What You Need to Know About the Clinton-Sanders Compromise on Student Loans

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Bernie Sanders' effort to push the Democrat party -- and Hillary Clinton -- to the left worked when the $15 minimum wage was included in the party's platform, but didn't when the platform committee refused to reject the Transpacific Partnership (TPP) as Sanders demanded. Clinton supported TTP as Secretary of State but opposes it as a candidate for The White House.

But on student loans, they split their differences.

Sanders made free in-state tuition at public colleges a mainstay of his campaign from the beginning, which Clinton dismissed as being unaffordable. After the two campaigns huddled, Clinton unveiled a plan on July 6 to make in-state public colleges and universities free for students whose families make less than $125,000 per year by 2020. Clinton's plan falls short of free, yet won Sanders' praise.

"I want to take this opportunity to applaud Secretary Clinton for the very bold initiative she has just brought forth for the financing of higher education," Sanders said. "This proposal combines some of the strongest ideas she fought for during the campaign with some of the principles that I fought for. The final product is a result of the work of both campaigns."

Clinton has compromised as well, acknowledging that borrowed money has become part of the problem in higher ed, with unsustainable student loans becoming an increasingly dodgy solution.

"American families are drowning in debt caused by ever-rising college costs," Clinton said in statement, "and it is imperative that the next president put forward a bold plan to make debt-free college available to all. My New College Compact will do just that."

Clinton has modified her New College Compact plan, first unveiled in August 2015 as a response to the unexpected threat posed by Sanders' outlier candidacy. The amended plan spells out how free public school tuition would gradually be made more widely available. Students with family incomes of $85,000 or less would be covered by 2018. This income cap would increase by $10,000 annually from until 2021, when in-state schools would be free to all families with incomes under $125,000.

Clinton has also followed Sanders' lead by supporting the ability to refinance federal student loans.

What didn't make the cut was Sanders call to "Stop the Federal Government from Making a Profit on Student Loans," to the tune of over $110 billion in the next decade according to his campaign's website. Sanders also wanted to cut student loan interest rates to 2.37% from 3.76% in 2016-2017. Sanders' demand that public colleges and universities meet 100% of the financial need of the lowest-income students was a non-starter as was the "imposing a tax on Wall Street speculators" to pay for Sanders initiatives, which his campaign priced at $75 billion a year. From here, Clinton is building her own higher ed agenda.

Clinton wants to encourage borrowers with multiple federal loans to consolidate them, and her campaign has linked that to a three-month moratorium on all federal student loan payments. Clinton said her administration would take "immediate executive action" to halt these payments for three months, a move that would cost the federal government about $1 billion.

It will cost borrowers as well. The Clinton campaign has said that the interest on these loans would continue to capitalize, making it the equivalent of placing these loans in forbearance, an option already available to people with federal student loans. Student loan experts have questioned the wisdom of Clinton this plan.

"Borrowers do not need a three-month moratorium for federal student loan payments to consolidate their loans or enroll in an income-driven repayment plan," said Mark Kantrowitz, publisher and vice president for strategy at Chicago-based Cappex.com, a Web-based source of information on college scholarships and the college application process. If interest continues to be charged, he said, the Clinton moratorium may actually hurt borrowers by causing their loan balances to increase.

Clinton's campaign has said her administration would streamline existing federal Income Driven Repayment plans. The four plans are Income-Based Repayment (IBR), Income Contingent Payment (ICR) PAYE, or Pay As You Earn and its new, improved cousin, the Revised Pay As You Earn plan (REPAYE) one of President Obama's key initiatives. Few details are available about how this would be carried out.

Except ICR, which caps payments at 20% of discretionary income over 25 years, the others are variations on the same theme, which lets borrowers pay about 10% of their discretionary income over about 20 years for undergraduate loans. The Clinton plan would roll all four into one program with one rate and loan term, similar to a solution favored by Senator Lamar Alexander, the Tennessee Republican who chairs the Senate HELP committee that oversees legislation for higher education. Under a single plan scenario, Clinton wants all monthly payments capped at 10% of income. Unpaid loan balances would be forgiven after 20 years of on-time payments; borrowers in public service fields would be done after ten.

Although enrollment would be automatic, the onus is currently on the borrower to become educated about these plans and pick one, a task many find daunting.

Even if Clinton wins the general election she will likely face a hostile Congress that will look to thwart her higher ed initiatives.

A first shot across the bow has already been fired. Efforts in the Senate to restore year-round Pell Grants, a program Clinton endorses, were blocked by the GOP-dominated U.S. House Appropriations Committee on July 6.

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