If you or someone close to you has student loans, you might think you know a lot about student debt. Still, it might surprise you that there are now over 45 million student loan borrowers who owe a collective $1.52 trillion in student loans in the United States.
This massive amount of student debt signals a mounting student loan crisis that’s greatly impacting the lives of graduates. With an average student loan payment of around $351 for borrowers between the ages of 20 and 30, many are struggling to make ends meet.
Borrowers often feel swamped by their debt owing an average of $26,828 if they graduated from a public college in 2016 and a whopping $30,281 if they graduated from a private college that same year. Did you get a graduate degree in 2016? Your debt is likely close to the average of $57,600 that graduate and professional program borrowers owe.
All that debt is taking a toll on borrowers. It’s not surprising that the average federal student loan default rate is 11.5%. But even borrowers who aren’t missing payments are still struggling. Student debt has huge impacts on stress, quality of life, and often results in delayed milestones.
A study by the Federal Reserve Board Division of Research & Statistics has shown a 9-percentage point drop in homeownership of young adults aged between 24 and 32 from 2005 to 2014. Although multiple factors could have influenced this drop, many believe one major factor is student loan debt. College graduates are now moving out later, not getting married, not buying cars or homes, and waiting to have kids because they’re struggling financially.
Given the impact of student debt on the population and economy, it’s only natural that politicians have taken notice. In the run up to the 2020 election, many are shaping their policies and campaign platforms to deal with the surge in student debt and the crisis it’s caused.
This isn’t the first time politicians have tried to fix the student debt problem. In fact, policies have changed over time on both private and federal student loans as administrations have changed. This has sometimes benefited borrowers, and other times made things more difficult for them in the name of cutting federal spending.
The 2020 campaign will bring a lot of discussion about student loan debt which has the potential to completely revolutionize how federal student loans are forgiven, paid for, and given out.
A History of Federal Student Loan Policies
In 2007, George W. Bush created two new programs to address the rising costs of college: the Public Service Loan Forgiveness Program (PSLFP) and the Income-Based Repayment Plan (IBRP). The PSLFP gives federal loan borrowers a chance to have the balance of their loans forgiven if they make 120 qualifying loan payments over 10 years while working for a job that qualifies as a ‘public service job.’ These positions include jobs held for municipal, state, and federal government bodies, but also working for organizations like non-profits, labor unions, or AmeriCorps.
The IBRP allowed low-income borrowers of federal loans to pay just 15% of their discretionary income towards their loans each month with the promise that after 25 years the remainder of their student debt would be forgiven.
Both programs gave hope to student loan borrowers struggling to pay back large amounts of debt while earning low salaries. But the PSLFP has proven to be so complicated that the few people eligible for it have received the loan forgiveness promised. Meanwhile, some complained the IBRP wasn’t accessible to all borrowers who could benefit from it, and they were paying too much of their income toward their student debt.
Obama later addressed some of the problems with IBRP by opening it up to more borrowers and changing how much they were required to pay back, from 15% of the borrowers’ income to just 10%. He also made loan forgiveness possible after just 20 years of repayment. The program is now called the Income-Driven Repayment Program (IDRP).
Trump has taken steps to change these programs with the help of his Education Secretary Betsy DeVos. They want to end the PSLFP program in order to cut funding towards student loan forgiveness. They envision instead just one forgiveness program for all borrowers that require they pay 12.5% of their discretionary income towards their debt for 15 years if they have an undergraduate degree, and 30 years if they have a graduate degree.
This could be seen as an improvement for those previously enrolled in the IBRP or REPAY programs for since their debt would be forgiven sooner. But the hitch is they may have to put more of their income towards their debt – potentially causing problems for many. Also, getting rid of the PSLFP would eliminate its tax benefits since student debt forgiven through that program was non-taxable. The new Trump program would tax all forgiven student debt as though it were income, possibly creating huge tax bills for those who received forgiveness.
The Future of Student Loan Policies
Elizabeth Warren, one of the candidates for president in 2020, is already discussing her intentions to help student loan borrowers. She has proposed a program which would allow those with both private and federal student loans to refinance them at an interest rate of just 3.76 percent with the government. She would also allow graduate and parent borrowers to refinance student loans at a lower rate.
Currently, borrowers can only refinance student loans – both federal and private – with private lenders. This means federal student loans will be converted to private student loans and borrowers won’t be eligible for federal benefits and repayment plans.
In addition, Warren has talked about declaring college debt a national emergency and is a proponent of policies working toward debt-free college. In fact, she backed a 2017 proposal to use federal money to help states ensure students can attend college debt-free.
These policies would greatly help borrowers by reducing debt or reducing the cost of servicing that debt. However, there are concerns about the cost of these programs and their impact on the existing financial and student loan industry.
Meanwhile, Trump will continue to make changes to student loans, something he will talk about on the campaign trail and include in his platform. In addition to putting through the changes to forgiveness programs outlined above, Trump has also mentioned eliminating subsidized student loans, reducing Pell Grants, and introducing a risk-sharing policy that requires post-secondary institutions to bear some responsibility for the loans that students take on to attend school. These policies would likely affect low income borrowers and students greatly since it would increase the amount of debt they would need to take on given there are fewer grants available.
Trump might also eliminate interest deductions for student loans, tax graduate tuition waivers, and the Lifetime Learning Credit – all programs that offer tax incentives in order to make going to college and repaying your student loans easier for borrowers. In return, he would improve the American Opportunity Tax Credit by allowing student loan borrowers to claim up to $2,500 in an annual deduction for five years instead of four.
Impact on Student Loan Borrowers
At this point, it’s hard to say what the future of student loan policies will look like in this country since so much is still up in the air. As more candidates join the 2020 race, they will bring many different views on student loans and student loan forgiveness. Those views won’t be static. The policies of candidates might change and evolve during primaries and the general election based on debates, news about the impact of student loans, and the political climate.
If you are a student loan borrower, it’s important you know this election has the power to completely change the future of student loan policy in this country. Borrowers like you could be impacted positively or negatively.
For that reason, you should follow the race closely, ask questions of candidates, push parties to adopt better student debt policy platforms, and then vote for the candidate whose student loan policies are most compelling to you.
Even if you aren’t actively involved politically, it’s important you’re aware of how student loan policies might change so you’re prepared since it could directly impact you and your repayment.