How do the two presidential candidates' plans stack up? Here, we break it down for you.
As you might know, student debt is one of the debts for which you can’t file for bankruptcy in the United States. Given that there is over $1.6 trillion in outstanding student loan debt, it has now become a crisis. Presidential candidates and senators Bernie Sanders and Elizabeth Warren want to cancel student debt in the U.S. and make higher public education free for everyone, but how would it work? We break it down for you.
Elizabeth Warren’s plan
Student debt is a “burden that’s crushing millions of families and acting as an anchor on our economy,” Warren said in April. “It’s reducing home ownership rates. It’s leading fewer people to start businesses. It’s forcing students to drop out of school before getting a degree. It’s a problem for all of us.”
Who would benefit? Warren plans to forgive student debt on a tiered plan based on household income. Borrowers earning less than $100,000 would be forgiven the maximum cap of $50,000. Borrowers earning more than $250,000 would not be eligible for forgiveness on their student loan balance.
How much would be forgiven? Warren’s plan would clear $640 billion of debt. This would help forgive the entire debt of more than 75 percent of borrowers, and the partial debt of more than 95 percent of borrowers.
Where would the money come from? Warren plans to pay for her program with her proposed ultra-millionaire’s tax, which is a 2 percent annual wealth tax on families whose net worth exceeds $50 million, and an additional 1 percent on families that are worth over $1 billion.
Free college, too. In addition to eliminating a big piece of the total student debt balance, the plan will introduce free tuition for both two- and four-year public colleges.
Bernie Sanders’s plan
“If we do not act boldly, our younger generation will have a lower standard of living than their parents and grandparents did,” Sanders said in July. “We cannot let that happen. It is time to end the absurdity of sentencing an entire generation — the millennial generation — to a lifetime of debt for the ‘crime’ of doing the right thing: getting a college education.”
Who would benefit? He plans to cancel all $1.6 trillion of it. Sanders’s plan does not include any income or means testing — it would just erase all student debt.
Where would the money come from? Rather than taxing the wealthy, Sanders would tax stock market trades. He proposes a 0.5 percent tax on stock transactions, as well as a smaller 0.1 percent tax on bond trades and a 0.005 percent tax on derivatives transactions.
Free college, too. He would make public four-year colleges and universities and free for all. This means that students would be able to attend a higher education institution, regardless of income.
Warren vs. Sanders, visualized
What would it take to get these passed?
In order for either proposal to go into effect, there are a number of events that need to happen first. Most importantly, one of these candidates would have to win in 2020. Even if they do, though, this does not guarantee that proposal will pass. Any bill would have to pass the Senate and the House, which is no easy task given the divide between Democrats and Republicans. Additionally, any currently proposed plans could be redrafted with minor or major changes that could improve their chances of passage.
Finally, it’s important to recognize that even when bills like these are passed, there are usually steps to take to make sure you take advantage of the programs. Remember the debt forgiveness program for teachers and public servants? Well, 99 percent of the people who applied for were rejected. (There are other federal programs that do work, like income-based repayment and others.)
What about refinancing?
With both plans, in their ideal scenario, forgiveness would be treated the same for all debt — not just federal loans — so refinancing wouldn’t hurt borrowers. Buts since things don’t always go according to plan and politicians often have to compromise, it’s hard to predict what any eventual forgiveness proposal will really look like.
One thing we do know for sure is that there isn’t any harm in refinancing existing private student loans. This doesn’t change anything from the government’s perspective, and borrowers are able to get lower interest rates.
Tanya Menendez is the co-founder and CEO of Snowball, an online platform that helps you tackle debt and investing through free personalized recommendations and affordable coaching. Menendez co-founded Maker’s Row, an online marketplace that helps democratize American manufacturing for small businesses. She has been included in Forbes magazine’s 30 Under 30 List and named one of People en Español’s Most Powerful Latinas. You can follow Tanya @makertanya and Snowball @asksnowball.