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What It Would Really Mean To Cancel Student Loan Debt

Alexandria Bova

As of 2019, the outstanding balance for student loans in the United States reached $1.5 trillion. Student loan debt is one of the largest consumer debt categories, with as many as 44.7 million people drowning in it. And with student loan debt negatively impacting consumer spending, repayment has become the most challenging obstacle for young people today.

Borrowers are also unable to afford basic necessities like rent, groceries and other expenses on their current salaries. To make matters worse, student loan debt prevents a large number of Americans from buying homes, which is drastically affecting the housing market. With no real solution in sight, many college graduates continue to drown in debt with no assistance.

Creating a successful plan that addresses the core of the student debt crisis will be tricky for politicians moving forward. Fortunately, student loan debt is a heated topic at the forefront of many 2020 presidential campaigns. Several candidates in the 2020 presidential race are adamant about tackling student loan debt, whether it be canceling part or all of student loan debt for every borrower. But while many politicians and policymakers are attempting to solve college affordability for prospective students, it’s important to factor in the millions of borrowers already tackling this debt.

Last Updated: Feb. 7, 2020

Where the 2020 Presidential Candidates Stand on Student Loan Debt

Student loan debt and the prospect of student loan forgiveness are hot topics for the political candidates, especially with the Iowa caucus now behind us and the race for the Democratic nomination as heated as ever. Many candidates have already expressed their opinions regarding mounting higher education costs as well as potential solutions for the student loan debt crisis.

Donald Trump

Donald Trump has not been outspoken regarding student loan debt. However, in a 2015 interview with The Hill, Trump questioned the federal government’s need to make money off of student loans.

Trump’s website highlights several educational achievements during his presidency, such as implementing a year-round distribution of Pell Grants, as well as reforming the student loan servicing process to create lower costs for borrowers. Trump may need to take a firmer stance as voters begin to weigh in on the best presidential candidate for 2020.

Read: 17 Tips for Baby Boomers To Tackle Their Student Debt

Elizabeth Warren

Elizabeth Warren has never shied away from her path to potential presidency. In an April 2019 article published on Medium, Warren walked readers through her journey to becoming a teacher, a law school professor and a U.S. Senator. She is also adamant that it’s impossible for young people today to find the opportunities she was given and wants to implement a free public college system for all Americans.

Warren plans on canceling up to $50,000 in student loan debt for those with a household income of less than $100,000 a year. This accounts for 95% of student loan borrowers. She also wants to wipe out all student loan debt for 75% of Americans. What’s more, Warren’s website promises to cancel student loan debt on day one of her presidency.

Joe Biden

Joe Biden is one of the only Democratic candidates to not release a plan tackling the student loan crisis. Based on prior political history, Biden formerly supported a change in the bankruptcy code that created an “undue hardship” standard for federal student loans. This change made it increasingly more difficult for borrowers to discharge their student loans when filing for bankruptcy.

However, with Biden as vice president, the Obama administration implemented new programs for student loan borrowers, including the Borrower Defense to Repayment rule and the Pay As You Earn income-based repayment plan.

Biden’s website ensures that teachers and educators will have help when tackling student loan debt by simplifying the current Public Service Loan Forgiveness Program.

Bernie Sanders

Bernie Sanders has been fairly vocal about canceling all student loan debt, with this particular topic at the forefront of his current — and former — presidential campaign.

Some of Sanders’ key points related to education include canceling all student loan debt for 45 million Americans, which equates to about $1.6 trillion dollars. He also wants to place a cap on student loan interest rates and invest $1.3 billion every year in private, nonprofit historically black and minority-serving colleges, universities and institutions for learning. Sander’s campaign reiterates “College for All,” regardless of family income.

Pete Buttigieg

According to Mayor Pete’s website, Buttigieg’s goal is to enable 10 million more students to graduate with “high-quality” degrees and credentials over the next decade. He is firmly adamant about providing free college — that is, on a need basis. Buttigieg wants to allow free public college tuition for 80% of American families, including families with an annual household income of up to $100,000 and middle-class families with multiple children. For those making more, Buttigieg would implement tuition assistance and subsidies to make higher education more affordable for all students.

Amy Klobuchar

Amy Klobuchar has taken a more moderate approach when it comes to the topic of student loans. In a town hall meeting in April 2019, Klobuchar claimed the college tuition and student loan debt forgiveness proposal was unrealistic. However, she believes community college degrees — that is, one- or two-year programs — should be tuition-free, as well as technical certifications. Klobuchar’s stance seems to be largely centered around the “dignity of work” rather than an emphasis on tackling higher education as a whole. Klobuchar’s website claims Americans need help to afford four-year degrees and plans to reduce the burden of student loans by expanding Pell Grants.

Tulsi Gabbard

Tulsi Gabbard is the first female combat veteran to run for president. She completed two tours of duty in the Middle East and is currently a major in the Hawaii Army National Guard. In the “spirit of Aloha,” Gabbard’s campaign focuses on service above self.

Gabbard doesn’t have a lot of information regarding education reform or student loan debt on her website; however, she is in agreement that college is much harder to pay for in our current climate. Gabbard has supported Bernie Sanders’ plan for “College for All” on Twitter and believes student debt needs to be resolved efficiently.

Andrew Yang

Andrew Yang has taken an entrepreneurial approach within his presidential campaign, as his background is far different from that of his fellow candidates.

Yang has two unique plans in place for reducing student loan payments. His “Bailout for the People” plan would entail taking a blanket partial reduction in the principal of student loans. Meanwhile, the 10×10 Student Loan Emancipation Act would enable the federal government to buy the student loan debt and then allow students to repay it by using 10% of their salary per year for 10 years. After that timeframe, the balance would be forgiven.

Michael Bennet

Michael Bennet, perhaps a lesser-known Democratic candidate, is a senator from Colorado. He is also the first school superintendent to run for president. Seeing as he was immersed in education in Denver, Bennet has some clear opinions on reducing student loan debt burdens. He plans on capping student loan payments at 8% of income with a 20% reduction in income-based student loan payments. Bennet also wants to forgive all student loans after 20 years for those who have been paying them on time. For those who work in high-need professions in underserved communities, this senator wants to forgive $10,000 a year for up to four years.

Deval Patrick

Deval Patrick is the former governor of Massachusetts and hopes to keep America’s foundational commitments while renewing the American Dream. Another lesser-known Democratic candidate, Patrick acknowledges that the student loan crisis is a barrier to financial stability for young people and wants students to be able to refinance their debt to reduce or eliminate interest. He also plans to help students who were taken advantage of by for-profit institutions, as well as implementing a more simplified student loan process.

Michael Bloomberg

A late-comer to the presidential race, Michael Bloomberg, former mayor of New York City, has thrown his hat into the ring as a true Democratic contender. Though there are limited resources on education reform outlined on his website, Bloomberg told NBC News in a recent interview that he understood the rising cost of education in the U.S. He implied that the government should be primarily looking at the source of this debt or focus on lowering interest rates to ease the burden on student borrowers.

John Delaney

John Delaney, former U.S. Representative for Maryland’s sixth congressional district, hopes to make higher education more affordable. His campaign slogan is “focus on the future,” and he anticipates a solution for the student loan crisis.

Delaney wants to reduce the cost of student loans, as well as provide more grants for lower-income families. Delaney has also introduced a bill to allow borrowers to expel student loan debt when filing for bankruptcy.

Tom Steyer

Tom Steyer, an American philanthropist, hedge fund manager and activist announced his presidential bid in July 2019. He is especially passionate in forgiving disabled veterans’ student loan debts as soon as possible.

Steyer’s economic plan is a mixture of some of the more popular candidates. He wants to guarantee two years of free college, refinance student loans at lower interest and forgive student loan debt for teachers and other public servants. Steyer also plans on passing a Student Borrowers Bill of Rights.

 

Bill Weld

Bill Weld, another former governor of Massachusetts, believes “America deserves better.” Running as a Republican, Weld believes community and online colleges are a key component to fixing the education system. With the introduction of AI and technology causing an increased number of layoffs, Weld proposes making these colleges free to displaced workers.

Weld also plans to create a student loan forgiveness plan for those who teach in public schools, as well as making college more affordable for low-income students.

Consider: Paying Off Your Student Loans Just Got a Little Bit Easier

Understanding Student Loan Terms

Identifying student loan terms can be tricky, especially when attempting to figure out next steps for your own debt. Understanding these key phrases can help you make personal decisions regarding college, as well as decide which political candidate best aligns with your views on higher education.

Student Loan Forgiveness

Student loan forgiveness allows the borrower to be released from paying all or part of their student loan debt.

There are a few ways in which you can have student loans forgiven. If you work for the government or a nonprofit, you may be able to receive loan forgiveness through the Public Service Loan Forgiveness (PSLF) program. This program forgives your remaining balance after 120 monthly payments while working full-time for your employer.

There is also a Teacher Loan Forgiveness program, which relieves those teaching full-time for five years in a low-income school system. This forgiveness is up to $17,500. Please be aware that student loan forgiveness only applies to federal student loans.

Student Loan Cancellation

It is incredibly difficult to have your student loans canceled altogether. It is important to understand the difference between “cancelation” and “discharge.” Borrowers with a federal Perkins Loan can have up to 100% of their student loan debt canceled if they are:

  • A teacher serving a low-income community
  • A special education teacher
  • In a field of study with a shortage of qualified teachers

This cancelation only applies to nonprofit or public school teachers who work in an elementary or secondary school system. Duties are based solely on job position, not the job title.

Student Loan Discharge

There are far more options when it comes to student loan discharge. Some of the discharge requirements include:

  • Total and permanent disability discharge: If you are totally and permanently disabled, you may qualify for a discharge of your federal loans. This includes veterans, as well as those unable to work because of disability.
  • Discharge due to death: Your federal loans may be discharged once a death certificate is issued. This only applies if your loan servicer receives documentation of your death.
  • Closed school discharge: If your college closes while you are an enrolled student, you could be eligible for discharge.
  • Borrower defense to repayment discharge: This only applies if your school violated state laws related to federal student loan payment. This relates to misconduct, such as misleading students. You may also qualify for a false certification discharge if your school falsely certified you for a loan, as well as receiving an unpaid refund discharge for lack of return.
  • Bankruptcy discharge: In extremely rare cases, you may be eligible for discharge after declaring bankruptcy. However, it’s important to note that filing for this loan discharge is not automatic and is a separate action from filing for bankruptcy.

What It Would Really Mean To Cancel Student Loan Debt

Many top contenders for president plan to do away with student loan debt entirely. But how would this affect the economy? Canceling student loan debt may stimulate the economy, while also offering a second chance at financial freedom for those drowning in borrowed money. With that said, eliminating all student loan debt would cost a lot of money, and wiping out $1.6 trillion would not be an easy task. Sanders’ “College for All” plan would cost an estimated $2.2 trillion, whereas Warren’s would cost roughly $1.25 trillion over the next decade, according to each politician.

Look: How Gen Z Plans To Avoid Student Loans

Taxing the Wealthy

Both Elizabeth Warren and Bernie Sanders propose taxing the wealthy in order to wipe out student loan debt. Warren plans to implement an “ultra-millionaire tax,” which applies only to households with a net worth of $50 million or more. This would equate to the top 0.1% of Americans. These households would then pay an annual 2% tax for every dollar of net worth above $50 million, with a 6% tax for every dollar of net worth over $1 billion. Warren believes this will bring $3.75 trillion to the economy in just a decade.

Sanders, on the other hand, wants to implement a Wall Street speculation tax to cancel all student loan debt and essentially pay for all college. This plan will implement a 0.5% tax on stock trades, which would be 50 cents for every $100 stock. There will also be a 0.1% fee on bond trades and a 0.005% fee on derivative trades. This tax will bring $2.4 trillion to the economy over the next 10 years.

Tuition-Free Colleges

Twenty-four states currently offer tuition-free community/junior college programs (most of which only offer associate degrees and not bachelor’s), but many of the Democratic candidates don’t want it to stop there.

While “tuition-free” certainly sounds exciting, this doesn’t account for other, hefty academic expenditures. Housing, books and meals quickly add up. While covering tuition is a much-needed financial relief for many families, it’s important to read the fine print before committing to these types of programs. And remember, students must fill out the Free Application for Federal Student Aid (FAFSA) in order to qualify for tuition assistance anywhere.

More Grants

There are many different types of grants, especially for degree programs focused on jobs within the public sector. Unlike student loans, grants do not have to be repaid to the government. Student loans also come with interest, which causes more debt for the borrower. If students had the opportunity to receive more grant money, there would be less of a need for borrowing.

Federal Pell Grants are perhaps the most common form of grant, which is awarded to undergraduate students on a financial need basis. The maximum Federal Pell Grant is $6,195 for the 2019-2020 year. However, with most public universities ranging from $7,000 to $11,000 a semester, one can see why there is such a pressure on Democratic candidates to have supplementary plans.

Raising the Gross Domestic Product

A 2018 study by Levy Economics Institute of Bard College discovered that canceling the total student debt — which at the time was $1.4 trillion — would boost the gross domestic product (GDP) by up to $108 billion a year on average for the next decade. GDP accounts for the value of all goods and services produced by the United States. To compare, the current-dollar GDP as of the second quarter of 2019 was $21.34 trillion. Based on these predictions, wiping out student loan debt may do more good than harm.

Improving Unemployment

The Levy Economics Institute of Bard College study also reflected on unemployment, with job creation at its peak within the first few years following debt relief. The study said this elimination will add roughly 1.2 million to 1.5 million new jobs per year. This will also decrease the average unemployment rate, which will be reduced by 0.22 and 0.36 percentage points.

 

The Racial and Economic Issues

The racial wealth gap affects economic progress in several ways, with many minorities relying heavily on student loan debt to finance higher education.

Poorer families are also choosing riskier forms of student debt due to a lack of funds, with many for-profit colleges targeting candidates based on race. According to the Century Foundation, black students are more likely to experience negative financial events after graduation, which is largely affected by lower family wealth and racial discrimination in the workforce.

With less wealth and more debt, financial outcomes are grim for many minority students. Voters should be looking for policies that seek to decrease racial disparities and narrow the racial wealth gap, rather than only focusing on universal debt cancellation as a whole.

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