Hillary Clinton unveiled a plan Wednesday to give grads saddled with piles of student debt a break on their payments and to give future students an even bigger break: free tuition.
Clinton's "New College Compact" would initially offer free in-state tuition to students from families with incomes up to $85,000, and later to students with family incomes of up to $125,000. In addition, it would offer a three-month hiatus on the repayment of federal student loans to allow for time to refinance debt.
"American families are drowning in debt caused by ever-rising college costs," Clinton said in a statement Wednesday. Her plan aims to make sure that "working families can send a child or loved one to college."
The cost of this plan? About $350 billion over 10 years, according to Clinton's briefing materials, which would be paid by closing loopholes for high-income taxpayers.
While a free education probably sounds like a dream to prospective students, some experts say it could have unexpected ramifications. For one, students might put less of a value on their education themselves and thus may slack off, said Jon Baumunk, a lecturer at the Charles W. Lamden School of Accountancy at San Diego State University.
"I believe there should be some sort of accountability, such as the free tuition being given in return for classroom performance," Baumunk said. "I would propose that a minimum GPA and a minimum class attendance requirement be put on the table for discussion."
Another problem with free tuition is that it could end up raising the price of college, according to Alex Chediak, author of Beating the College Debt Trap: Getting a Degree Without Going Broke. Colleges would have fewer incentives to keep their costs in check if the government is picking up the tab. "Schools would be more likely to ignore rising costs because they're assured a strong customer base" of more than 80% of American families, according to Clinton's campaign.
As far as the plan to help grads refinance their debt, it could help current borrowers only if they can refinance to actually lower interest rates. “If the refinancing terms merely lower monthly payments by extending the years of repayment (which drives up the total cost), then it could hurt current borrowers,” Chediak said.
When it comes to the pros to Clinton's plan, aside from opening college to a wave of new students, it could help stimulate the economy. On average, this year's college grads have just over $37,000 in student debt each, reports Mark Kantrowitz, publisher of Cappex.com. Lowering the total cost of that debt could help not only the students, it could help new businesses grow and home sales to strengthen, says Jamie Hopkins, professor at the American College of Financial Services.
"The burden of student loan debt limits the ability of young people to start businesses and take financial risks that may pay off later," Hopkins said. "As debt mounts, borrowers put off home ownership and feel trapped by their obligations."
Chediak said the solution to the student debt crisis goes beyond student loans and tuition to personal responsibility. Students must shop for value when choosing a college, and select majors with reasonable job prospects.
“Loan-forgiveness programs, in addition to the price tag for Uncle Sam, do not create an incentive for future college students to pursue marketable fields,” he said. “We need to cultivate families and students to make wise decisions from the get-go: taking on less debt and developing marketable skills so they can command higher earnings.”
Clinton's college plan basics
• Free in-state tuition for public universities — initially for families with incomes of up to $85,000, later for families that make $125,000.
• A three-month hiatus on collecting federal student loan payments. This would give borrowers time to refinance or restructure their debt on more favorable terms.
• Expanded access to Pell Grant funding. By restoring year-round Pell Grants, students can use the money to pay for summer classes.
