Hillary Clinton’s Plan to Address the Student Loan Crisis

Over a year ago, Hillary Clinton called on the Bush Administration to address the growing problems in the subprime mortgage market. Instead of listening, President Bush stood by as the subprime crisis spiraled into a larger housing and credit crisis that is driving our economy downward. This economic crisis now threatens to claim another victim: student loans. As the result of the credit crunch, more than 50 student lenders, accounting for almost 14% of private student-loan volume, have already withdrawn from the guaranteed student loan program [Wall Street Journal, A3, 4/24/08]. Hundreds of thousands of students who are actively considering how to finance their college educations could be left in the lurch, without the ability to pay for college. And when those students are not able to college, that is not only tragic for them but a loss for our economy as a college graduate earns $1 million more over the course of their lifetime than someone with a high school diploma.

Now is the time to act to prevent a student lending crisis. In Indiana, where six of every ten students graduate with debt, and that debt averages $21,000, it is vital that we ensure that every Hoosier student can count on the loans they need to attend school in the fall [Project on Student Debt]. Today, Hillary laid out her plan for addressing the student loan crisis. She urged the Bush Administration to support her plan, and act swiftly to head-off this growing crisis.

1) Give schools a fast-track option to enter the secure, Direct Loan Program without delay. The Department of Education administers the Direct Student Loan program, which provides low-interest, federally backed loans directly to students. The Direct Loan program costs taxpayers less than the private student loan program and provides a safe and secure avenue for ensuring that students can obtain the financing they need for college. For many schools that face problems with private lenders, entering the Direct Loan Program may be the most secure, cost-efficient solution to ensuring all students can access loans this fall. Yet, the average wait time for schools to transfer from the private student loan program to the Direct Loan program is approximately six weeks. Senator Clinton believes that given the unique challenges in the student loan market, we should enact a temporary, fast-track alternative to expedite new applications into the Direct Loan program for schools that have lost their private lenders. We have already seen Indiana University at Bloomington shift from the private loan program to the Direct Loan program in order to protect the 12,000 students receiving federally subsidized loans from the crisis. The Department of Education should act immediately to ensure that other higher education institutions can follow in IU Bloomington’s footsteps without delay.

2) Ensure that parents who have faced foreclosures as a result of the mortgage crisis are not doubly penalized when they seek student loans for their children. Under current law, parents who want to take out PLUS loans, federally guaranteed low interest loans to help pay for their child's education, may be denied student loans if they defaulted on a mortgage or are 90 days late in repaying their debt. But because of widespread predatory lending, this policy denies student loans to many people who defaulted because of deceptive and unfair practices. Hillary Clinton believes we should not automatically disqualify this group of people from taking out PLUS loans to help their children attend college. The applications should be judged on an individualized basis, in light of all the circumstances.

3) Establish the Department of Education, working with the Treasury Department, as a safety net for student borrowers. Today, schools in the private loan program have banks that service their loans. But the banks are pulling out of the program, leaving schools and students without access to financial assistance. Hillary Clinton believes that the Department of Education must be ready to step in to help ensure that responsible, hard-working students have access to higher education. Hillary is calling for the Department of Education to:

Serve as Lender of Last Resort -- Under current law, the Department of Education has the ability to designate a guarantee agency to serve as a "lender of last resort." Hillary believes schools that are unable to locate lenders for their students should be required to immediately notify the Department of Education and the state's designated guarantee agency. Guarantee agencies should review a school’s certification of need for last-resort loans, and develop a plan for ensuring that the students receive loans (either through the guarantee agency, through an agreement with a new lender, through the Direct Loan Program, or through an alternative arrangement that is acceptable and certified by the guarantee agency). The Department of Education ought to establish a line of credit at the Department of Treasury to enable it to advance money to guaranty agencies – state or private entities that insure federal loans -- to ensure a smooth, uninterrupted process for students and their parents for them to serve as lenders of last resort.

Purchase loans directly from lenders -- Senator Clinton supports giving the Department of Education the authority to purchase federally guaranteed loans, with financing from the Department of Treasury, from lenders who are no longer able to service the loans. Once the federal government has purchased these loans, the Department of Education can service them loans through the Direct Loan program, giving student borrowers access to valuable benefits like loan forgiveness for public service work. This proposal will provide much needed liquidity and shore up the student loan market. Hillary believes this authority must come with a guarantee from participating lenders that they will continue to provide student loans. She will also take steps to prevent student lenders from dumping risky loans on the federal government.