Bill Clinton

Student Loan Deja Vu

Student loan schemes originally proposed by the Clinton administration have proven as ruinous as expected once adopted by the Obama administration


Exactly 20 years ago, in reason's May 1995 issue, John Hood described then-President Bill Clinton's plans to revamp student aid, which included a proposal that the federal government take over the role of lender: "The selling point of Clinton's direct-lending scheme, passed as a pilot program last year, is that it would eliminate the private middlemen and have the Education Department issue loans directly to students. The administration claims this will save the government billions of dollars a year, but we won't be able to gauge that for another six to eight years, when the loans start to come due. Without waiting for the results of this experiment, Clinton wants to increase dramatically the number of loans directly issued by Washington."

Clinton's dreams of direct lending were thwarted by the infamous Republican-dominated 104th Congress, which passed legislation limiting the measure in 1994. But President Barack Obama finished what Clinton started with the Health Care and Education Reconciliation Act of 2010, and as of that year all new loan originations come from Washington.

While it's true that the measure has saved some administrative costs, the move has done nothing to address the exploding price of college education. In fact, it is likely to make an already terrifying trend worse as colleges inflate their rates to milk the feds for all they're worth.

Now, with over $1 trillion in overall education debt hanging over the heads of American graduates, Obama is looking to revive another element of Clinton's dream. Obama's 2016 budget contains a debt forgiveness measure. But buried in the February proposal is this bombshell: The student loan program will rack up an impressive $21.8 billion shortfall in a single year. Politico's Michael Grunwald called it "a big quasi-bailout, increasing the deficit nearly 5 percent." Obama also debuted another expensive proposal in February, a plan to make community college free for many Americans.

In his 1995 article, Hood made a prediction: "Clinton's policies, if enacted, will actually make it easier for colleges and universities to charge students more and more for tuition and other costs." He was right: The College Board puts annual tuition, fee, and room and board for the 1989-90 school year at $24,622 for private four-year colleges and $9,417 for public schools (in 2014 dollars). Those figures have nearly doubled since then, to an average cost of $42,419 for private and $18,943 for public schools.