During the season of presidential elections, it is hard to keep track of all the reform proposals. However, It is evident that presidential candidates will address student loan issues a lot. According to Federal Student Aid, there are over 44 million people that benefit from student loan forgiveness program. To stand out to voters, candidates try to offer bold proposals. If some of the projects could turn into part of the law, it can change the student loan landscape. One of the radical proposals came from Massachusetts senator and presidential election candidate Elizabeth Warren. Her project aims to cancel millions of loans and make education free for almost everyone. There are lots of question about who can benefit from the program and what are the requirements. Despite all these questions, the program could help millions of borrowers.
What do we know about the program?
The program is closely related to the income of the borrower. More precisely, users with income under 100.000$ will be able to eliminate $50.000 from their debt. However, borrowers with higher incomes can cancel less amount from their debt. For example, a person with $130.000 loan could withdraw up to $40.000 from his obligation. And a borrower with $160.000 income could obtain only $30.000 debt relief. Note that there will be no forgiveness for the borrowers who have more than $250.000 income.
The proposal indicates the elimination of more than 95% of student loans. It also contains another significant decision called “ultra millionaire-tax.” The tax system will apply 1% tax on families who possess $1 billion and an additional 2% fee on families who has wealth over $50 million. According to Elizabeth Warren, the tax will refer to only 75.000 families, yet the program will eliminate student loan of approximately 30 million borrowers. The proposal promise to remove around $1.25 trillion debt by applying “ultra millionaire tax” system.
Another bold point of the proposal is about reducing the cost of college. The project offers free undergraduate education for all public college and universities. Elizabeth Warren also promises to lower the additional costs for students, such as books and housing. Under Warren’s proposal, people would have less loan or none at all.
Who can benefit from the program?
Although the majority of loans falls into public student loan forgiveness program, there exist hundreds of private student loans as well. Elizabeth Warren has not mentioned about the private student loans while presenting the proposal. It is doubtful that the project also will be valid for private loans because the government may not have the authority to cancel the student debts that are provided by private organizations.
Even if we consider that the proposal will refer to a federal student loan, it does not necessarily mean that it will cover all the federal student loan programs. For instance, the project does not contain any information about the eligibility of Parent Plus loans for cancellation. Parent Plus loans have fewer repayment plans and higher interest rates. Therefore, it remains uncertain whether the borrowers could eliminate their Parent Plus loans under Warren’s proposal.
Married borrowers also need to know whether their income eligibility will consider their income or their household’s income. Currently, some of the income-driven repayment plans charge borrowers based on their separate income unless couple indicates the “married filing separately” option. On the other hand, some repayment plans consider household income state of married couple regardless of their separate financial status. How will Warren’s proposal deal with the married couple’s repayment plans? Will the program treat couples where each spouse has student loan same as the couples that have only one spouse with student debt?
How will the program be administered?
We do not have detailed and draft legislation about the proposal. Therefore, we cannot figure out how the administration of the program will occur. The current project only indicates the base eligibility of borrowers for a student loan forgiveness program. We do not have information about how the process is going to happen. How is the borrower going to apply for a program? How is the eligibility going to be determined? Will the borrower pay loan in the form of chunks or phases? There are lots of questions about the proposal, and we need years to for establishing the formal mechanism for the process.
What happens to the loan that not forgiven?
As mentioned above, eligible borrowers could cancel $50.000 from their student debts. But what will happen if the borrower has a larger balance? Will the borrower continue to his repayments with the same amount? Currently, federal student debts do not modify the monthly payments of borrower and mark payments as “paid ahead.” In this enable borrower to represent these payments as early payment for future bills. According to Warren’s project, after cancelling $50.000 from their loans, students will be able to refinance their remaining balances and restart repayments.
How to Forgive your Debt?
Despite all the questions about the proposal, Warren’s project seems promising for most of the people. It offers a simple and clear way to erase student loans. There are several options for borrowers to eliminate their debt within a short period. Most of them require years from the borrower to pay, and their requirements sometimes bring difficulties for the borrower. For example, loan forgiveness programs do not include the bankruptcy case in most cases. It requires a new lawsuit for the borrower to prove the bankruptcy.
In case of bankruptcy, borrower shows that continuing payment can cause problems for him to maintain a minimum standard of living. Other than that, public service loan forgiveness program offers debt elimination without the requirement of any lawsuit. To be eligible for debt elimination, the borrower should be an employee at one of the public services like a government agency or a non-profit company. Additionally, the borrower should complete ten years of payment.
Impact on economy
Student loan forgiveness program assists one-third of college degree students. Because nowadays almost every student gets a degree by taking a student loan.
Estimates indicate that erasing the loans could help to increase GDP by $1.1 trillion during the next decade. It also helps to create 1.5 million new job positions and cause a reduction in the unemployment rate. New student loan forgiveness program drives positive effects on a household, current consumption, and investments. According to Elizabeth Warren, cancelling $50.000 debt of more than 42 million people will boost economic growth, help the small business formation.
Popularity among voters
Warren’s student loan forgiveness program has gained broad support from the voters, such as the American Federation of Teachers. At the same time program caused criticism from conservatives who consider the proposal impractical. The program is popular among 75 percent of people who currently have student debts. Additionally, people who have never taken any student loan are also the most active supporters. Fifty-two percent of them are backing the program, yet 30 percent opposing it. Thirty percent mostly contains people who have paid off their student debts. The program has other broad support from the Democrats. Majority of Democrats (75 percent) are in favour of the proposal, and 11 percent of them oppose it.