The Presidential Election: The Candidates’ Views On Student Loans

Cross-post from our partners at CommonBond

Originally posted July 26, 2016 by Michaela Kron

This year’s presidential election is happening at a time when about 70 percent of students are graduating from college in debt. On average, recent college graduates have more than $35,000 in student debt, and there’s more than $1.3 trillion in student loan debt in the United States. It’s arguable that the candidates’ views on student loans are one of the most influential topics for Millennials as they choose whom to support.

The plans by Hillary Clinton and Donald Trump, the two major-party presidential candidates, for altering student loan policies would not only impact the 40 million Americans carrying student loan debt but also those planning to enter college and graduate school in the coming years. If you fall into either category, you’ll want to understand what each candidate is proposing, and how these changes will impact you.

Hillary Clinton

The Democratic nominee, Hillary Clinton, has laid out a plan for tackling student loan debt and the rapidly rising cost of a college education for current borrowers, future borrowers, and entrepreneurs.

For Current Borrowers
For those currently carrying student loan debt, Clinton is promising to implement an executive action creating a three-month moratorium on student loan payments for all federal loan borrowers immediately upon entering the White House. During that period, borrowers will be given targeted help from the Department of Education for lowering their payments and interest rates, consolidating loans and applying for income-based repayment plans. Those who have defaulted on their loans would be given extra resources to get their finances and loans back on track. Though it’s unclear how the Department of Education will provide tailored, targeted assistance, it is clear that Clinton is suggesting that it is the government’s responsibility to help reduce the financial burden caused by student loans.

In addition, Clinton’s plan also includes capping all income-based repayment plans at 10 percent of the borrower’s monthly income, a reduction from the current 15 percent cap. Note that income continent repayment plans, plans offered by the federal government where the monthly payment is the lesser of 20% of a borrower’s discretionary income or what they would pay on a repayment plan with fixed payments over 12 years, are not mentioned as part of the plan.

For Future Borrowers
For those who enter college in the future, Clinton has proposed a New College Compact that promises debt-free or completely free college for qualifying students. The plan would make college at all four-year public schools free for families making less than $125,000 a year by 2021. Students and colleges would have to do their part to make this a reality:

• Students will be expected to work 10 hours per week to help to contribute to the cost of school and to provide career-building skills.
• Colleges and universities will be accountable for reducing costs and improving completion rates and learning outcomes for students.

For Entrepreneurs
A 2015 study by the Young Invincibles found that rising student debt is partially responsible for a reduction in entrepreneurship. Clinton plans to address this as part of her student debt initiatives, allowing young entrepreneurs to defer their federal student loan payments, without interest, for up to three years while they start their own business. In addition, borrowers who start new businesses in distressed communities would be eligible for up to $17,500 in student loan forgiveness after five years.

Donald Trump

Full details of Republican nominee Donald Trump’s plan for tackling student loan debt haven’t been released yet, but Sam Clovis, the national co-chairman and policy director of Trump’s campaign, discussed some ideas with the publication Inside Higher Ed. To date, Trump’s campaign has released details on two ideas that would shake up the government’s role in student lending and higher education:

Shifting Student Loans to the Private Sector
One major move being discussed by the campaign is to move all student loans back to the private sector. Before 1993, the federal government was not directly involved in student loans and since 2010, all federally administered loans come directly from the government. The idea behind the change was for the government to make the money on loans that banks were making. However, Trump has repeatedly said that the federal government shouldn’t profit from student loans, and a shift back to the private sector would help achieve that.

Risk Sharing By Universities and Banks
Another proposal being considered by the Trump campaign would force colleges and banks to share some of the risks of student loan debt, with the thinking that because colleges reap the reward of tuition payments and banks earn interest on student loans, they should also face the risk if students default on loans. Colleges would have to rethink their admissions processes and focus on students who were more likely to graduate, get jobs and pay the loans back, Clovis told Inside Higher Ed.

Banks would have the opportunity to evaluate each student’s application for a loan individually, choosing to fund the education of certain students at a lower interest rate over others. “If you are going to study 16th-century French art, more power to you. I support the arts,” Clovis said. “But you are not going to get a job.” Therefore, a bank could choose to offer a higher interest rate to this student as they represent a more significant risk.

One thing is clear: Millennials are poised to make strong impact on this year’s election and student loan debt is often cited as this group’s top financial concern. With drastically differing ideas on how to positively impact the student debt crisis, Clinton and Trump are poised to change the federal government’s role in student lending. Educating yourself on each candidate’s proposal is critical in determining how to create a better financial future for yourself and all Millennials.