Trump Just Laid Out a Pretty Radical Student Debt Plan

Republican presidential nominee Donald Trump is proposing the most generous student loan repayment plan. REUTERS/Eric Thayer

CarpeDiem, Washington - Donald Trump is promising the most liberal student loan repayment plan since the inception of the federal financial aid program, in a clear effort to court the millions of Americans struggling with the high cost of college.

“We would cap repayment for an affordable portion of the borrower’s income, 12.5 percent, we’d cap it. That gives you a lot to play with and a lot to do,” Trump said at a rally in Columbus, Ohio, on Thursday. “And if borrowers work hard and make their full payments for 15 years, we’ll let them get on with their lives. They just go ahead and they get on with their lives.”

The terms proposed by the Republican nominee are more generous than all of the existing government programs that let borrowers cap their monthly student loan payments to a percentage of their earnings. Even the latest income-driven plan, known as Revised Pay as You Earn (REPAYE), forgives remaining debt after 20 years of payment, though it caps borrowers’ monthly bills to 10 percent of their income.

“Students should not be asked to pay more on the debt than they can afford,” Trump said. “And the debt should not be an albatross around their necks for the rest of their lives.”

What’s remarkable about Trump’s proposal is it flies in the face of the fiscal conservatism that’s supposed to define the Republican Party. Republicans have railed against the Obama administration’s expansion of income-driven repayment programs as fiscally irresponsible, yet the party’s nominee wants to lower the period of repayment, which is sure to cost the government quite a bit of money.

“They are way off on their numbers,” said Jason Delisle, a resident fellow at the American Enterprise Institute, a conservative think tank. “If you were going to give loan forgiveness in 15 years, you’re going to forgive a lot more debt than you’re going to make up for in the form of the higher payments they’re proposing, by a lot. I don’t even need to run the numbers. It’s so obvious.”

Trump’s campaign said he would consolidate the existing suite of repayment plans and apply his 15-year income-based plan to federal and private student loans. The candidate is not providing any cost projections, but the campaign said the plan will be paid for by lowering federal spending and the savings from reducing defaults on student loans.

Income-driven plans, which have been around for the past 20 years, have grown in popularity as student debt has soared to $1.3 trillion, but they are the source of much political tension. Conservatives have called the plans a giveaway to doctors and lawyers with six-figure debt from graduate school, while some on the left worry that low-income undergraduates with less debt are missing out on the benefits. The right also has framed the program as a burden on taxpayers.

“Income-driven repayment is not the ideal solution. It’s been a politically convenient one, but it doesn’t address the underlying issues,” said Amy Laitinen, director for higher education at the New American Foundation. “Given the increasing risk to students in terms of loans and to taxpayers in terms of loan forgiveness, we have to grapple with upfront costs, which means looking at the role of states and the need for incentives to deal with both cost and quality.”

At Thursday’s rally, Trump revisited some previously discussed higher-education proposals, including requiring colleges to spend their endowments to keep tuition low and cut student debt or risk losing federal tax breaks. Congressional Republicans have asked 56 private universities, each with endowments exceeding $1 billion, for information about the use of that money. Wealthy universities have come under fire for not using more of their largess to cover the cost of college for low-income students.

“Some schools are paying more to hedge funds and private-equity managers than they are spending on tuition, while taxpayers are guaranteeing hundreds of billions of dollars of student loans to pay for rising tuition,” Trump said. “We want universities to spend their endowments on their students, not themselves.”

Universities have argued that their endowments are not savings accounts that can easily be drawn down and that they are raising money to cover the financial need of low-income students. What’s more, they say redirecting more money to grants and scholarships would mean they would have to find other sources of revenue, such as tuition, to cover salaries and operations.

The Republican nominee also promised to reduce federal regulation on colleges, which he said account for up to 15 percent of a school’s budget, so they can pass on the savings to students in the form of lower tuition. Trump said that colleges must be held accountable for reducing “administrative bloat” to keep the cost of attendance down.

“If the federal government is going to subsidize student loans, it has a right to expect that colleges work hard to control costs and invest their resources in their students,” Trump said. “If colleges refuse to take this responsibility seriously, they will be held accountable.”

While the Delta Cost Project has tracked an explosion in the number administrative, managerial and executive positions at universities in the past 25 years, the trend is not evident at all schools and accounts for a marginal increase in costs at public universities.

“There was no recognition of the root causes of the college affordability problem, namely the loss of state funding and stagnation of student grant aid,” Mark Huelsman, senior policy analyst at left-leaning think tank Demos, said of Trump’s plan. “There is a lot of rhetoric around colleges tightening belts, but the fact is that community colleges, minority serving institutions and regional public colleges have gone through far too much belt-tightening already.”

Trump has stepped up his discussion of college affordability in recent weeks, after spending much of the campaign ignoring an issue that has been the centerpiece of Democratic nominee Hillary Clinton’s pitch to millennial voters. Clinton is proposing tuition at public colleges and universities be free for students from households earning up to $125,000 a year. She is also promising to let students and parents refinance education loans to lower their interest rates.

“More than a year after Secretary Clinton released her plan to take on college costs and student debt, we are still waiting for Donald Trump to lay out a detailed plan for addressing these issues,” Clinton campaign spokesman Tyrone Gayle said. “The promises he has made so far are as empty as the promises he made to students at Trump University. There is only one candidate in this race with a real plan to make college debt-free and provide relief for millions of borrowers, and it is not Donald Trump.”