Clinton’s Student Loan Plan: Subsidies for Stanford Graduates

Hillary Clinton, multimillionaire politician, Davos-guest extraordinaire, and giver-of-speeches to Goldman Sachs, is reportedly worried that she is not in tune with the populist mood of the electorate—and understandably so. But her latest student loan initiative—essentially, a targeted subsidy for the most successful college graduates—doesn’t seem particularly likely to help repair her image of among voters who feel that the system is rigged in favor of connected elites. Here’s Alexander Holt in Inside Higher Education:

In trying to prove how much she believes in innovation and how much Silicon Valley investors should donate to her campaign, Clinton proposed some of the most complicated ideas for loan forgiveness ever. Not only are they hard to implement, but they would help wealthy Americans over everyone else.

Clinton has two loan proposals. First, anyone starting a business who has federal student loans can choose to not pay the loans for three years and not accrue any interest. She would also “explore” applying this to the first 10 or 20 employees of a new company. […]

Clinton’s second proposal is that “for young innovators who decide to launch either new businesses that operate in distressed communities, or social enterprises that provide measurable social impact and benefit, she will offer forgiveness of up to $17,500 of their student loans after five years.”

The real losers from America’s dysfunctional student loan system are not young CEOs, but marginal and disadvantaged students who are often pushed by federal subsidies into programs they can’t complete or can’t afford. The overwhelming majority of the students in default on their federal loans went to third-tier or for-profit institutions or failed to graduate altogether. Graduates with the skills and social resources needed to incorporate a successful company are not in need of an expensive bailout.

Moreover, as Preston Cooper argues at Economics21, Clinton’s promise to give special treatment to the loans of graduates who work at vaguely-defined “socially impactful” companies is practically an invitation to cronyism. “In all likelihood, this provision would be used subjectively by Washington bureaucrats to reward the owners of favored businesses, while implicitly punishing those who fall outside the privileged category,” he writes.

Any serious policy for reducing Americans’ student loan burden should focus on bringing down the cost of college. That means shaking up the accreditation system to encourage more competition and forcing colleges to have skin in the game if their students can’t pay back their loans. It also probably means that the federal government should rein in its free-flowing loans and make more room for private lenders. Further expanding subsidies while creating exemptions and carveouts for favored interests is a regressive approach that will just make higher education more expensive and more unfair.

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