Alert Message
Thanks for signing up! We hope you enjoy our newsletter, The Teller.
money
money

3 Student Loan Buzzwords from 2016 Presidential Candidates and What They Mean for You

This is the first post in a two-part series covering student debt buzzwords on the November 2016 campaign trail. Check back next week for the next four buzzwords!

Politicians try all sorts of tactics to humanize themselves—remember President Obama slow jamming the news on “The Tonight Show” with Jimmy Fallon? But 2016 Democratic hopeful Martin O’Malley recently test-drove a new one: talking openly about his family’s $340,000 education debt.

The confession was meant to illustrate O’Malley’s commitment to solving the country’s student loan crisis, which has officially become the the most pressing financial problem for adults under age 50. The numbers paint a sobering picture: the amount of student loans has increased by 84 percent since the recession; collectively, American students owe more than $1.2 trillion.

Hillary Clinton, former U.S. secretary of state

Other candidates, like Democrat Hillary Clinton, have begun debuting comprehensive plans of their own to combat the problem and lower the financial burden. Clinton’s proposed solution, announced in early August, includes a $350 billion mix of grants and student debt relief initiatives to bring down the cost of public tuition.

But how can voters evaluate candidates’ strategies amid the inevitable anecdotes and sound bites? We identified seven student loan buzzwords and analyzed what each proposed solution might mean for you. Here are the first three–check back next week for the final four.

Think of it as a student loan stump speech decoder, and keep it close by as the race to November 2016 heats up.

1. Debt-free college

Who’s using it: Democrats Hillary Clinton and Martin O’Malley

What it means: The government should make it possible for students to obtain degrees at public universities without going into debt.

Where it comes from: Sen. Elizabeth Warren (D-Mass.) popularized the term in June while arguing that the Fed should cover the total cost of college attendance at state schools.

Look out for: Confusion on the campaign trail. Some candidates will use “debt-free” to mean reducing tuition or capping student loans; others might be suggesting something more progressive, such as grants that allow low-income students to pay for college entirely by working 10 hours per week. Most mean subsidizing the cost of state universities to a much greater degree.

What we know so far: O’Malley’s plan calls for a series of steps within the next five years: tuition freezes, more funding for schools, and allowing students with private loans to refinance into federal loans with lower rates and income-based repayment (see #3). Clinton’s plan proposes a $350 billion budget over the next 10 years with several tenets, such as grants for four-year public colleges that provide no-loan tuition and consequences for schools whose students default on their loans. While light on details, her plan also proposes student loan refinancing options, income-based repayment enrollment (see #3) and lower interest rates so the government never profits from loans.

Background reading: Clinton’s New College Compact plan and factsheet; O’Malley’s Debt-Free College Whitepaper; Elizabeth Warren’s New Plan for Debt-Free College, Explained

2. Free market forces

Who’s using it: Republicans Chris Christie, Carly Fiorina, Lindsey Graham, Bobby Jindal and Marco Rubio

What it means: Your education should be treated like a commodity, with colleges, universities and loan providers competing for you as a customer. Tuition costs and loan options, in theory, should then reflect supply and demand.

Where it comes from: Using free markets to reduce prices is a GOP hallmark. Republicans believe market forces will foster more competition, and therefore lower prices.

Look out for: More Republicans to jump on board. “Market forces” was a party favorite buzzword for healthcare reform in the 2012 presidential race.

What we know so far: Part of Rubio’s higher ed plan is to open the industry to more innovative, low-cost providers through a new accreditation process. Christie, who has two kids in college, says tuition bills should look like your dinner check: students should know what they’re paying for, and they shouldn’t have to foot the bill for something they didn’t order. While Fiorina hasn’t addressed tuition rates, she did speak out against the federalization of student loans to lower costs. She wants the government to get out, and the private sector to fight it out for your debt. Jindal and Graham are on a similar page, arguing that more competition among student loan providers would provide different and better repayment options.

Background Reading: Chris Christie Lays Out Education Plan; Marco Rubio Calls for Breaking Up U.S. Higher Education ‘Cartel’

3. Income-based repayment

Who’s using it: Democrats Clinton and O’Malley and Republicans Rubio and Rand Paul (kind of).

What it means: Determining loan repayment amounts based on a sliding scale.
Where it comes from: Federal income-based repayment programs already allow graduates to tie the amount of their monthly student loan payments to their income level. But despite efforts to publicize them, the plans are notoriously underused.

Look out for: Action. In June, President Obama expanded the existing income-based repayment program to an additional 5 million students.

What we know so far: Both Rubio and O’Malley would make income-based repayments automatic, rather than opt-in. Rubio’s plan also includes a “Student Right to Know Before You Go” act, which informs students of their estimated post-graduation income before taking out loans. O’Malley supports tying tuition to state median income — 10 percent of the median income for four-year public institutions, and 5 percent for two-year public institutions. Clinton’s recent plan promises to make it easier for people to enroll in income-based repayment. While Paul hasn’t specifically commented on income-based repayment, he has another income-related plan for college affordability: as he recently told The Skimm, he would make college costs tax-deductible.

Background reading: Obama Expands IBR, Pushes Refinancing; How Martin O’Malley Wants to Lighten the Load of College Debt

 

New to Earnest?
Earnest is a technology company using software automation, smart design, and exceptional service to restore trust in the lending industry and help clients take control of their finances.