Update 372: Student Loan Debt Bill in Sight?
Another Academic Year, Contact the Cashier
The $1.6 trillion owed by tens of millions of students and their parents in total education loans outstanding ramifies throughout the economy. Already it means younger people aren’t getting married, entering the job market, starting businesses, saving for retirement as quickly or as much as their cohorts of a generation ago.
Naturally, the issue and proposed solutions are often cast in generational terms. Major proposals debated so far this Congress and on the presidential campaign trail sound this theme to varying degrees and are reviewed below.
Total student loan debt is up by a staggering 60 percent since 2012, making up about 10 percent of all household debt — and now the second largest sector of household debt, behind only mortgage debt. The student debt default rate is the highest of all household debt. Brookings forecasts that nearly 40 percent of current borrowers will default on student loans by 2023.
Debt Relief: From Refinancing to Forgiveness
In the last ten years, politicians have shifted their focus from small-scale solutions to student debt like refinancing, to larger reform such as student loan forgiveness. Programs currently exist to alleviate the burden of student loan debt, but many Democrats believe they are not enough.
There are other types of debt forgiveness and cancellation, but Public Service Loan Forgiveness (PSLF) is perhaps the largest program. Created by the College Cost Reduction and Access Act of 2007, the program forgives the balance of federal loan debt for graduates who have worked in full-time public service for ten years and have made the necessary qualifying payments. Many in Congress have been looking for a broader and more direct approach to take on the issue.
Bills just Sittin’ on the Docket on the Bay
This Congress had taken an interest in these issues. Among the leading legislation introduced this year to address the student debt crisis:
- College for All Act (S. 1947/H.R. 3472): Introduced by Sen. Sanders and Rep. Jayapal in June, this bill would forgive the interest and principal of all eligible federal student loans, as well as allow for the temporary purchase and forgiveness of private student loans. It would also provide $47 billion per year to states in order to eliminate tuition for undergraduates at public colleges and universities.
- Student Loan Debt Relief Act (S. 2235): Introduced by Sen. Warren and Rep. Clyburn last month, this bill would forgive $50,000 in federal and private student debt for those with household incomes under $100,000. It would also provide significant forgiveness for individuals in households with incomes between $100,000 and $250,000, phasing out as income increases. It would cancel student debt entirely for 75 percent of borrowers.
- What You Can Do for Your Country Act (S. 1203): Introduced by Sens. Gillibrand and Kaine in April, this bill aims to overhaul the PSLF program by expanding eligibility to all types of federal loan and repayment plans and closing the loopholes that have made approval rates of loan forgiveness applications very low.
- Student Loan Fairness Act (H.R. 3257): Introduced by Rep. Karen Bass in June, this bill aims to create a simpler loan repayment system by introducing a new “10-10” standard that forgives remaining student loan debt for borrowers who have made 10 years worth of payments at 10 percent of discretionary income. Ten years is the current timeframe for PSLF recipients — this bill would shorten the repayment period for all other borrowers to match the PSLF window.
Candidates Offer Rewards and Cancellations
In 2015, President Obama announced his America’s College Promise proposal that would have made two years of community college free for all students. The proposal never got out of Committee, but in 2016, the popularity of Sen. Sanders’ tuition-free college proposal encouraged a number of 2020 candidates to get behind bold reforms to tackle the burgeoning student debt crisis.
- Sen. Bernie Sanders has built upon his 2016 plan and added broad student debt forgiveness to his tuition-free proposal, creating a multifaceted debt-free and tuition-free proposal which is highlighted in his College for All Act.
- Sen. Elizabeth Warren has proposed widespread student loan forgiveness not conditional on entrepreneurship or service. Her plan, announced this April, would forgive $50,000 in student debt for those with household income under $100,000. It would also provide significant forgiveness for individuals with incomes between $100,000 and $250,000, phasing out as income increases.
- Sen. Kamala Harris follows in the footsteps of earlier debt relief efforts centered around rewarding service and starting businesses, but she has not yet announced any details in connection with a broader higher education plan. Under her plan to promote Black entrepreneurship, Pell Grant recipients who open a business in an economically disadvantaged community that is successful for three years will receive up to $20,000 of student debt relief, including interest-free deferment during that time.
- Sen. Kirsten Gillibrand has focused on overhauling the PSLF, particularly including bringing forward the ten-year wait period so that qualifying individuals can have some of their loan balance forgiven after just five years. Her plan and accompanying bill, is a response to Republican efforts to curtail the program, with the White House proposing to do away with the program in its latest budget proposal.
Less than 20/20 Vision?
For all the benefits the various debt-cancellation proposals discussed above would provide, there are Americans who have already paid off their debt in full, as well as Americans who chose not to go to college, who would not benefit from these programs — and would likely be asked to subsidize them. Only 18 percent of adults hold student loans and those with college degrees earn $1 million more in their lifetimes than those with just high school degrees.
The popular and economically advantageous yet elitist-tinged proposals will become key nuanced as competing interests within the Democratic Party settle in preferred solutions. Optics aside, the bills introduced in recent months, as well as the presidential plans, illustrate the seriousness that Democrats are placing on the student debt crisis, an ever-worsening situation that is already operating as a palpable drag and drag on the economy.