Towards the end of last month, Hillary Clinton laid out her proposal for freeing corporate America from the "tyranny of the next earnings report."
In short, Clinton addressed one of the narratives we’ve been building on for quite some time; namely that corporate management teams are too focused on short-term goals such as maximizing (and manipulating) quarterly EPS figures and inflating the value of their stocks (and by extension their equity-linked compensation) by executing massive, debt-funded buybacks. This of course comes at the expense of capex and other investments in the underlying businesses and for Clinton, the solution to this noxious, productive capacity-sapping, wage growth-impeding, scourge is higher capital gains taxes. Of course one could be forgiven for questioning just how concerned Clinton actually is about this dynamic and how much of her new plan reflects the wishes of corporate backers such as BlackRock where Clinton confidant Cheryl Miller sits on the board.
Having made her stance on the state of corporate America and investor myopia clear, Clinton has since discussed other important issues facing the country such as America’s crumbling race relations (which, you’re reminded, recently hit their worst levels of the 21st century according to Gallup), when she told Al Sharpton that it's "as clear as could be" that police in America treat African Americans unfairly.
Now, the presumed Democratic nominee is set to roll out her plan to confront the $1.2 trillion student loan bubble. As Bloomberg reports, the pitch is expected to be one of the “biggest-ticket policy proposals of her presidential campaign,” totaling some $350 billion and will include $200 billion for states who will be encouraged to do more to facilitate loan-free college educations and a $150 billion refi effort for the country’s heavily indebted students. Here’s more from Bloomberg:
Aides divide Clinton’s proposals into two categories: ensuring that “costs won’t be a barrier” for prospective students at public colleges and universities, and that “debt won’t hold you back” after graduating or leaving college.
Programs in the first category would cost an estimated $200 billion and are centered around an effort to incentivize states to spend more on public higher education that would make it more possible for students to graduate without taking on loans for tuition and for those from low-income families to use Pell Grants to pay for their room and board costs. Students from higher-income backgrounds could graduate from college without incurring debt if they agree to join AmeriCorps, a program that Clinton wants to expand from 75,000 members to 250,000. AmeriCorps participants already get help repaying their student loans.
Forty-seven states spent less per student during the 2014-15 academic year than they did before the recession, a Center on Budget and Policy Priorities analysis found. Clinton hopes to stop and eventually reverse that trend by offering federal funding to states that set out plans to begin spending on their public colleges and universities.
A second set of proposals, costing $150 billion in all, focuses on helping people who already have student debt repay it.
Clinton is following the lead of Warren and the Obama administration in calling on Congress to create a way for people who already have student debt to refinance their loans at the current federal rate. It would benefit an estimated 25 million borrowers, including most people with federal loans, as well as those who are current on their loans from private lenders.
Congress twice last year rejected bills to create a refinancing program but Shireman said he’s optimistic that Clinton could follow through. “It has come close and it's gaining momentum and is much needed,” he said.
“So many borrowers have been cheated by the student loan industry, just like we saw in the subprime mortgage market,” said Chopra, who left the CFPB earlier this summer. "There needs to be beefed up consumer protections to cut down on the conflicts of interest."
Meanwhile, Clinton will look to combine the multiple IBR programs which are playing havoc with ratings agencies’ student loan-backed ABS models and it also appears she may set the cut-off for discharge at 20 years (down from 25 currently on some plans):
Clinton is also proposing consolidating four income-based repayment programs into one, reducing confusion for borrowers and capping payments at 10 percent of discretionary income and forgiving any unpaid debt after 20 years.
Recall that these programs are already set to cost taxpayers some $39 billion over the next decade and that’s just counting projected losses for borrowers starting in 2015. In other words, the total will be $39 billion plus whatever losses accrue from debt that has to be written off on the existing pile of IBR student loans which sits at around $200 billion. Presumably, allowing for the discharge of remaining debt under IBR plans after 20 years as opposed to 25 will only add to the taxpayer burden.
Predictably, Clinton will also step up the pressure on for-profit colleges:
Clinton's plan would expand consumer protections, including creating a new Borrower Bill of Rights to inform people who take out student loans of their options; banning loan servicers and bill collectors that consistently break the law; and helping students who have been defrauded—like those who attended the Education Department-shuttered Corinthian Colleges—discharge their debt.
It would also expand the Obama administration’s efforts to root out bad actors in the for-profit college industry by strengthening the current administration’s gainful employment regulations and requiring colleges to take on some of the financial responsibility when borrowers default on their student loans.
Of course this too comes at a meaningful cost to taxpayers and as we saw with the forced closure of Corinthian Colleges earlier this year (and as we're about to see with Apollo) these totals can also run well into the billions.
While plans to significantly reduce the cost of college will, over the long-term, hopefully help to ensure that the pile of dischargeable debt doesn't continue to grow, the costs of implementing Clinton's programs will of course also be borne by taxpayers - wealthy ones:
Most of the programs would require congressional approval, as would the campaign's preferred way of funding them, by capping the value of itemized tax deductions for the wealthy.
And in case there was any confusion in all of this about how Clinton's plan will be characterized by GOP lawmakers, we'll close with the following, again from Bloomberg:
The so-called New College Compact is designed to do the same thing for higher education that the Affordable Care Act did for health care.
Legislatures and governors will have to take action to turn on the spigot of federal funding, potentially provoking the same kind of partisan fights in state capitols created by the Affordable Care Act’s option for states expand Medicaid.
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Bonus: if you're not inspired yet, here's the official video from the Clinton campaign