COLLEGE: Who’s Paying?

The problem of skyrocketing college costs is, by at least some measures, even worse than we thought. The total amount of outstanding student debt has roughly tripled in the past decade, creeping toward $1.3 ­trillion, and 1 in 10 borrowers is now either delinquent in repayment or already in default.

While the biggest burden disproportionately falls on low-income students, especially those attending for-­profit universities, college costs have become a problem that both Republican and Democratic politicians can no longer afford to ignore. Here are two relatively novel fixes to the problem.

The Democrats’ Debt-free college
The idea was born with Bernie Sanders’ sweeping promise to make college free for everyone. While his plan was short on specifics for funding such a costly experiment, it was wildly popular among young voters. In July, Hillary Clinton, eager to win over Sanders’ base, embraced most of it, with a few caveats.
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Clinton’s version of the plan, which she calls the New College Compact, would make tuition free at all public colleges and universities for more than 80% of American ­families—those with annual household incomes of $85,000 or less. By 2021, the program would apply to families earning up to $125,000 per year. At community colleges, tuition would be free for all students of all income brackets immediately. In addition to making tuition free for most Americans, Clinton promises to create a marketplace in which no student will have to go into debt to pay for necessary expenses like room and board and books—costs that can add up to half the total price of attending a public school. While students and their families would be expected to contribute to underwrite such costs, Clinton’s plan would create incentives for colleges to keep expenses in check.

So far, her campaign has not provided many nitty-gritty details on how, exactly, all this would get paid for. Top aides have estimated that the program would cost roughly $500 billion over 10 years, which would be underwritten largely by new taxes on the very rich and new limits on tax deductions. Clinton originally criticized Sanders’ tuition-­free plan for relying on state governors to contribute one-third of the funding. But her plan would likely require similar state contributions, a heavy lift politically, especially in Republican-led states.

The Republican-backed income-sharing plan
The idea, championed by Florida Senator Marco Rubio, seems at first glance unusual: wealthy investors agree to pay for college students’ educations in exchange for a set percentage of their future ­incomes—which is paid out for a certain number of years after graduation.

But if the idea of investing in human assets seems odd, advocates of the plan argue that it’s no different, at least in theory, from what exists now. Under the Education Department’s income-­based repayment program, students borrow a certain amount from the federal government with the guarantee that they can cap their future loan payments at 10% of their discretionary income for 20 years, at which point the balance is forgiven.

That’s basically how Rubio’s income-sharing plan works, proponents say, only his version is better. Students who borrow from private-­sector investors would not pay any interest at all. They would not be responsible for a fixed principal. They would, instead, simply agree to pay a percentage—say, 10%—of their future earnings each month, regardless of how much they made, for a fixed period of time. If a student landed a job that paid well, she would pay a larger sum each month—a boon for her investors. But if she wound up unemployed or in a poorly paid job, she would pay very little and investors could end up getting back less than they spent on her education. Regardless, the student would arrive at the end of her negotiated payment period scot-free, and private ­investors—not ­taxpayers—would take on the risk of coming up short.

While the plan has yet to get off the ground nationally, it has earned plaudits from state and local policy­makers and prominent Republicans like New Jersey Governor Chris Christie. As of this school year, Purdue University, which is led by former Indiana governor Mitch Daniels, is offering one of the first comprehensive pilot programs to 400 rising juniors and seniors.