介绍： Election brief: student loans: More present than correct
Hillary Clinton’s college-funding plan is better politics than policy
From The Economist 20161008

0:00



Many happy repayments
TO BELIEVE some young voters—especially those who showed up at Bernie Sanders rallies earlier this year—America is in ...

介绍： Election brief: student loans: More present than correct
Hillary Clinton’s college-funding plan is better politics than policy
From The Economist 20161008

0:00



Many happy repayments
TO BELIEVE some young voters—especially those who showed up at Bernie Sanders rallies earlier this year—America is in the midst of a student debt crisis. In 2010 student loans overtook credit cards to become the biggest source of American household debt other than mortgages. Today, they total about 7% of GDP. Of those who have borrowed from the federal government and began repayments in 2011, 10% defaulted within two years, up from 4.5% in 2003. The problem animates the left: whereas Donald Trump has talked about the subject only fleetingly, Hillary Clinton has detailed policies for helping penniless scholars. Who could oppose such a worthy aim?

Defaults on student debt are highest among so-called “non-traditional” students. They attend community colleges, which provide short, typically two-year courses, or profitmaking universities, which offer heavily marketed and pricey degrees which are sometimes of dubious merit. According to number-crunching by Adam Looney of the Treasury Department and Constantine Yannelis of New York University, non-traditional students made up more than half of all new borrowers from the federal government between 2004 and 2014. They accounted for fully 70% of those who defaulted within two years of starting repayments in 2011.

The problem non-traditional students face on graduation is more often low incomes than high debts. In 2014 the median graduating borrower from a community college owed $11,700, compared with $26,500 among those who had attended a selective, four-year course. Yet while 25- to 34-year-olds with bachelor’s degrees or more earned an average of $59,000 in 2015, those with two-year degrees made only $38,500. Just as those with large mortgages typically have big houses, those with huge student debts usually have a graduate degree in, say, business or medicine, and can expect a bumper salary as a result. The average aspiring medic borrows $138,000 for her graduate education; lawyers-to-be, $107,000. Yet the three-year default rate among graduate students is only 3%.

At first, during the primaries, Mrs Clinton promised to make community college free. She also said she would make public colleges “debt-free”—ie, cheap—for low- and middle-income students who study in their home states. This makes some sense. But a need to appeal to Mr Sanders’s fans led her to expand her plan in July. Mrs Clinton now pledges that by 2021 no American from a household earning less than $125,000 will need to pay any tuition fees at all to instate public universities.

Mrs Clinton’s refreshed plan will cost anywhere between $350 billion and $800 billion over a decade, according to the Committee for a Responsible Federal Budget, a think-tank. Much of that cash will flow to students who will go on to be affluent. The returns to college education have never been higher (a fact which helps to explain Mr Trump’s success with voters who have spent less time studying). Over a career college graduates can expect to earn twice what high-school graduates make, according to one estimate.


Reforms during Barack Obama’s presidency have already made student debt much more manageable. Congress and the Obama administration have expanded income-linked repayment programmes for those with federal loans. Today, any student who faces repayments exceeding 10% of her income can cap her repayments at that fraction of her earnings. After 20 years, the government will write off any remaining balance. This makes student debt resemble a tax more than conventional borrowing. In 2015 the education department started offering a similar deal to those with loans predating 2007. One-in-five borrowers, together owing fully 37% of all student debt, are now enrolled in income-linked repayment.

There are problems with these schemes, notes Susan Dynarski of the University of Michigan. Students must opt in to them, which requires knowing that they exist, and must then renew their paperwork every year. Perhaps as a result, fewer than half those eligible have enrolled. And the income used to calculate repayments is based on the preceding year. So someone whose income tanks can still struggle to service his debts. To her credit, Mrs Clinton wants to improve income-linked repayment, in part by making enrolment automatic. (Another attractive idea is to collect student-loan repayments through employer payrolls, as happens in Britain).

If such reforms happen, means-tested free tuition would offer few extra benefits. Such a policy would also redistribute arbitrarily. A student from a poor family who becomes rich will have no debts, whereas students from families earning above the $125,000 cut-off may still need to borrow and hence repay 10% of their income for years, even if they end up poor. The withdrawal of tuition subsidies as income rises could sharply increase implicit marginal tax rates. And subsidising only instate tuition creates a pointless incentive for students to avoid venturing further afield.

An existing programme illustrates the dangers of careless subsidies. Since 2012 those enrolled in income-based repayment who also work for the government, or a not-for-profit organisation, can have their debts written-off after only a decade. This includes borrowing for pricey and lucrative graduate degrees. So far, 432,000 borrowers have signed up to the scheme, nearly 30% of whom have loan balances exceeding $100,000, according to Jason Delisle of the American Enterprise Institute, a think-tank. This gives a windfall to those who aim to work for the government anyway, and who expect to spend at least ten years repaying their undergraduate debts that greatly exceeds the maximum support the government provides to low-income undergraduates.

The Obama administration now wants to rein in this programme. Worryingly, Mrs Clinton makes no mention of curtailing the largesse. Instead, she calls for still more ways for students to be able to discharge debts via public service.

Padding the pockets of well-off graduates should be a low priority for the federal government. Mrs Clinton should concentrate on funding community colleges, regulating for-profit universities and improving income-linked repayment. But whatever she does, it is not hard for her ideas to beat Mr Trump’s, which amount to doing “something with extensions, and lower interest-rates, and a lot of good things”. Here, as on so many other issues, Mrs Clinton wins by default.


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