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The first primary of the 2020 presidential election is still months away. But many of the twenty candidates now vying for the Democrat nomination have already spelled out their visions for helping those burdened by existing student loans and reducing the amount that future college students must borrow.
It’s no mystery why this is a big deal on the Democratic side. Americans owe $1.6 trillion in student debt. The burden of that debt has led some Millennials to delay marriage, children and home buying and a growing number of Baby Boomers to enter retirement still paying off student loans. Planning for the cost of college is taking an emotional and financial toll on families.
Predicting the eventual outcome of the nominating process is a fool’s game, but there are some candidates who have already broken out from the pack, at least for now. Former Vice President Joe Biden, Independent Vermont Senator Bernie Sanders and Massachusetts Senator Elizabeth Warren are the current front runners, all commanding double-digits percentages in polling.
The second, single digit tier is led by California Senator Kamala Harris, currently polling at an average of 7%.
Progressives such as Sanders and Warren want to eliminate some or all current student debt and provide free college for all Americans. More moderate Democrats, such as Biden and Harris, want to help student loan holders handle their debt and make college more affordable, but not necessarily free for all. (So far, Biden’s campaign has been the lightest on details.) Perhaps we’ll learn more in the upcoming Democratic presidential debate.
Regardless of which candidate emerges as the nominee, the Democratic platform is likely to take a more generous (and expensive) approach to helping those with student debt than what has been proposed by President Donald Trump.
Long an advocate for eliminating student debt, in June Sanders introduced the College for All Act of 2019 This legislation would cancel all $1.6 trillion in student debt held by 45 million people in the U.S., including debt held by parents and private debt. Borrowers wouldn’t have to pay taxes on the forgiven debt, which would normally, under the U.S. Tax Code, count as income. (See: What You Should Know About Taxes And Student Loan Repayment.)
Sanders’ bill would also provide $48 billion a year to eliminate tuition and fees at all public four-year-colleges and universities, community colleges, tribal colleges, trade schools and apprenticeship programs. Neither the loan forgiveness nor the free education would be limited by family income.
According to the Sanders camp, the plan will cut the racial wealth gap for young Americans—that is the ratio of wealth held by white households to those held by black households— from 12:1 to 5:1. Wiping out student debt will increase equity, Sanders argues, because nearly two-thirds of all student debt is held by women and black students take out student loans at a higher rate and graduate with more debt than white students.
Despite the lack of income limits, 73% of the benefits from canceling student debt will flow to the bottom 80% of Americans (those making less than $127,000), Sanders says. The plan would save the average student loan borrower about $3,000 a year which can be used to start a business, pay bills or otherwise boost the local economy, he says.
In addition, Sanders wants to provide Pell Grants to low income students to cover non-tuition related school expenses, including housing, books, supplies and transportation. He would require states and tribes to cover any expenses low-income students still have after receiving free tuition and federal Pell Grants.
As president, Sanders says, he will also back a cap on the interest the government can charge for future student loans, which would still be necessary for those attending private colleges and graduate school. Government lenders wouldn’t be able to charge more than 1.88% in interest. He would also match spending from states and tribes that reduce the cost of college dollar for dollar and triple the funding for the work-study program. As it stands, the program pays 700,000 students $1,760 a year for working on campus; Sanders would expand the reach to 2.1 million students.
So how is Sanders going to come up with the estimated $2.2 trillion needed for his generous plans? He has proposed a fraction of a percent tax on Wall Street transactions.. Dubbed the Wall Street speculation tax, it would raise an estimated $2.4 trillion over the next decade by imposing a 0.5% tax on stock trades, a 0.1% tax on bond trades and a 0.005% tax on derivative trades.
“If Wall Street can be bailed out for several trillion dollars, 45 million Americans can and will be bailed out of the $1.6 trillion burden of student loan debt and we can provide free college for all,” Sanders wrote on his website laying out his student loan forgiveness plan. “Some 40 countries throughout the world have imposed a similar tax, including Britain, South Korea, Hong Kong, Brazil, Germany, France, Switzerland, and China.”
Though not quite as generous as Sanders, Warren’s plan is squarely in the eliminate student loan debt camp, proposing to cancel up to $50,000 in student loans loan debt for individuals with a household income of under $100,000. The amount of forgiven debt would decrease by $1 for every $3 in income above $100,000. So, for example, a person with a household income of $130,000 would be able to eliminate $40,000 in student debt. A person with $160,000 in annual income would see student debt reduced by up to $30,000. People living in households which make more than $250,000 aren’t eligible under the plan.
Overall, Warren says, more than 95% of Americans with outstanding student debt would get some benefit and more than 75% would see their debt eliminated entirely. The debt cancellation will be automatic for most student debt holders using federal data. Private student loan debt is also eligible for cancellation. Warren, like Sanders, says the cancelled debt wouldn’t be taxable as income.
Warren also touts her plan as a way to reduce the racial wealth gap. Plus, canceling student debt, she argues, will provide an “enormous” middle-class stimulus that will drive economic growth, increase the value of homes and usher in a new era of small business creation.
To prevent another student loan crisis, the Massachusetts Senator says public college should be viewed in the same light as public K-12 education: it should be available for everyone for free. Under her plan, all students would have the opportunity to attend a two-year or four-year public college free of tuition and fees.
Again, like Sanders, Warren plans to pay for all this by taxing the rich—in Warren’s case, with an Ultra-Millionaire Tax, which is a 2% annual wealth tax on the 75,000 families in the country with a net worth of $50 million or more. “For decades, we’ve allowed the wealthy to pay less while burying tens of millions of working Americans in education debt. It’s time to make different choices,” Warren wrote on her website in describing her plan. (For more on the wealth tax, and its possible drawbacks, see There Are Better Ways To Tax The Rich Than A Wealth Tax.)
Kamala Harris: Lower Interest Rates
Harris’ proposal calls for current debt holders to be able to refinance their student loans at lower interest rates and for the current Income Based Repayment program to be made more generous. She also wants to crack down on for-profit colleges that defraud students, noting that as California Attorney General she got more than $1 billion back for students defrauded by Corinthian College.
Harris also wants to make two-year and four-year public colleges and universities tuition-free and to increase the income eligibility for Pell Grant recipients via her LIFT Act, which is a tax cut for working Americans.
While Harris isn’t proposing wholesale forgiveness of student debt, her plan for reducing the “opportunity gap” and promoting black entrepreneurship does have a loan forgiveness feature. Those who qualified for Pell Grants while in college (meaning, they were low income) would be eligible to have as much as $20,000 of their student debt forgiven if they start a business in a disadvantaged community and keep it up and running for at least three years. (During those three years, debt payments would be deferred and no new interest would accumulate.)
Vice President Biden released a proposal to tackle student loan debt and the skyrocketing cost of a college education that is comparatively light on details, focusing mainly on the plight of teachers.
Biden’s plan aims to fix and simplify the Public Service Loan Forgiveness Program so more teachers can participate. Biden argues that teachers shouldn’t have to worry about paying student loans while they are busy educating the future generations.
As president, Biden said he will invest in vocational training and encourage partnerships between high schools, community colleges, and employers. The goal would be to create programs that enable students to earn industry credentials upon graduation from high school so they can land good-paying jobs out of the gate.
Biden also wants to create more opportunities for high school students to take classes that will lead to industry credentials and will permit Pell grants to be used for dual enrollment. That means high school students will be able to take classes at community colleges and earn credits before graduating from high school. The more credits high school students amass, the cheaper earning a two-year or four-year degree will be.
As on other issues, both Biden’s critics and supporters can look at his long record for further insight into where he might stand on student debt. In the Senate, Biden didn’t back proposals to allow student debt to be discharged in bankruptcy. But as Vice President, he was part of the Obama Administration, which developed programs such as the Borrower Defense to Repayment and Pay as You Earn programs to help those struggling to pay back their student loans.