Presidential candidate Hillary Clinton’s plan to make interest rate cuts a central part of her education platform puts her in an "awkward spot," according to an article from the Brookings Institution.
"For future undergraduates we will significantly cut interest rates so they reflect the government’s low cost of lending … so the government never profits when students borrow," Hillary’s campaign documents say.
According to the article, Clinton erroneously claims that the government earns a profit on undergraduate loans. But according to Congressional Budget Office numbers, the next ten cohorts of undergraduate loans will cost $19.6 billion while graduate and parent loans will earn $72.9 billion.
"There is a problem with a rate-cuts-for-undergraduates-only-approach," the article states. "By Clinton’s rationale, she has targeted the wrong loans."
Additionally, the article notes that undergraduates are about three times as likely to default on loans than graduate students.
"Clinton’s rationale for rate cuts puts her in an even more awkward spot when you consider this dynamic: Recall that graduate and parent loans default at one-third the rate of undergraduate loans, and parent loans do not qualify for the most generous income-based repayment plans," the article states.
"They are, in other words, less risky for the government. To cut the interest rate enough to eliminate profits on graduate and parent loans then, her policy would end up charging those borrowers lower interest rates than undergraduates—the exact opposite of current policy and a regressive distribution of benefits to boot."