Clinton's College Plan Pays It Forward
Graduates are happiest when debt-free.
If it makes sense for the government to help young people pay for college -- and it does -- then it also makes sense for the government to help them pay it back. On Monday, Hillary Clinton endorsed an idea that would improve both sides of this bargain.
It's called income-based loan repayment, which sets monthly payments as a percentage of earnings. To be fair, it is not a new idea: President Barack Obama's administration has proposed expanding the existing program, and Republican presidential candidate Marco Rubio has introduced a bill in the Senate that would automatically enroll those with federal student loans into such a plan.
Clinton's approach includes replacing the four existing income-based plans with a single program, doing a better job telling students about income-based repayment (more than 25 percent use such a plan now) and making it easier to enroll. Payments would be capped at 10 percent of discretionary income, and any remaining loans would be forgiven after 20 years (25 for grad-school loans).
There are still points to work out. The best way to reach everyone who can benefit from income-based repayments is to make them the default option, which Rubio explicitly supports but Clinton doesn't. Another question is whether repayments should be automatically deducted from borrowers' paychecks -- cutting the risk of default to near zero, but provoking concerns about government overreach.
Finally, erasing outstanding balances after a fixed number of years creates an incentive to earn less. The purpose of the program should be to make payments manageable, not to discharge them prematurely. A better approach would be to stop automatic loan forgiveness, and instead allow borrowers in genuine hardship to request an exemption.
But those questions are secondary. A college education remains an excellent investment, both individually and collectively. At the same time, the amount of student debt -- some $1.3 trillion, with 1 in 6 borrowers delinquent or in default -- is worrisome.
Income-based repayment plans allow students to better take advantage of opportunity and the government to better manage risk. It's an idea that deserves the support of whoever is elected president next year.
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