The Taxpayer's Tab - Vol. 7 Issue 30, August 15, 2015

The two Democratic Presidential candidate front-runners have each offered proposals to significantly increase the federal government’s role in higher education.

Hillary Clinton announced “The New College Compact,” a $350 billion proposal to make public colleges and universities more affordable. The plan was announced at a town hall event in New Hampshire, where some of the first primaries of the 2016 election will take place and the average student borrower owes nearly $33,000 in loans.

Senator Bernie Sanders (VT), on the same day that Clinton announced her plan, said in a speech that “[I] have legislation in, that I will fight to implement as president, that will make every public college and university in America tuition-free.” The bill he was referring to is S. 1373, the College for All Act.

Both candidates have promised that their college affordability plans will make tuition more affordable, but what will that mean for the federal budget -- and for taxpayers?

The Clinton Compact

Hillary’s plan would try to achieve two primary goals: make college tuition affordable enough that students “never have to take out a loan to pay for tuition” and “mak[ing] sure that debt won’t hold anyone back.” All told, it would require a spending increase “in the range” of $350 billion over ten years. The “Compact” proposals include:

  • Setting aside federal funding for grants to states that agree to significantly reduce tuition at their schools.

  • Incorporating President Obama’s $6 billion per year plan to make community college “free” by using federal funds to cover 75 percent of two years’ worth of tuition, with state governments paying for the rest.

  • Allowing borrowers to refinance their federal student loans at new, lower rates, similar to Senator Elizabeth Warren’s Bank on Students Emergency Loan Refinancing Act, which CBO most recently scored as a $58 billion cost over three years. In addition it would offer debt forgiveness after 20 years for those who make their payments consistently.

  • Strengthening the GI Bill’s anti-fraud measures.

  • Expanding the $457 million AmeriCorps community service programs from 75,000 to 250,000 members.

  • Permanently extending the American Opportunity Tax Credit. This Credit, originally passed in the 2009 “stimulus” law and was subsequently extended through 2017. It is a refundable credit available to filers in excess of any tax liability, increasing spending by $4.3 billion in FY 2015.

  • Simplify existing income-based repayment plans, similar to President Obama's proposal in his latest budget (which CBO scored as a $9.6 billion first-year cost).

Clinton’s campaign claims the plan would be “fully paid for by limiting certain tax expenditures for high-income taxpayers.” However, it does not specify which of those tax provisions it would target. Aides have suggested to CNN that the Compact would mirror tax proposals included in President Obama’s recent budget, like limiting the value of tax deductions for those making $200,000 or more ($250,000 if filing jointly) by 28 percent. The Obama Administration estimated that such a proposal would increase tax receipts by $603 billion over ten years.


Senator Sanders’ Proposal

As mentioned previously, Senator Sanders introduced the College for All Act earlier this year, a sweeping piece of legislation that would offer taxpayer-subsidized tuition at all public colleges and universities. NTUF covered the legislation in a June edition of The Taxpayer’s Tab, and found that it would increase federal spending by $109.9 billion in the first year alone.

  • S. 1373 authorizes $47 billion in FY 2016 to fund grants to states, which would be used to cover two thirds of college tuition. The rest would be covered by state governments.

  • The legislation also, like Clinton’s plan, would allow borrowers to refinance their student loans at new, lower rates and would cap interest at 8.25 percent -- a $62.9 billion cost.

  • The bill includes specific funding levels for the Federal Work-Study program over the next five years, which would increase spending relative to current levels by about $5 billion over that time.

Sanders has proposed to cover the costs of providing reduced-price education by enacting an “Inclusive Prosperity Tax” of 0.5 percent on stock earnings, 0.1 percent on bonds, and 0.005 percent on derivatives. Supporters of the tax on financial transactions, which would be in addition to current rates, claim that it could raise up to $300 billion per year in new taxes.


The Real Cost of “Free” College 

Both Secretary Clinton and Senator Sanders have offered their own solutions to the problem of college affordability, but they come with high price tags for taxpayers. And although the proposals are being marketed as progressive measures, some analysts are actually questioning whether or not they offer a disproportionate amount of federal aid to those who need it less -- namely, those pursuing degrees in law or medicine who incur large debts, but usually enter careers that enable them to pay them down with less difficulty.

While “free” college might seem like an appealing concept in theory, the reality is that such proposals necessarily result in more debt -- shared by taxpayers across the country and eventually, the graduates they aim to benefit.

In Case You Missed It:

  • Last week we analyzed the potential costs of the proposals touted in the first Republican Presidential debate.
  • A more detailed analysis of the items, including a few cost updates, is available here.
  • Similarly, NTUF's Demian Brady recaps the legislative agendas of former-Senators and Presidential hopefuls Rick Santorum and Lincoln Chafee.
  • Will Vice President Joe Biden jump in the race? If so, what will his agenda be?NTUF's Michael Tasselmyer reports on the former Senator's legislative agenda.
  • NTUF Associate Policy Analyst Spencer Woody looks at a proposal to reform the management of federal lands.
  • NTUF Communications Associate Alwyn Lansing reviews Hillary Clinton's Senatorial spending agenda:

National Taxpayers Union Foundation is a nonpartisan research and educational organization dedicated to helping Americans of all ages understand how taxes, government spending, and regulations affect them. Through our timely information, analysis, and commentary, we’re empowering citizens to engage in important policy debates and hold officials accountable.

Our findings are provided for educational purposes only and are not intended to aid or hinder the passage of legislation or as a comment on any Member’s or Candidate's fitness to serve.

Copyright © 2015 National Taxpayers Union, All rights reserved.

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