Education professor Jennifer Delaney is an expert on higher education finance. Delaney spoke recently with News Bureau education editor Sharita Forrest about Democratic presidential candidate Hillary Clinton’s recently announced New College Compact, a 10-year, $350 billion plan for promoting college access and affordability by containing tuition rates and student loan debt.
Clinton’s plan would offer $175 billion in grants to colleges to keep tuition low enough that students won’t need loans. How does Clinton’s plan stack up against the solutions promoted by President Barack Obama and fellow Democratic candidate Bernie Sanders?
Clinton’s plan is very thoughtful, ambitious and complicated. In many ways, it reflects the complexity of higher education finance policy and the realities of how institutions are funded. It addresses multiple stakeholders’ roles in college affordability – the federal and state governments, colleges, families and students.
It shares many similarities with Obama’s and Sanders’ plans, such as Obama’s goal to make two years of community college free. Sanders also wants to make college free at all U.S. public colleges and universities.
Clinton’s plan stops short of making college totally free, but it aims to ensure that students can obtain baccalaureate degrees at their state’s public university without taking out student loans for tuition.
Politicians are responding to the need to promote affordability and ensure that college costs aren’t a barrier to access. They’re all thinking along the same lines – that as a nation, we need to ensure access to college for the next generation.
Under Clinton’s plan, state policymakers would have to agree to not reduce funding for higher education in order to qualify for the federal grants. Are state legislators likely to cede control over this component of their budgets?
Higher education is one of the last and largest discretionary categories remaining in state budgets. It is often one of the first spending categories to be cut during economic downturns because colleges and universities have an alternate revenue stream – tuition revenues – that other state agencies don’t have. Higher education functions as a balance wheel for state budgets; therefore, state legislators may be hesitant to enter into a federal-state compact.
However, the federal-state partnership that Clinton proposes is not unprecedented. The U.S. has a long history of such partnerships, with programs like Medicaid, for example. As recently as 2009, federal funds through the stimulus package (the American Recovery and Reinvestment Act of 2009) resulted in maintenance of effort of state support for higher education.
Illinois’ MAP grant program has been funded in part with federal matching grants through the U.S. Dept. of Education’s Leveraging Educational Assistance and Special Leveraging Educational Assistance partnerships. (Editors note: SLEAP was replaced by the Grants for Access and Persistence program in Fiscal Year 2011.)
These programs provided federal matching grants that incentivized states to develop need-based financial aid programs. And today, all 50 states offer some sort of need-based program.
The problem of college affordability can’t be solved by one level of government alone, and this proposed program recognizes what state revenues mean for public universities’ finances.
State politicians want to be sure their constituents have access to as many resources as possible. In general, it seems unlikely that they would forego money that would help their constituents attend college.
A 2014 report from the Congressional Budget Office disclosed that the U.S. Dept. of Education would make about $127 billion from student lending over the coming decade. Would reducing student loans by the magnitude Clinton proposes be sound economic policy for federal agencies?
The question whether the federal government should profit from student loans has not been answered. Senator Elizabeth Warren and others have made a moral argument that it is not necessarily good for the government or the country to be making huge profits off student loans.
The Clinton plan addresses this issue in part by allowing students to refinance their student loans at today’s lower interest rates. While it would result in smaller “profits” for the federal government, the benefits to individuals may outweigh the costs by providing relief for students who face historically high interest rates.
Clinton aims to decrease loan defaults by giving borrowers the option of an income-contingent repayment plan that would limit their payments to no more than 10 percent of their incomes. Won’t that be more costly for borrowers in the long run?
Moving more students who have debt into income-contingent repayment plans would provide a safety net if their incomes decrease, and ensure they’re never going to get into huge trouble, where they’re facing forbearance, default or other major problems repaying their loans.
Income-contingent plans can result in people paying more in interest if they extend their repayment period, but having a safety net is really important. Clinton’s plan would expand and simplify income-contingent options, but not eliminate other types of repayment plans that comparatively reduce the repayment period and total interest paid.
In the U.S., student loans cannot be discharged in bankruptcy, and in some ways are very risky loans. Most students don’t know what they’re getting into when they take on these loans, so creating a structural safety net through policy is important.