It’s no secret that student loan debt has spiraled out of control and there’s no end in sight 1.5 trillion dollar problem. After all, a Forbes analysis from this year showed that the average Class of 2017 graduate left school with $ 28,650 in unpaid federal and private student loans. More than 44 million borrowers also owe their share, of which more than 1.3 million owe six figures or more on their loans.
While common sense would tell you that the high costs of higher education are at the root of this problem, some politicians – including Senator Elizabeth Warren – have proposed sweeping forgiveness legislation that would wipe out student loan debt altogether – at least for some of us.
It remains to be seen whether the forgiveness plans are realistic or not, but one thing is certain: these “total” student loan forgiveness plans are mostly a bad idea.
Elizabeth Warren’s Global Loan forgiveness plan
As with most things in life and essentially anything to do with politics, the devil is in the details of Warren’s plan. For starters, it’s troubling that the underlying costs of higher education are not addressed in this proposal – you know, the problem that created all this mess.
When the average cost of a year in a four-year public school is $ 10,230 according to College Board, and those costs climb to $ 21,370 per year when you add room and board, it’s mind-boggling how a “solution” exists that does not in any way try to control costs. Also note that Warren wants to make the two- and four-year degrees “tuition-free,” which is a baffling idea with no price controls in place.
Plus, true forgiveness in Warren’s world is only bestowed on those who strive not to climb the corporate ladder or work toward a career that places them in the top 5% of employees in the world. United States Senator from Massachusetts posted his plan on Medium, which you may read to find out that every household with an income of less than $ 100,000 would have up to $ 50,000 in student loan debt canceled.
The pardon would be phased out for households earning between $ 100,000 and $ 250,000, however with $ 1 for every $ 3 of income over $ 100,000.
“For example, 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,” the essay notes. Medium.
Finally, households earning more than $ 250,000 will not have any loans canceled. You know, households with doctors, lawyers, and senior executives who have spent maybe a decade in school to get graduate degrees. Or entrepreneurs who risked everything to build successful businesses from scratch. Basically, this plan doesn’t penalize those who borrowed too much for their college education – it penalizes people who put their higher education funds to good use, climbing the income ladder to the upper middle class.
Plus, the source of all that extra cash we’ll need is sketchy to say the last. To pay for this proposal, she wants to institute another tax on the ultra-rich – a “2% annual tax on the 75,000 families with $ 50 million or more in wealth.”
While no one feels sorry for families with net worth over $ 50 million, don’t lose sight of what this tax is. It is not an income tax – it is a tax on the wealth people already own, as well as the wealth they have already paid taxes on.
Why Comprehensive Loan Forgiveness Will Never Become Law
David Carlson, author of Student loan solution, also points out that total loan cancellation plans may be more of a Democratic talking point than anything else. In other words, these plans are made to embolden the base, even though they should not become law.
“Politically, they are not achievable,” he said. “One of the reasons is that student loan cancellation can be a burning issue for many. “
While many people with crushing student debt are in favor of canceling their loans, there are many people who have never taken out loans or paid off all of their loans, many of whom believe it is. unfair for a borrower to have their loans canceled, he says.
And let’s not forget the political support that loan cancellation would need to become law. For example, Carlson points out that a recent proposal from Sen. Tim Kaine and Kirsten Gillibrand to simplify and expand the delivery of civil service loans is unlikely to gain enough support from moderates to pass the Senate.
“With that example in mind, it’s hard to imagine that there will be a scenario where total loan cancellation would one day become law,” he says.
Also note that the Trump administration has proposed eliminating the public service loan forgiveness (PSLF) in the future and switching to an income-tested loan forgiveness of fifteen or thirty years, depending on whether the borrower is repaying. or not graduate student loans.
“Like the total loan cancellation, this proposal has little or no chance of becoming a reality.”
Unfortunately, that means the status quo is most likely for student borrowers until something big changes or the bubble completely bursts.
What is possible in the future, according to Carlson, are smaller-scale fixes and revisions put in place, similar to the extended utility loan temporary surrender.
At the moment, the majority of student loan borrowers already qualify for some type of loan waiver. A better alternative would be to make these existing systems work better to serve the borrowing population.
For example, the public service loan discount. It has three main requirements:
- Direct loans
- Eligible repayment plan
- Eligible employment for 10 years
A simple solution to make this program work better and serve more people is to eliminate the first two requirements. Open it to any type of loan (not just direct loans) and open it to any type of repayment plan (so borrowers can choose the plan that is best for them).
This makes the plan much easier to understand, easier to regulate and maintain, and opens it up to more borrowers. It also requires a significant commitment to get your loans canceled – 10 years of public service employment.
The bottom line
If you’re betting on a full forgiveness of your student loan, you might not want to hold your breath. A plan of this magnitude is unlikely to be adopted, let alone in the current political climate.
For this reason, Carlson encourages borrowers to defend themselves, especially if they are seeking a loan forgiveness.
“Instead of betting on something like total loan cancellation, I encourage borrowers to learn as much as possible about their loans and their repayment options,” he says.
For example, Public service loan remission can be a huge financial victory for a borrower, but you need to make sure that you are familiar with the program as the majority of applicants for this program are ultimately turned down.
“When you submit your final waiver request, you should be fully sure that you have ticked all the boxes and done everything necessary to get the loan waived,” says Carlson.
Also consider income-based repayment plans that allow you to pay a percentage of your “discretionary” income for up to 25 years before your loans are canceled. These plans may change in the future or disappear altogether, but they will allow you to pay a lower monthly payment than a standard ten-year repayment.
Whatever you do, don’t wait for the politicians to save you. They may pretend to get your vote, but you won’t get the help you need in the end – at least not anytime soon.