces major hurdles. First, it will require Congressional approval from a Republican Congress, which seems unlikely. Second, Hillary's plans calls for state governments to contribute one third of the cost, and that assumption may not be realistic.
But let's assume Hillary gets this plan through. We still have a huge problem. Millions of Americans will still have massive student-loan debt totally $1.3 trillion, and free college for future students will do nothing to relieve them of their suffering. People are having their wages garnished, their Social Security checks dunned, and their income-tax returns seized. Honest people who deserve bankruptcy relief are prohibited by law from getting it.
So if Hillary implements her free college plan she must do something to help the millions of people who are suffering from massive student-loan debt. In my view, she must push for bankruptcy reform that will permit honest but unfortunate student-loan debtors to shed their oppressive student-loan debts. And she should also endorse loan forgiveness for everyone who took out loans to attend an overpriced for-profit college and received no economic benefit from the experience.
Lowering Interest Rates On Student Loans: Another good idea
Hillary also promises to slash interest rates on student loans if she is elected President, and she has called for a 90-day moratorium on student-loan payments to allow borrowers to refinance their debt. Ag ood idea.
Interest rates on student loans, currently around 4 percent, seem too high when ten-year treasury bonds are going for 1.7 percent. Lowering those rates will give student-loan debtors some relief.
But again, refinancing student loans won't relieve the massive suffering people are experiencing right now. Millions have seen their loan balances grow larger because they obtained economic-hardship deferments that caused unpaid interest to pile up. Others defaulted on their loans, and the loan guaranty companies slapped an 18.5 percent penalty to their loan balance. As a result, many people now owe two or even three times what they borrowed due to accruing interest, penalties, and collection fees.
A two percent interest rate on a $50,000 debt is certainly better than an 8 percent rate, but Hillary must stop the student-loan guaranty companies from imposing unreasonable costs and penalties to borrowers' loan balances. After all, the loan guarantee companies are supposedly charitable organizations, but four of them have each accumulated $1 billion in assets--most of acquired from their debt collection activities.
Conclusion: Hillary must acknowledge that the student-loan program is a catastrophe
Hillary's two proposals for reforming the federal student-loan program are good ideas, but free college in the future and lower interest rates won't relieve the hardship visited on American young people who borrowed too much money to enroll in educational programs that resulted in little or no economic benefit.
We must face facts. Millions of people were ripped off by shoddy and rapacious colleges. The victims of the student-loan program need to get back into the economy and begin building economic security for themselves and their families. That won't happen until massive amounts of student-loan debt are forgiven.
Catharine Hill. Free Tuition Is Not the Answer. New York Times, November 30, 2015, p. A23. Accessible at: http://www.nytimes.com/2015/11/30/opinion/free-tuition-is-not-the-answer.html?_r=0
Laura Meckler. Hillary Clinton's Free College-Tuition Plan Short on Specifics. Wall Street Journal, August 14, 2016. Accesible at http://www.wsj.com/articles/hillary-clintons-free-college-tuition-plan-coming-up-short-on-specifics-1471167001
Letter to the Honorable John King, Secretary of Education, from 23 Democratic Senators, September 15,2016. https://www.insidehighered.com/sites/default/server_files/files/9_15_16%20ITT%20Tech%20ED%20Letter%20(1).pdf
Dawn McCarty and Shahien Nasirpour. ITT Educational Services Files for Bankruptcy After Shutdown. Bloomberg, September 16, 2016. Accessible at http://www.bloomberg.com/news/articles/2016-09-16/itt-educational-services-files-for-bankruptcy-after-shutdown-it6byu6t
Reuters. ITT Educational Services Files for Bankruptcy After Aid Crackdown. International New York Times, September 17, 2016. Accessible at http://www.nytimes.com/2016/09/18/business/itt-educational-services-files-for-bankruptcy-after-aid-crackdown.html?_r=0
Robert Shireman and Tariq Habash. Have Student Loan Guaranty Agencies Lost Their Way? The Century Foundation, September 29, 2016. Accessible at https://tcf.org/content/report/student-loan-guaranty-agencies-lost-way/