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What Clinton’s College Affordability Plan Could Mean for You

July 8, 2016
Loans, Student Loans
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In a bid to make college more affordable, Hillary Clinton announced updates to her higher education reform plan this week, most notably pledging free tuition for students at in-state public universities. The move expands on a plan that the Democratic Party’s presumptive presidential nominee unveiled in August 2015.

The Republican presumptive nominee, Donald Trump, hasn’t released a higher-education reform plan, and the Trump campaign did not respond to NerdWallet’s request for comment.

The Clinton campaign estimated that her original proposal, called the New College Compact, would cost $350 billion to implement  over 10 years. It would be funded by limiting some tax deductions for high-income earners.

Here are five key aspects of Clinton’s entire plan:

1. Free tuition for qualifying students

Clinton promises to eliminate tuition at in-state public colleges for those with combined family incomes of up to $125,000, and seeks to fully implement this plan by 2021. That income threshold would cover more than 80% of all families in the U.S., her campaign says. Students from families with a combined income of up to $85,000 a year would be able to get free tuition at qualifying universities immediately, should Congress approve the plan.

Additionally, Clinton proposes to let all students attend community college tuition-free. Kevin Fudge, the manager of consumer advocacy and government relations for American Student Assistance, a Boston-based student loan nonprofit, says this part of Clinton’s plan is more realistic than her proposal for free tuition at in-state public colleges.

Borrowers attending private four-year colleges wouldn’t qualify for free tuition under Clinton’s plan. But it would cut interest rates on federal student loans “nearly in half,” she says. Rates for direct subsidized and unsubsidized undergraduate loans were 4.29% for the 2015-16 school year.

2. Student loan refinancing through federal government

Borrowers would also have the opportunity to refinance their federal student loans at current lower rates via the federal government. The Clinton campaign estimates this aspect would impact 25 million borrowers, with typical savings of $2,000 over the life of a loan.

“If you can refinance your mortgage or your car loan, you should be able to refinance your student loan, too,” Clinton has said.

Borrowers of federal loans currently are allowed to refinance only through private lenders, which involves losing federal loan benefits, including access to income-driven repayment plans and loan forgiveness programs.

3. Streamlined income-based repayment plans

Clinton wants to “simplify, expand and develop options for automatic enrollment” in income-based repayment plans. Her proposal also would help eliminate confusion for borrowers, who currently have four income-driven plans to choose from, says Zakiya Smith, strategy director for Indianapolis-based Lumina Foundation, which provides grants aimed at improving the higher education system.

“This would consolidate the number of plans to just one, which I think a lot of politicians and policymakers have been talking about on both sides of the aisle recently,” Smith says.

Clinton proposes to let all borrowers cap their monthly payments at 10% of their income and get loans forgiven after 20 years of making on-time payments, or after 10 years of payments for borrowers who work in public-interest positions. She would also implement automatic enrollment in the payment plan. Borrowers now have to opt in to one of the four income-driven plans, and each plan has slightly different requirements and terms.

4. Three-month moratorium on payments for federal borrowers

Clinton proposes to offer a three-month moratorium on payments for all federal student loan borrowers, to be implemented by executive action. The three-month pause, she says, would allow the Department of Education to help borrowers sign up for income-driven repayment plans and consolidate their federal loans. The Clinton campaign did not immediately respond to NerdWallet’s request for more details about the proposed moratorium, which was added this week to the 2015 higher education plan.

5. Restoration of year-round Pell Grant funding

Qualifying low- and middle-income students would once again be able to use Pell Grant money to pay for summer classes. Year-round Pell Grants, which were eliminated in 2011, could potentially help low-income students more than any of the other measures in Clinton’s proposal, said Temple University economics professor Doug Webber in a tweet on July 7.

Senatorial efforts to restore year-round Pell Grant funding were blocked Thursday by a subcommittee at the U.S. House of Representatives. 

Other aspects of Clinton’s plan

Clinton also proposes to simplify the Free Application for Federal Student Aid process, known as the FAFSA; provide loan deferment and forgiveness to qualifying aspiring entrepreneurs; encourage employers to help employees repay student loans; and increase federal funding on campuses that support college completion. Her plan also incorporates bipartisan policies like risk-sharing, which penalizes colleges when too many of their graduates default on their loans.

Anna Helhoski and Teddy Nykiel are staff writers at NerdWallet, a personal finance website. Email: [email protected] or [email protected]. Twitter: @AnnaHelhoski or @teddynykiel.

NerdWallet writer Brianna McGurran contributed to this report.

This article was updated July 8, 2016. It was originally published Aug. 11, 2015.

A previous version of this article misspelled the name of Temple University economics professor Doug Webber. This article has been corrected.