In a broad new $350 billion higher education plan released today, Hillary Clinton took aim at two of education's biggest and most troubled industries: for-profit colleges and student loan servicers.
Clinton's so-called "New College Compact" is largely centered around reducing debt at public colleges and making it easier for students to repay their loans. But it also calls for a crackdown on alleged abuses and conflicts of interest within both the for-profit college and loan servicing industries, which have been the target of consumer protection lawsuits and increased federal oversight.
Clinton said she would cut bad actors out of the industry, cutting off federal aid to schools that had been proven to mislead students and "banning repeat offenders" in the student loan servicing industry from holding federal contracts. She said she would have "zero tolerance" for companies that overcharged military service members, a widespread practice in the past.
The proposals for reducing tuition loan debt are likely to face steep opposition on Capitol Hill, largely thanks to a $350 billion price tag paid for in part by limiting tax deductions for the rich. But analysts say some of Clinton's proposals for the for-profit college and loan industries, cribbed together from bills that have already been floated by progressives, could see real and potentially bipartisan traction.
Among the proposals likely to have the most sweeping impact was Clinton's endorsement of a "risk-sharing" provision that forces colleges to take a financial stake in the success of their graduates, potentially requiring them to pay up a portion of the loans that their students default on.
That could be dangerous for for-profit colleges, where the average student takes on a much higher debt load and is far more likely to default on their loans.
"This is a very big provision if it were to get through," said Michael Tarkan, an industry analyst with Compass Point.
That idea has received broad and bipartisan support in Congress, but with few concrete details on how it might work. Clinton's proposal provided none of those. Any risk-sharing agreement is likely to meet strong opposition both from for-profit colleges and potentially from other underperforming schools, who say such a proposal would punish schools that serve higher numbers of poor students.
Clinton's proposal to close a loophole in so-called "90/10 rule" could also have a significant impact on the bottom line of many for-profit colleges. The 90/10 rule prohibits for-profit schools from drawing more than 90% of their revenue from the federal government, but doesn't count GI Bill funding as federal revenue, encouraging schools that frequently come close to exceeding the 90% limit to recruit veterans in order to bring down their balance. The proposal called the loophole a way to "prey on veterans."
Analysts expect Clinton's "borrower's bill of rights," which looks to improve practices among student loan servicers, to be among the most likely proposals to pass. It's also likely to have a significant impact on the student loan servicing industry, said Rohit Chopra, the former student loan ombudsman at the Consumer Financial Protection Bureau, who consulted with the Clinton campaign on the proposal.
"Unlike with borrowers of mortgages or credit cards, student loan borrowers don’t have a clear set of protections when dealing with their lenders or servicers," said Chopra. The result, he said, is a raft of potential conflicts of interest in which student loan servicers' financial incentives can hurt borrowers.
At times, Chopra said, it has been more financially lucrative for student loan servicers to have borrowers default than to enter them into repayment plans. A borrower's bill of rights would likely look to eliminate these incentives and, Clinton's proposal said, make the process of enrolling in repayment plans simple and streamlined.
Chopra pointed to the mortgage market, where stricter borrower protections were put into place in the wake of the housing crisis, as a potential guideline.
The biggest and priciest parts of Clinton's proposal are centered around reducing tuition costs at public universities and cutting the interest rates of federal loan borrowers. Those are more likely to meet Republican opposition because of their hefty pricetag and Clinton's plan to pay for them, by rolling back tax breaks for the wealthy.
Isaac Boltansky, another Compass Point analyst, said the industry is well aware of that fact. "The industry stocks are actually up today," Boltansky said. "You never know why the market does what it does, but this is probably part of it. You have a $350 billion price tag on this and a Republican house that's never going to support that."