The candidates' plans on student aid

Barack and Michelle Obama paid off their last student loan Jan. 17, 2004, a date they sometimes share with voters to commiserate over rising tuitions and the $21,000 in college debt the average graduating senior carries.

Obama took out $42,753 in loans for Harvard Law School, on top of several thousand dollars for his undergraduate education at Columbia University. His Republican rival, Sen. John McCain, graduated from the U.S. Naval Academy debt-free, because the public military academies charge no tuition.

While both presidential nominees said they are sensitive to the economic crisis that is crimping the college plans of U.S. families, Obama portrays himself as the candidate who has endured the same heartburn over student loans as many voters, and he is offering more direct help to students and parents than McCain is.

Yet Obama's proposals come with some asterisks attached.

He is calling for a $4,000 tax credit for tuition, which would mostly benefit middle-class families rather than low-income students who struggle the most with tuition increases and loan repayment. Recipients of the tax credit would have to perform 100 hours of community service. It is not clear if Congress, in the current economy, would want to enact the tuition tax credit, which would cost an estimated $10 billion.

"Whoever wins will not have any money to do anything new," said Thomas Mortenson, a longtime independent analyst of student financial-aid programs.

Robust market

As president, McCain would take a different approach to student aid, aides said. Rather than propose new federal money, he would publicly try to coax colleges to slow their rate of tuition increases, using the federal tax exemptions they receive as leverage. He also would press for a more robust student-loan market, aides said, with flexible payment options and more competition in the hope of lowering interest rates.

McCain is also calling for the Pell Grant, which assists low-income students, to be high enough to cover in-state undergraduate tuition. The maximum Pell Grant award is $4,731 a year; average in-state tuition and required fees in 2007-08 came to $5,749.

McCain, however, has not proposed any new money for the Pell program; Obama has proposed an additional $1.5 billion in Pell Grants. The program receives $16 billion a year.

"I have a feeling that for both candidates, their proposals will be a work in progress, and the best road ahead won't be clear until the dust settles on the credit-market situation," said Becky Timmons, who helps oversee federal student-aid issues at the American Council on Education, an umbrella group of colleges. "Given the economic situation, we assume there will be a lot more demand for aid and loans."

Pell Grants

While McCain has tried to caricature Obama as a redistributionist-minded liberal, seizing on Obama's recent remark that he would "spread the wealth around," Obama is not adopting the classically liberal position of supporting the Pell Grant Program above all other student aid.

Democrats have long disagreed over whether to shore up the Pell Grant first, given that it has the greatest impact on students, because they receive the money quickly and in time to pay for a semester's tuition. The benefits of a tax credit, meanwhile, usually come after the tuition bill is due, benefiting those who can pay tuition upfront. Obama would make his tax credit fully refundable, meaning people who do not owe taxes would still receive the credit.

Asked if the tax credit was a viable idea in today's economy, Obama's domestic-policy director, Neera Tanden, said: "That's why Senator Obama talks about this as an economic issue. It's an issue of opportunity and fairness. He wants Americans to have the same opportunity he had, but he also is looking at education from the perspective of insuring our economic growth over the long term."

On the McCain side, Douglas Holtz-Eakin, the campaign's chief economic adviser, said McCain's plan on student aid was more realistic than Obama's, because improving the student-loan market was far more achievable than enacting a $10 billion tax credit. Holtz-Eakin also questioned Obama's approach.

"How is he going to pay for everything he's proposing, especially given the economic climate?" Holtz-Eakin said. "Obama's plans don't add up."

Some college presidents said the criticism of increases missed the point. Three college leaders said neither Obama nor McCain had shown much appreciation for the business model of colleges: chiefly, that fixed costs for health care, energy and technology are making increases in tuition necessary, and that few students pay the full price of tuition.

These college presidents, who spoke on condition of anonymity, said too much of the discussion about student aid had focused on the wealthiest universities that charge $40,000 or more a year (though, again, students rarely pay that because of the "discount rate" many colleges provide). A critical issue, the three leaders said, is student access to credit at a time the credit markets are in crisis.