Hillary Clinton's 'Debt-Free' College Proposal Falls Short of its Billing

[bigtree]

Dan Tuohy ‏@tuohy 21h21 hours ago
O'Malley campaign manager Lis Smith statement in connection w/ Clinton policy rollout:



Matt Corridoni ‏@mattcorridoni 22h22 hours ago
Debt free college? @MartinOMalley has been LEADING on the issue. Read his plan http://bit.ly/1MeFiTD #OMalley2016


from Student Debt Crisis:

WASHINGTON --(ENEWSPF)--August 10, 2015. Statement from Natalia Abrams, Executive Director of Student Debt Crisis, on Sec. Hilary Clinton’s New College Compact – College Affordability Plan:

Student Debt Crisis is encouraged by today’s announcement of Secretary Hillary Clinton’s new college affordability plan. Following previous proposals from Governor Martin O’Malley and Senator Bernie Sanders, we are gratified that all three major Democratic presidential candidates have committed to addressing student debt and lowering the cost of higher education. This progress demonstrates that the issue of student loan debt and higher education has come a long way since the last presidential election.

With respect to Sec. Clinton’s plan, we are discouraged by the lack of attention given to relieve existing borrowers from their crippling student loan debt. While we are appreciative of her support for refinancing student loans and agree that state disinvestment has been a large contributor to the increase in tuition prices, Sec. Clinton’s plan does not nearly go far enough and isn’t the “bold transformation” we had hoped she would deliver.

At Student Debt Crisis, it is our job to continue to push our leaders until we have a comprehensive plan that helps existing borrowers as much as prospective students. That’s why we must continue to fight for total debt-free college and the cancellation of outstanding student loan debt.

read: http://enewspf.com/opinion/commentary/63501-student-debt-crisis-statement-on-sec-hillary-clinton-s-college-affordability-plan.html


from David Lenok, senior editor for Wealthmanagement.com

___As the current front-runner for the Democratic nomination, Clinton was under pressure to produce such an announcement after her challengers, Bernie Sanders and Martin O’Malley, made student debt a central issue in the race for the Democratic nomination with their respective “debt-free” education pledges. Yet her proposed plan places much of the onus on individual states by creating a $200 billion dollar federal system aimed at both incentivizing states to invest in higher education and attempting to cut student costs. Individual states can opt in by guaranteeing “no-loan” tuition at four-year, public schools and free tuition at community colleges (the latter very similar to President Obama’s current $60 billion community college proposal). Increasing amounts will be awarded to states that enroll a high number of low- and middle- income students, as well as those that attempt to reduce living expenses.

With some of the remaining $150 billion, Clinton’s plan would attempt to boost graduation rates by offering grants to schools that invest in improving their on-campus support systems, such as child care and emergency financial aid, a nod to the fact that the average age of college students is increasing and, as such, their needs are changing. Additional federal funding will also be available for private schools with “modest endowments” that serve a high percentage of low-income students (for example, historically black colleges).

Under this system, veterans, low-income students and those who participate in a national volunteer program, such as AmeriCorps, which Clinton plans on more than tripling in size, would go to school for free (though, it’s important to note that Pell grants for low income students aren’t included in the debt calculations, so it’s assumed those funds will go to cover such unaddressed items as books and room and board). However, Clinton’s proposal stops short of making the same “debt-free” promise that her challengers have. Under Clinton’s plan, most students who don’t fall into the above three groups will still be expected to make a “realistic,” albeit reduced, contribution in paying for their educations based on student circumstances and the school they choose to attend.

For those currently struggling with student-debt, the plan would offer very limited relief. It would allow such debtors to refinance their loans, saving the average person about $2,000 over the entire life of the loan. The proposal also seeks to expand income-based repayment options, which would cap payments at 10 percent of the borrower’s current income and offer full debt forgiveness after 20 years. So, a little bone thrown to current debtors, but not much.

read: http://wealthmanagement.com/college-planning/clintons-college-plan-not-quite-debt-free-education


related:

Hillary Clinton Responds to Student Debt Voters--and to Bernie Sanders and Martin O'Malley

On Monday Hillary Clinton responded to the emerging Student Debt Voter movement with her own plan to reduce the cost of college education and reduce the burden of student debt. She calls it her New College Compact, presented at a forum in New Hampshire. Video + transcript. While not as ambitious as the plans advanced by her competitors for the Democratic nomination, Sen. Bernie Sanders and Gov. Martin O'Malley, Clinton's proposals are large in scale, and they set a goal of making it possible to attend public colleges and universities and graduate debt-free -- but there will surely be a debate over whether her plan might still force students or parents to take on debt to pay for room and board. She also pulls together many of the best proposals out there - some advanced by Sen. Elizabeth Warren - to help people who are struggling to pay off their student loans by renegotiating interest rates and by adjusting debt payments to match people's incomes.

read more: http://www.huffingtonpost.com/roger-hickey/hillary-clinton-responds_b_7968760.html


SPR: Why Lowering Student Loan Interest Rates Isn't A Game-Changer

[FSogol]

1. K & R. n/t

[jeff47]

2. Main problem with her plan: Her plan is more "easy credit".

The refinancing and lower interest proposals make it easier to have larger loans. So run that through the "invisible hand" and tuition goes up. Students effectively have more money to spend because they can carry larger loans.

The grants for "loan-free" part has the problem of not paying 100% of the costs. So you have to convince a state to not only stop cutting spending on universities, but you have to get them to spend a lot more on universities in order to get some of the money back. The state is still spending more. While there's a chance you could convince a "blue" state to do that, it'll never fly in purple or red states.

The monumental dumbass thing around all this is universities make money for the government. Higher-educated people pay more in taxes and are less likely to use safety net programs (Yes, there are exceptions. I'm talking about the overall average). A higher-educated population also creates more economic growth than a less-educated population. All that means more tax money flowing in, and less tax money flowing out. A smart government would be spending more on education, not less.

The smart plan would be for states to pay all tuition, and make a 300%-600% return on their investment over the long haul.

[hill2016]

7. I'm not sure that makes sense

if people are having trouble paying back student loans, what makes you think they can pay 300 - 600% return over the long haul?

Let's compare two scenarios:

(1) College education funded by student loans.
Let's say student borrows $50k and repays $100k over 20 years (including interest). That's a 100% return on the investment.

(2) College education funded by the government
Let's say the government pays $50k. For the government to make 300 - 600% return, the college grad needs to pay $200 - 350k in additional taxes.

If the student has trouble repaying the $100k from the student loan, how will he be able to pay $200 to 350k in additional taxes?

[jeff47]

8. Your long haul is too short. Also, we are not individuals in a vacuum.

If the student has trouble repaying the $100k from the student loan, how will he be able to pay $200 to 350k in additional taxes?

By paying them over more than 20 years.

Someone graduates at 22. Assuming they follow a relatively "normal" path, they will be working from 22 until somewhere between 65 and 75. Let's go with 67 to give us a convenient number of 45 years working. Assuming they pay zero taxes in retirement (which is not true), the "government pays" model means that individual spent 25 additional years 'paying' for their education than if they were only paying student loans.

In addition, that individual makes more money in those last 25 years than in the first 20 years (assuming a "normal" career path). Making it easier to "back-load" the payments via higher taxes for people that make more.

But the most important hole in your scenario is we are not individuals in a vacuum. That graduate earning more money is more likely to spend more money. Which is then taxed again when someone else receives it. Who then spends it and it's taxed again. And so on.

Add to this the effect of those student loans on spending. That recent grad does not make a lot of money, so their student loans are a very large drag on their spending at 25. The same payment would not be nearly as much of a drag on spending at 45 (again assuming a "normal" career path).

Then there's also growth. A college graduate is more likely to start something new that turns into an enormous source of revenue. The percentage is very small, but the number to the government is very large. CA makes a lot of money off Apple, even with them hiding all sorts of revenue offshore. CA also makes a lot of money off people working directly for Apple. And then people working for the people that work for Apple. And so on.

*On all those "normal" career path comments: It may no longer be possible for someone to gradually advance in their working life such that they "move up" in their profession and make more and more money. We will have to see if major setbacks on a regular interval become the norm or not. They aren't yet, but it's possible.

[hill2016]

10. yes

but in both scenarios (regardless of who pays), the person will have a 45 year career and will have higher salary at the end. Also they will be spending and supporting the economy around them. And both are equally able to start a big company.

So how does the way college is financed (whether paid fully by the government or by loans) change how much taxes the person pays over his lifetime?

[jeff47]

16. They're paying less taxes (directly and indirectly) during the 20 years they are paying the loan.

So that means the government gets less money over those 20 years.

Less spending -> less sales taxes paid.
Can't afford to buy a house -> less property taxes, since they're renting a smaller space than they are likely to buy.
Can't afford to buy a new car -> less sales and property taxes due to keeping a "clunker", less income to car dealer, etc.

Also they will be spending and supporting the economy around them.

Except they will be spending much less during the 20 years they pay on the student loan, because it is a larger percentage of their smaller income.

And both are equally able to start a big company.

Nope. The one paying student loans will have a harder time financing a startup. They have a lot more debt, and they have a big fixed payment every month.

And by the time they finally pay off the loans, they are more likely to be saddled with recurring expenses. Such as children.

[hill2016]

18. but

if they are paying back the student loan doesn't that go to the government? The only difference is that it's "interest" instead of "tax".

[jeff47]

19. One time. Spending is taxed multiple times.

If you pay 5% in interest to the government, they got 5%.

If you pay 5% in sales taxes, they got 5% from you. Then they got 5% when the retailer spent it (or the retailer's employee spent it - differences in tax laws). Then they got 5% when it is spent again, and 5% when it is spent again.....

[hill2016]

22. that makes even less sense

What if the government just gave $50k to everyone? In essence you're saying the government can make it all back and more through this increased spending and taxes.

[jeff47]

23. Depends on the overall state of the economy.

In the middle of 2009, giving $50k to everyone would be a good idea. We needed more spending, and we needed more inflation to get out of the zero-lower-bound. Would they make the money back? Hard to say with $50k. With $5k, they would.

Giving everyone $50k is similar to the "Drop money from helicopters" plan frequently cited by Duncan Black and Krugman. It's an update on Keynes plan/thought experiment of burying money in abandoned mines.

In the middle of a booming economy, giving $50k to everyone would cause a big surge in inflation, thus eating away the real value of taxes and not turning a profit.

With amounts down in the thousands or less, you're now talking about something like the Earned Income Tax Credit. In the end, the government turns a profit on that. "The government" being all government entities added together - Federal, State, and local.

[Jim Lane]

20. You're overlooking progressive taxation

In addition to the points that jeff47 made, you need to consider that not all students will pay the same in taxes. The student who currently has trouble repaying a $100k loan will be in a lower tax bracket (that's why he or she has trouble). People who parlay their loan into a degree and a lucrative career will pay more in taxes.

In fact, I'd increase the progressivity by rejecting the goal of completely debt-free college. I'd rather see loans but with repayment being a set percentage of the student's income for a set number of years after college. I don't see why I, as a middle-aged taxpayer, should subsidize someone who uses a government loan to get a business degree, goes to work for Goldman Sachs, and in his or her first year of employment is making more money than I make. Let that person "repay" a loan (in fact, probably paying more than the loan that was taken out), while the student who can't get a decent-paying job pays little or nothing toward his or her loan.

[hill2016]

21. if this Goldman guy

is smart, he would do his sums right and consider whether it's better for him to take a non-government loan or pay a set percentage of his income. Then the people left are those who pay little or nothing towards their loans.

[jeff47]

25. Goldman guy can't guarantee he'll have a high-paying job when he takes out the loan.

He might get hired by Goldman.

He might get to ask "Do you want fries with that?".

[jeff47]

24. Why add the complexity of a loan?

No need to add a loan with a "progressive" payment schedule. Just have the government pay for the school and rely on progressive taxes. Goldman guy still pays more than struggling guy.

(This requires actually having progressive taxes, and not having loopholes that Goldman guy can exploit. But fixing those would be good independent of education)

[Jim Lane]

29. Partly because, as you note, the taxing mechanism isn't perfect

Also, the loan is useful in shaping the incentives of the person contemplating college. His or her decision to go to college will cause society to devote considerable resources to that project. Someone else who was a borderline applicant will be rejected because the spot was taken. If this particular high school graduate would go to college if it were completely free, but would be deterred if there were a loan repayment (even one guaranteed to be affordable because keyed to income), then I'd rather see someone else get the opportunity.

Finally, consider the practical politics of getting the plan enacted. If there is at least some affordable repayment by the student, the program will operate at a net loss (before we consider tax revenues and other benefits), but it will be less costly than completely free college. That makes it easier to accommodate the program within the budget.

An in-between course would be completely free community college, so that everyone can get a better idea of whether they want to go the full four years, followed by loans with indexed repayment for getting a bachelor's, or for graduate/professional school.

[Qutzupalotl]

3. Colleges could be a lot cheaper

if they didn't have to pay coaches a half million a year and build stadiums and arenas. They could get back to, you know ... educating.

[Divernan]

4. HRC, as always, too little and too late.

Following previous proposals from Governor Martin O’Malley and Senator Bernie Sanders, we are gratified that all three major Democratic presidential candidates have committed to addressing student debt and lowering the cost of higher education. This progress demonstrates that the issue of student loan debt and higher education has come a long way since the last presidential election.

With respect to Sec. Clinton’s plan, we are discouraged by the lack of attention given to relieve existing borrowers from their crippling student loan debt. While we are appreciative of her support for refinancing student loans and agree that state disinvestment has been a large contributor to the increase in tuition prices, Sec. Clinton’s plan does not nearly go far enough and isn’t the “bold transformation” we had hoped she would deliver.

[Fearless]

5. Hillary's plan < O'Malley's plan < Bernie's universal plan

Just saying.

[Zorra]

12. Yeh, Third Way corporate profit ClintonED and O'MalleyED vs. Bernie's free education

for everyone.

Like Third Way corporate profit Obamacare vs. universal public healthcare for everyone.

Time we voted for our own interests instead of who the wealthy tell us to vote for in their interests.

[Fearless]

14. +1

[redstateblues]

28. Totally free four year college is a pandering pipe dream

and how will Bernie usher in universal public healthcare as long as the Rs control the House and the Senate? How about a plan to get our base to vote in the midterms? Seems to me we need a plan to take back both houses before it is even realistic to talk about grand legislative agendas. Bernie or any other Democrat will not have a magic wand. As much as Obama is despised on this site he has done a good job considering the circumstances.

[aikoaiko]

6. Freezing public college tuition is a stupid idea.

As the states keep reducing their contribution to higher ed budgets a tuition freeze would kill them.

[bigtree]

9. that wasn't his experience in my state

O'Malley not only implemented a four-year freeze on tuition for Maryland institutions of higher learning, making higher education more affordable for Marylanders, from 2008-10 he increased college appropriations to offset the freezes and authorized more than $220 million in state capital funds to community colleges. He also budgeted more than $333 million for grants and scholarships, and in 2011, signed legislation extending in-state tuition to undocumented students. O'Malley also oversaw the reinvigoration of Maryland’s Career and Technology Education and Science, Technology, Engineering and Math (STEM) programs statewide, and the launching of the comprehensive Maryland STEM Innovation Network to promote the delivery of high quality STEM education at all levels throughout the state.

Those accomplishments in education in Maryland are reflected in the detailed education plan he's offered in this campaign to make higher education affordable, accessible & accountable. His proposals that, as a national goal, all students have access to a high-quality, debt-free college education within 5 years, attainable at any in-state public college or university; increasing college completion rates by 25 percentage points within 10 years, and eliminating discrepancies in graduation rates based on race and income; are matched by a detailed plan to:

•Refinance Student Loans:
•Tie Minimum Payments to Incomes:
•Freeze Public Tuition Rates:
•Restore State Higher Education Funding:
He is also calling on states to restore investments in higher education. As president, he would partner with states, leveraging federal dollars through matching grants to encourage states to increase funding for public colleges and universities
•Increase Pell Grants:
•Expand and Modernize Work-Study:
•Match federal grant programs and obtain additional aid dollars to encourage colleges to increase on-time graduation rates, improve education quality, and direct aid toward students who need it most:
•Develop new incentives to encourage colleges and universities to help ensure students graduate on time:
•Make Childcare Affordable on Campus:
•Reduce Time to Graduation: Expand Access to Early College Credit: and
•Require colleges to meet accountability targets in recruitment, completion, and risk-sharing.

details of his plan include:

Providing Immediate Relief to Student Borrowers
Nearly 70 percent of U.S. students are now graduating with student debt, averaging more than $28,000 in loans. Unlike homeowners or businesses, student borrowers and their families can’t refinance their loans to take advantage of lower interest rates.

Refinancing Student Loans. All Americans with student debt – including both students and their parents – should be able to refinance their loans at lower rates.

Tying Minimum Payments to Incomes. All student borrowers should be automatically enrolled in income-based repayment plans, with loan forgiveness options. Borrowers who do not wish to use repayment plans would be able to opt out of them while those with private loans should be able to refinance into federal programs.

Stopping Skyrocketing Tuition Rates
States have slashed higher education investments by an average of 20 percent per student since 2008. Colleges have used tuition increases to make up for 80 percent of lost funding.

Freezing Public Tuition Rates. Governor O’Malley is calling on states to immediately freeze tuition rates.

Restoring State Higher Education Funding. He is also calling on states to restore investments in higher education. As president, he would partner with states, leveraging federal dollars through matching grants to encourage states to increase funding for public colleges and universities.

Reducing Tuition Costs
Almost all states have seen double or even triple digit percentage increases in tuition over the past 10 years. As a result, tuition rates at public four-year institutions are now more than 20 percent of state median income in 10 states.

Tying Tuition Rates to Median Incomes. Governor O’Malley would set a national goal of reducing the cost of tuition – to no more than 10 percent of state median income at four-year public universities, and to no more than 5 percent of median income at two-year public colleges. While institutions would be challenged to maintain quality and innovate in education and teaching to cut down on costs, states would be required to maintain their own funding efforts which, along with the increased funding from the matching grant program, would ensure universities do not suffer any decrease in educational quality while meeting these goals.

Helping Low- and Middle-Income Students Cover Non-Tuition Costs
Debt-free college must apply to all college costs, not just tuition. But room and board is roughly double the cost of tuition on average. This brings the total cost of attendance up to nearly $19,000 a year for in-state students at four-year public universities. And federal support has not kept pace: while Pell Grants once covered nearly 70% of the cost of college for low-income students, they now cover only a third.

Increasing Pell Grants. Pell Grants and state grants should be increased to cover the bulk of non-tuition costs for students who otherwise couldn’t afford them.

Expanding and Modernizing Work-Study. The need-based federal work-study program should be tripled so that at least two million students can participate. The program would be redesigned to make placements career-focused, and to better support low- and middle-income, part-time, and mid-career students. It will be essential to ensure the program hours are equitable and do not create additional economic hardship or detract from a quality education.

PROPOSAL: Set a national goal of increasing college completion rates by 25 percentage points within 10 years, and eliminating discrepancies in graduation rates based on race and income.

Partnering With States and Schools to Improve Completion Rates
Fewer than 40 percent of students of all ages graduate from four-year institutions within four years. Low-income students are the least likely to graduate, with only nine percent of students from the lowest income bracket earning a bachelor’s degree by the time they turned 24.

Giving Colleges Incentives to Lead. Matching federal grant programs and additional aid dollars should be used to encourage colleges to increase on-time graduation rates, improve education quality, and direct aid toward students who need it most.

Decoupling Profits from Longer Completion Times. Federal and state governments should develop new incentives to encourage colleges and universities to help ensure students graduate on time.

Supporting Part-Time and Mid-Career Students
Roughly six million students attend college part-time, with five million students also supporting families while pursuing their degree. Unsurprisingly, part-time students are three times more likely to drop out than full-time students.

Making Childcare Affordable on Campus. A first priority for supporting this group of strivers is providing safe, high quality childcare on campus. Federal and state government should share the costs of increasing access to childcare for student parents.

Creating Multiple Pathways to Graduation
Four years of classes are not always required for students to master the skills needed to enter a discipline, and many students learn better outside of the classroom. All measures should ensure access to an equal and quality education for all students at a given school, regardless of income.

Reducing Time to Graduation. The federal government should encourage schools to employ competency-based education strategies, which allow students to learn at their own pace, saving both money and time.

Encouraging Expanded Online and Blended Learning, Project-Based Learning, and Course Redesign.

Increasing College Preparedness
Although high school graduation rates are at a record-high 80 percent, one-third of high school students are unprepared for entry-level college courses.

Expanding Access to Early College Credit. The federal government should support innovative efforts to better prepare high schoolers for college, like expanded accelerated learning and dual-enrollment programs.

Expanding Access to Quality College Counseling. Better access to counseling is critical to helping lower-income and first-generation students apply for, navigate, and graduate from college, increasing college enrollment and graduation rates overall.

Holding For-Profit Colleges Accountable
Less than a quarter of students enrolled in for-profit institutions graduate, while the 11 percent of students who attend them represent almost half of all student loan defaults.

Setting Strict Accountability Targets. President Obama’s aggressive efforts to prevent abuse, including the new gainful employment rule, should be expanded, to require colleges to meet accountability targets in recruitment, completion, and risk-sharing

[aikoaiko]

11. Are you sure? February 3, 2015 Update: state budget deficits and UMD budget cuts

Dear University of Maryland community,

I write to update you on how the state's budget shortfalls will affect the University and each of us individually.

The cuts I told you about last month were ordered by outgoing Governor O'Malley to balance the books for the rest of this fiscal year (FY15, ends June 30, 2015). For UMD, the one-time cut was $15.6M. We responded as equitably as possible: (1) furloughs for faculty and staff, (2) mid-year tuition increase for students, (3) savings from a hiring freeze, and (4) return of unspent funds.

In the interest of fairness, we apportioned furlough days by salary level. State-funded employees who earn less than $60K—about 40% of our workforce—will have no furloughs; those who earn $60K+ to $100K will have 1 furlough day; $100K+ to $180K will have 2 furlough days; and those that earn $180K+ will have 3 furlough days. Details forthcoming from University Human Resources and at www.uhr.umd.edu.

Incoming Governor Hogan's budget for FY16 (starts July 1, 2015) provides a 1.3% increase for the University System of Maryland, or $2.8M more for UMD. This increase to the revenue side of our budget is welcome and appreciated. It shows that he values higher education as essential to the state's future.

However, the state still faces a $750M structural deficit in FY16. Faced with the formidable task of putting the state's fiscal house in order, Governor Hogan's FY16 budget also requires all state agencies to (1) make permanent some of his predecessor's one-time cuts; (2) rescind a 2% cost-of-living increase, effective June 30, 2015; and (3) withdraw a 2.5% merit increase due to go into effect on July 1, 2015.

Hence, the expense side of our budget next fiscal year—which includes on-going mandatory costs for health benefits, debt service, financial aid increases, etc.—will decrease by $39.3M. This figure could go up or, optimistically, go down, depending on new state revenue projections and actions by the General Assembly over the next three months.

(and there is more: http://www.president.umd.edu/statements/campus_message020315.cfm )

[Agschmid]

13. Yikes.

[bigtree]

15. you should realize that all states were forced to make adjustments to budgets due to sequestration

...and that this was part of an across the board reduction in spending which is part of an effort to address persistent effects of the recession and the steady reduction in spending for states from the federal government. As his proposal states, that contribution from the federal government would see an increase.

The term-limited Democratic governor, who leaves office Jan. 21, blamed federal cuts that have hurt large numbers of federal employees in Maryland as a main cause of lowering revenue projections. He also said cutbacks in Washington have hurt small businesses that act as contractors and subcontractors on work needed by the federal government.

“And so government shutdowns, continued threatened government shutdowns, congressional misbehavior that results in sequester cuts that continue on and on and on, have a disproportionate impact on our economy — compared to say the economy of southern California, the northwest or even New England,” O’Malley said.

http://baltimore.cbslocal.com/2015/01/07/omalley-to-bring-up-to-400m-in-cuts-to-board/

[aikoaiko]

26. sure, but it highlights why tuition freezes are a problem.

Even if we accept that Maryland had no choice but to cut the budget to higher education, colleges and universities didn't have the ability to counteract that with small tuition increases.

Again, I'm not opposed to much of what OM wants to do, but tuition freezes are problematic when other sources of revenue decline.

In my state, GA, I have legislatures that are trying to starve public higher ed (except for GATech and UGA) because it produces more liberal thinkers.

[bigtree]

27. it more highlights the consequenses of the 2013 sequestration

...and the importance of the federal investments into state education which O'Malley is proposing.

[askew]

17. Thank you for laying this out. Incredibly impressive work.