What 2020 Student Loan Proposals Mean For The Future Of Student Loans | Student Loan Planner

What 2020 Student Loan Proposals Mean For The Future Of Student Loans | Student Loan Planner


The 2020 election is fast approaching,
and the Democratic presidential candidates have student loan plans all
over the place, and it’s kind of tough to keep track of them all. So I thought I
would tell you what I view is the five major categories of these student loan
plans, what they are, for changing student loan rules and what that could mean for
the future going forward. The five, sort of, big categories of proposals among
these candidates are the very generous and not well thought through, the very
generous and well thought through, the ultra specific, the really generic and
sort of tweaking around the edges, and then the last is just the refinancing
and very minor changes category. So the first one, now, everybody’s heard of
Bernie Sanders’s proposal because it’s very unqualified and very
straightforward. Just pay it all off. Forgive all 1.6 trillion of student loan
debt, and it’s going to be paid for by a tax on financial transactions like
mutual funds, when mutual funds buy stocks, or sell stocks, or when you might
buy or sell a bond for example. So that financial transactions tax would raise a
lot of revenue and it would also cost a lot of money. And obviously, paying off
all student loans in America would also cost a lot of money. So that program is
is pretty expensive. And in my opinion, it’s not very well thought through,
because it doesn’t have a program for preventing moral hazard for schools that,
if you have absolutely no reason to worry about cost, why not run up the bill
even more, right? So there’s also not a lot of specific design for the
program to maybe limit it’s cost or limit the scope, to making sure that it has the
widest impact. It’s just a very unqualified sort of moral statement
versus a well thought through policy proposal. In contrast, senator Elizabeth
Warren’s plan falls into the category of generous and well thought through. So
it’s still extremely expensive, don’t get me wrong.
Senator Warren’s student loan plan would be hundreds of billions of dollars. The
difference between her plan and Senator Sanders’s plan, however, is that Senator
Warren’s plan would forgive about 90 to 95 percent of student loan borrowers
that have balances that are on the lower end. So for example, about 7% of student loan
borrowers owe, I think, around 40% of the debt. So Senator Warren’s plan really would
kind of leave those folks alone and would not really address that debt
so much, and it would go after these ten, twenty, thirty thousand dollar
balances that are really the most common student loan balances that really really
hurt, especially low-income, people that maybe didn’t finish their degree
programs. So her program would be funded by a well tax or an ultra millionaires
tax. And it would be very expensive, but note that the cost for Bernie’s program
might be one point six trillion, whereas her program could cost maybe as little
as six hundred billion, because it’s a lot more targeted. And I will have to say
this, she thought through the details very, very well. Her team did at least.
Whereas the Bernie Sanders plan to sort of throw your hands up in the air,
“Student loan debt’s wrong. It’s gone. We’re gonna pay for it because the
wealthy make too much money”, right? And so regardless of whether or not you
think that’s the case or not, I think that it’s pretty hard to argue that
Elizabeth Warren has thought a lot more about student loan debt than Bernie
Sanders has, based off of the plans that I’ve analyzed. Now, there’s also the ultra
specific student loan proposal. So a lot of people on Twitter were kind of making
some jokes because Senator Harris came out with a plan that would forgive about
twenty thousand dollars if you opened a business in a disadvantaged area for
three years, and consecutively maintained the business for three years, and you
also happen to get Pell grants in undergrad. So, Twitter of course
predictably was making jokes that, you know, if you open a bake shop and you can
keep it around for three years in a row, and you jump up and down and, you know,
can patch your head and run your stomach at the same time, and your favorite drink
is lattes while drinking them with your left hand, then you can get your student
loans forgiven. So I’m being a little tongue in cheek here, but Kamala Harris’s
program would probably not cost very much money, because it’s ultra, ultra
specific. And so, I could easily see a situation where the people getting that
forgiveness program, it would cost the government way less than even a billion
dollars. So it is a good chance it could be one one-thousandth as expensive as a
plan like Senator Sanders’s or Senator Warren’s plan because it’s just so
specific, and the balances are so small they’re eligible for forgiveness, and
this really would apply to probably, you know, some low five figure number of
borrowers that are forty four million people. So that plan is really sort of
a plan to look like you’re doing something without having too much of an
impact in terms of change. Now, there’s big plans that would change things
around the edges. I would call this the generic category. This is tweaking around
the edges. So in this category would be people like Vice President Biden, Senator
Gillibrand and Julian Castro. So these strategies are things like, raise the
deduction for student loans for income based repayment options so that you, you
know, you have a much larger amount of money that’s not, you know, considered
when they’re taking 10% of that to pay for your income based payment. So that’s
something like, you know, what Julian Castro supports. Now, Vice
President Biden is more, you know, in line with “Let’s make bankruptcy laws easier.
Let’s perhaps streamline programs. Let’s do more of what we did during the Obama
administration, but maybe make it a little bit more generous.” So, that’s the
kind of default Biden proposal. Now, he could easily come out with a proposal
after I make this video, in which case I would be addressing that, I wouldn’t
be shocked if he did, but it’s certainly, you know, Biden’s sort of
place in the race is sort of this center-left
kind of consensus candidate. So I would expect that, you know, his proposals will
be, sort of, leave a lot of what we have in place, and maybe just try to make it
a little bit more generous. Now, the proposal that does the least in terms of cost taxpayers
money, but also perhaps the least in terms of massive change, so senator
Klobuchar basically believes that you shouldn’t have free college. You
should actually have people pay back their student loan debt. And the
different changes that she’s open to are things like letting
borrowers refinance their student loans with the federal government to perhaps a
4% interest rate or something like that, something lower than what currently
exists where, you know, student loans are at a 3 to 7 percent type of interest rate.
Senator Kamala Harris’s plan would probably cost a lot less than Senator
Klobuchar’s plan of refinancing student loans at the federal level from
a 7% down to maybe a 4% interest rate, because the government would be giving
up all of that interest income, so that would cost tens of billions of
dollars. Now, you know, all these different programs have one thing in common. The Democratic presidential candidates want to make student loans less of a
burden. They do. And there’s a really good argument to be made for why that’s a
good thing, because of the stress that people with student loans have in
America. Now, it will unquestionably cost more money. Every single one of these
proposals would be more expensive and it would cost more to taxpayers. Now,
you could also say you could have positive impacts on the economy if
people bought houses and started families and did things like that, so
it’s a political question and answer as to whether or not that’s a good idea.
That’s outside the scope of what we do at Student Loan Planner, but I will say
that the future of student loans looks like if you have a Democratic
administration, things will be getting a lot more generous and not less generous.
If the Republican administration was in place, it seems like things would stay
the same for current borrowers, and could potentially get less generous for people
who have not yet taken out debt. So that’s a good summary of the 2020
student loan proposals and how they can affect the future. If you want to share
your opinion on what you think about these proposals, just comment in the
comments below this article, or check out our blog post.

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