Like almost everyone I know, I financed my education via federal student loans. I know the exact cost of my education, which has now turned into my own personal Game of Loans (interest is coming). My student loan debt will follow me around for the next 20 or so years, impacting every decision I make. My point? Our generation is in the midst of an actual crisis: the student loan crisis. We have to start paying better attention and campaigning for change, and there is no better time than the present.
For many Americans, student loans serve as the primary mechanism for financing education. With one-third of adults under 30 having student loan debt, according to the Pew Research Center’s analysis of Federal Reserve data, and the student loan debt growing to $1.50 trillion (up $20 billion from the second quarter of 2019), the student loan crisis has become an important topic of discussion for the 2020 presidential election, which is now less than a year away. Currently, there are approximately 44.7 million Americans with student loan debt, according to Forbes. Individuals are carrying an average of $35,359 in student loan debt, with 10.9 percent of aggregate student loan debt over 90 days delinquent or in default in the third quarter of 2019. There are 2.8 million Americans who owe more than $100,000 in federal student loan debt, per the Associated Press. Over the past 15 years, student loan debt has outpaced the growth of all other types of consumer debt, such as mortgage debt, auto loan debt, and credit card debt, which has led to an entire generation putting their lives on hold: delaying marriage, home ownership, starting their own businesses, and having children. Will the next POTUS provide a solution?
The field of Democratic presidential candidates is historically large, with 15 individuals currently running. There are also three Republicans running, including President Donald Trump, who is running for reelection to a second term.
We’ll focus on the frontrunners among the Democrats:
- Elizabeth Warren is currently polling at 16 percent nationally, with $49.8 million in individual contributions.
- Bernie Sanders is currently polling at 17 percent nationally, with $61.5 million in individual contributions.
- Joe Biden is currently leading the Democrats, polling at 27 percent nationally, with $37.6 million in individual contributions.
- Pete Buttigieg is currently polling at 10 percent nationally, with $51.5 million in individual contributions.
Warren’s plan calls for canceling up to $50,000 in student loan debt for every person with a household income under $100,000. For every person with a household income between $100,000 and $250,000, the $50,000 cancellation amount phases out by $1 for every $3 in income above $100,000 (thus, a person with a household income of $130,000 gets $40,000 in cancellation, while a person with a household income of $160,000 gets $30,000 in cancellation), per Warren’s campaign website. There will be no debt cancellation offered to people with a household income over $250,000, however. Any debt that is canceled under Warren’s plan will also not be taxed as income.
Warren’s plan will cancel debt for over 95 percent of Americans who have student loan debt, per Warren’s campaign website. According to her campaign website, Warren believes America got into this crisis because “state governments and the federal government decided that instead of treating higher education like our public school system,” which is traditionally free and accessible to everyone, “they’d rather cut taxes for billionaires and giant corporations, offloading the cost of higher education directly onto students and their families.” Additionally, Warren has a plan for universal free college, which will allow Americans to attend a two-year or four-year public college tuition-and-fee-free.
How will Warren accomplish this? Warren plans to initiate an Ultra-Millionaire Tax, which is a 2 percent annual tax on individuals worth at least $50 million, which she has argued will cover the entire cost of her debt cancellation plan and universal free college plan. Warren argued that “policymakers stood by as states pulled back investments into public higher education,” which, in turn, increased tuition rates significantly, year over year. To put a number on it: millennials have seen college costs at four-year public colleges increase 68 percent since the 1999-2000 academic year, according to Forbes’ analysis of The College Board’s research. Furthermore, Warren argued that “[policymakers] stood by as employers demanded higher credentials while offloading the cost of those credentials onto workers,” which led to “corporations making huge profits off of the new skills graduates gained through higher education, while giving workers little to no wage increases.” Warren has been fighting the student loan crisis for years, with the first bill she sponsored and introduced as a senator in 2013 providing relief to student borrowers, though the bill stalled after being introduced.
Sanders’ plan calls for canceling the trillions of dollars in outstanding student loan debt. Canceling the total student loan debt would end up saving at least $3,000 a year for those repaying their student loans currently. Sanders also plans to pass the College for All Act, which Sanders believes would provide at least $48 billion per year to eliminate tuition and fees at colleges and universities, trade schools, and apprenticeship programs. Sanders believes that everyone deserves the right to choose whether or not to pursue a higher education.
How will Sanders accomplish this? Sanders would want to impose a Wall Street-related tax, which he expects to raise approximately $2.4 trillion over a period of 10 years, per Sanders’ campaign website. Sanders has said that the Wall Street tax would work by placing a “0.5 percent tax on stock trades, a 0.1 percent fee on bond trades, and a 0.005 percent fee on derivative trades.” Sanders argued that if Wall Street and the banks that were ‘too big to fail’ can be bailed out by the government (which happened during the Great Recession, circa 2008), Americans with student loan debt also deserve to be bailed out, while also providing free college for all to set future generations up for success. As an FYI, according to the Congressional Budget Office, some countries in the EU have already adopted similar taxes.
Biden’s plan is intended to streamline the income-based repayment plan program for federal student loans, creating auto-enrollment into the program (with an option to opt out). If you make less than $25,000 each year, you would owe no payment on your undergraduate student loans and your loans wouldn’t accrue interest. If you make more than $25,000 per year, you would only pay 5 percent of your discretionary income over that $25,000 threshold toward your federal student loan payments. After 20 years of repayment, any federal loans you have left outstanding would be forgiven and the amount forgiven wouldn’t be taxed as income. This is a more conservative approach than Warren and Sanders have presented and Biden has not mentioned generally canceling student loan debt.
If elected, Biden also plans to invest in community colleges and training, with the goal of making up to two years of community college or “other high-quality training programs” tuition free. Biden also wants to introduce a new emergency grant program that would be designed to help community colleges keep students who experience financial hardships enrolled.
How will Biden accomplish this? Biden has said that his plan will be paid for by eliminating the stepped-up basis loophole and by limiting itemized deductions for the wealthiest Americans at 28 percent. The stepped-up basis loophole is a tax benefit Congress gives to families who are not subject to the estate tax, and built wealth through the acquisition of stocks, real estate investments, or other property and want to leave those assets to their heirs after they die, according to The Balance. The family members who inherit can value the asset at its fair-market value on the date they inherited it, earning higher asset levels, having an increase in wealth, and essentially escaping some tax liability.
If elected in 2020, Buttigieg would potentially be the first POTUS with outstanding student loan debt owed (he and his husband, Chasten, have approximately $130,000 in student loan debt), according to the Associated Press. Buttigieg has previously said he got through school luckily without much debt, but his husband took out federal student loans to finance his own degrees to become a teacher.
Buttigieg’s plan is to make public college truly debt-free for lower-income families. In November, Buttigeig and his campaign released a plan called The American Opportunity Agenda, to make two and four-year public colleges free for 80 percent of American students. For families earning less than $100,000, public college tuition would be free, while families earning between $100,000 to $150,000 would receive tuition at a reduced rate. Buttigieg also wants to invest in the Pell Grant program and increase Pell Grants for students, while also allowing Pell Grants to be used for living expenses. He plans to do this with a state and federal partnership that makes public tuition affordable for all. Thus, if a state were to receive federal funding, that state would have to guarantee an investment into their public education system, with no tuition increases. Additionally, Buttigieg plans to offer automatic enrollment into income-driven repayment plans when student borrowers fall behind on payments. After 20 years in an income-based repayment plan, the student loan debt would be forgiven tax-free. Buttigieg also wants to cancel the debts of student loan borrowers in low-quality and overwhelmingly for-profit programs, while also investing in Historically Black Colleges and Universities (HBCUs), Tribal Colleges, and Minority-Serving Institutions (MSIs). The Washington Post reported that Buttigieg’s new plan would be funded by the top one percent of earners via tax increases.
Additionally, Buttigieg wants to improve accessibility to the Public Service Loan Forgiveness program (PSLF). Buttigieg’s “New Call to Service” will open a pathway for young people to serve within their communities and also communities throughout the world. Buttigieg’s New Call to Service is intended to work on problems surrounding climate disruption, addiction, mental health, substance abuse, and long-term caregiving, along with intergenerational mentorship. For those participating in the New Call to Service, your debt could be considered for forgiveness, and there would be other perks to the program as well.
Buttigieg recognizes the pain points of having six-figures worth of student loan debt with his husband and he wants to talk about creating refinancing options or better paths to loan forgiveness, and adjusting how income-based repayment works. It is clear that Buttigieg wants to put student loan borrowers first. The release of Buttigieg’s American Opportunity Agenda and his Economic Agenda came after advancing in the Iowa polls, leading the Democrats by 7 points as of November 21, 2019. More recent polling has shown Buttigieg slipping some in Iowa.
Now for the President:
- Trump is currently polling at 88 percent among GOP candidates, with opponents Walsh and Weld only garnering two percent each. Trump’s approval rating was 43.2 percent as of December 16, 2019.
Trump’s administration has been working on reforming student aid throughout his presidency. Here is what Trump and his Administration have done so far and what the Administration is working toward: (1) U.S. Secretary of Education Betsy DeVos implemented the year-round distribution of Pell Grants after Congress approved reinstating the year-round grants in 2017; (2) the Department of Education is working on reforming the student loan servicing process to improve the customer experience and lower costs, something Warren asked the Department of Education to do back in 2016, according to Consumer Reports; (3) FAFSA is in the process of being reformed, in order to be more accessible to students, though changes from the implementation of Trump’s Tax Cuts and Jobs Act have made the FAFSA more difficult than in years past, as NJ.com reported; and (4) introduced the Next Gen Federal Student Aid initiative.
What else has Trump done in the student loan space? Trump enacted his tax plan, the Tax Cuts and Jobs Act, which eliminated the taxability of student loan discharge for people who are eligible to receive it, if they were to die or become permanently disabled. Thus, these individuals would not have to claim their discharged student loan debt as income if they became disabled. The Tax Cuts and Jobs Act also eliminated the tuition and fees deduction that made it possible for taxpayers to lower their taxable income by up to $4,000.
Trump has also released a 10-point plan to reform the Higher Education Act (which is the major legislation overseeing higher education). The major proposals are as follows:
- “Simplify Student Aid”: Trump thinks Congress should create one income-driven repayment plan that caps monthly payments at 12.5 percent of discretionary income, forgiving loans for all undergraduate students after 180 months of repayment via the plan (and eliminating the need for the Public Service Loan Forgiveness program entirely). Trump also wants Congress to allow — after the borrower gives permission — the Department of Treasury to pass along income tax data to the Department of Education for federal student aid applications and programs.
- “Encourage Responsible Borrowing”: The Trump administration feels Congress should create ceilings for federal student loans, along with better guidance for students about whether or not they’ll be able to meet their repayment obligations, and ensure that institutions will offer improved, consistent financial aid counseling.
- “Better Align Education to the Needs of Today’s Workforce”: The Trump administration wants Congress to expand Pell Grant eligibility to meet the needs of more people. Trump would want to include Pell Grant eligibility in short-term programs that would provide students with a license, certification, or a type of credential that would apply in a job in a high-demand field. Trump would also like Congress to reform the Federal Work Study program to support real-world opportunities for low-income students.
- “Accelerate Program Completion”: The current Federal Student Aid program does not account for accelerated learning pathways, because it allows institutions to charge students to repeat courses they’ve already taken at other schools or they’ve previously learned via work experience or military experience. Trump would like Congress to mandate that institutions clarify policies related to prior learning assessments (PLAs) and the availability of aid to cover PLA costs in an effort to minimize student debt.
What can you do?
Student loan debt is not uncommon in today’s world of pursuing higher education in a more competitive job market. No matter how much student loan debt your education has cost you, remember that your education is an investment in yourself. You are not alone. Though the current student loan system is broken, income-driven repayment plans can help borrowers repay their loans at a reasonable monthly rate. If you cannot afford your monthly payment for any reason, contact your loan servicer immediately. Maintaining communication with your loan servicer is essential for the successful repayment of your student loans.
This election season, stay informed, do your research, get involved or volunteer with the campaign(s) and candidate(s) you believe in, and vote. You can register to vote online or in-person, which is especially important now that election season is upon us. Your commitment to learning about what each candidate stands for is crucial to the future of our country. Your support of candidates is essential to the election process. Everyone’s voice deserves to be heard. Don’t stay silent this election season.