Benefits for Massive Amount of Borrowers
If elected, Hillary Clinton’s plan for Student Loan Forgiveness. Would undoubtedly benefit massive amounts of borrowers. Under her proposed plan, Clinton would allocate roughly $115 billion to student loan forgiveness and would provide potential benefits to over 60% of individuals with student loans (25 million borrowers!). This $115 billion is a third of her proposed $350 billion “New College Compact.” In total, the plan could save student loan borrowers billions of dollars every year.
Here are the key goals of Mrs. Clinton’s plan:
- Help an estimated 25 million borrowers by allowing them to lower their payments by refinancing at current interest rates
- Establish a mandatory three-month moratorium on all student loan payments, giving borrowers the necessary time to work with the Department of Education to consolidate, refinance, or negotiate different repayment plans (with an “opt-out” feature as interest would still accrue during this time)
- Shorten all income-based repayment programs to 20-year student loan forgiveness plans (this currently varies between 20 and 25 years based on the program)
- Massively expand income-based repayment plans to ensure that ALL borrowers going forward never having to pay more than 10% of their disposable income toward student loans
- Open up forgiveness and payment relief to approximately $90 billion worth of private student loans that currently have very limited options
- Reward Employers who assist employees with their student loans (via student loan repayment benefits) with a payroll tax deduction
- Encourage entrepreneurship by offering three years of loan deferments (with no accrued interest) so borrowers can apply for that money instead to starting small businesses, with the possibility of expanding this offer to the first 10 to 20 employees of a new company
- For those who either launch a new business in a distressed community or an enterprise that provides a measurable social benefit, loan forgiveness for up to $17,500 will be available after five years (the exact definitions of “distressed community” and “measurable social benefit” have yet to be defined)
The cornerstones of Mrs. Clinton’s student loan forgiveness plan are relatively simple and rely on three basic principles:
- Refinancing federal student loans by cutting the interest rates roughly in half (also ensuring the federal government does not profit further from student loans)
- Make refinancing available to borrowers with private student loans that are current on their payments
- Collapse all income-based plans into one much broader and more generous plan that is straightforward and easy to enroll in
“. . . everyone who has student debt should be able to finance it at lower rates.”
The Plan Provides Forgiveness via Lower Interest:
Cutting the interest rate in half would save the average student loan borrower roughly $1,000 per year! This will result in billions of dollars of savings for student borrowers.
The Plan Expands Benefits to All Types of Borrowers:
Hillary Clinton’s student loan forgiveness program creates the best of both worlds for both federal and private student loan borrowers…
- For federal student loan borrowers: They would get access to the low rates previously available only through private student loan refinancing.
- For private student loan borrowers: They would get access to the forgiveness and protection of income-based repayment plans that federal student loan borrowers have.
Student Loan Forgiveness for Defrauded Student Borrowers:
Mrs. Clinton specifically highlights streamlining the process for providing student loan forgiveness for borrowers defrauded by Corinthian and other predatory for-profit education companies.
The Plan Holds the Student Loan Servicers Accountable:
Mrs. Clinton’s plan would force student loan servicers to increase significantly and improve the services they provide struggling borrowers. Specifically, the program encourages:
- Improved ease of enrollment
- Counseling for Borrowers
- Help for borrowers who are delinquent on their loans
- Strong enforcement against servicers and bill collectors who are breaking the law
Other Student Loan Forgiveness Aspects of the Plan:
AmeriCorp Student Loan Forgiveness:
As a means of attempting to expand AmeriCorp’s ranks from 70,000 to 250,000. Mrs. Clinton’s plan suggests teachers and those that complete AmeriCorp’s service program become eligible for student loan forgiveness.
Summary
The Good:
- Opens up the plan to a huge number of borrowers
- The interest rate change alone would save borrowers tens of billions of dollars. (It seems like a no-brainer that a government committed to higher education of its populace would not be profiting from lending to its students!)
- Establishes a mandatory three-month moratorium on student loan payments, giving all borrowers the necessary time to renegotiate their plans
- Shortens all income-based repayment programs to 20 years
- Expands programs to include private student loans
- Ensures that ALL borrowers going forward never have to allocate more than 10% of disposable income towards their student loans
- Rewards employers who assist employees with their student loans through payroll tax deductions
- Streamlines the process of student loan forgiveness for defrauded borrowers
- Forces student loans servicers to improve their services significantly to help struggling borrowers
- Offers student loan forgiveness for teachers and those that complete AmeriCorp’s service program
The Bad:
- No mention of the tax bill from student loan forgiveness at the end of 20 years—this should be made tax free
- No mention of bankruptcy as a mechanism for helping borrowers
- Promoting the financing of new businesses with money previously applied to student loan repayments appears hazardous.
Student Debt Relief’s Opinion:
While none of Hillary’s ideas about student loan forgiveness in the plan are revolutionary, the massive size and scope of her plan would go a long way to helping borrowers. Aforementioned answers a near sound strategy overall.
However, we question the wisdom of encouraging those with little to no real world business experience to apply student loan payments toward financing risky new ventures (most of which fail in the first few years) only to be that much further in debt afterward. While we wholeheartedly support the entrepreneurial spirit of young people, we think there are much more pragmatic approaches available.
The key to real long-term success in helping student loan borrowers will be in how effective the government is in curbing the rapidly escalating cost of education going forward.
We’ll keep our fingers crossed.
To learn more about this plan from Mrs. Clinton’s website, click here.
To learn more about Donald Trump plan click here.
