Obama’s Legacy and Income-Contingent Loans

In the latest issue of the Washington Monthly, Steven Waldman recounts the history of “pay-as-you-can” student loans from the infancy of the idea in Bill Clinton’s 1992 presidential campaign to its fulfillment during Obama’s presidency.

It’s largely forgotten that Clinton coupled income-contingent college loans to his national service proposals, but the idea was that college debt shouldn’t dissuade people from taking lower paying jobs in the service of the country.

Clinton was able to create AmeriCorps and get some statutory authority to pursue income-contingent loans, but divisions within the education community and his own coalition prevented him from getting very far.

Flash-forward to Obama. A combination of new legislative authority (including some signed into law by George W. Bush) and more aggressive action by Obama has made the income-based repayment plans start to flower. The volume of income-based loans more than doubled from 2013 to 2014, to $102 billion in loan volume, according to the Chronicle of Higher Education.

It’s still overly complex, and there are several variants of the approach, but the key is that borrowers don’t have to pay more than 10 percent of their income. And if they are still paying after twenty years, the remaining debt would be wiped out. What’s more, if they work in government or some nonprofit jobs, the remaining debt would be wiped out after ten years.

Income-based loans don’t just help the Ivy Leaguer who wants to try Teach for America. They are also ideal for a forty-year-old parent who has decided to work part time to take care of his kids and therefore has less income to pay back loans—or a working-class student who took on debt going to school at night only to find that the customer service job he wanted has been outsourced to India. It helps not only those who choose public service but also those who struggle for reasons of global economics, family raising, or bad luck.

Implicit in all of this is a fairly radical principle: If you have tried for twenty years to make a solid income and still can’t, we’re going to give you a retroactive subsidy. Until now, financial aid was based on the income of the parents or student at the time of schooling. Under this system, a judgment about a subsidy will occur a second time, at the end of twenty years.

It’s a good policy change and it’s flown mainly below the radar. In the end, it will be an important and positive part of President Obama’s legacy.

Martin Longman

Martin Longman is the web editor for the Washington Monthly and the main blogger at Booman Tribune.