What parents and college hopefuls can learn from the US student loan crisis
As U.S. student loan debt tops $1.5 trillion, Ramsey Solutions' Rachel Cruze explains what families can do to avoid falling into a financial hole.
The Democratic presidential candidates' costly plans for universal health care dominated the Detroit debates -- but their plans for tackling the costs of higher education are every bit as ambitious, and controversial, even if they don't prompt the same on-stage fireworks as the "Medicare-for-all" divide.
The college debt question is quickly becoming a defining issue for Democratic candidates. As with health care, they have a wide range of proposals – from completely wiping out the roughly $1.5 trillion in student loan debt to expanding grants to low-income students to making public college tuition-free. Moreover, many of the plans are wildly expensive and prompting serious debate over whether the solutions are practical for dealing with costs that lawmakers across the political spectrum agree are sky-high.
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“The big issue is the cost of a college education,” Michael Lux, a student loan expert and the founder of the Student Loan Sherpa, told Fox News. “Any plan addressing student loans needs to also address the rising cost of higher education.”
The two Democratic candidates with the most sweeping proposals for dealing with student loans are Sens. Bernie Sanders, I-Vt., and Elizabeth Warren, D-Mass., who have both outlined plans to wipe out the debt accrued by college students through tax hikes for certain individuals and transactions.
Warren was the first Democratic candidate to propose a radical restructuring of how the country deals with student debt – unveiling a plan in April that would eliminate almost all student loan debt for 42 million Americans by canceling $50,000 in debt for each person with household income under $100,000. The Massachusetts senator’s plan would allow borrowers with a household income between $100,000 and $250,000 to be eligible for some debt cancellation, although not the full $50,000, while borrowers with a household income of $250,000 or more would not be eligible.
Warren also has proposed eliminating tuition and fees for two- and four-year public college degree programs along with investing $100 billion in Pell Grants, a federal aid program that requires no payback. The plan would also create a fund with a minimum of $50 billion intended to keep per-student spending at historically black colleges and universities and minority-serving institutions comparable to other area colleges.
Warren said earlier this year that her plan would be “more than covered by my Ultra-Millionaire Tax -- a two percent annual tax on the 75,000 families with $50 million or more in wealth.”
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Under Sanders’ plan, which was unveiled in June, all student debt would be eliminated – no matter how much money a household makes – and students from families with incomes of $25,000 or less would have all of their college costs covered. Sanders’ proposal would also make public colleges tuition-free. The full cost of the plans is estimated to run around $2.2 trillion.
The plan would be paid for with a tax on stock trades, bonds, derivatives and other types of investments. According to Sanders’ calculations, the plan would save the average borrower $3,000 a year and allow millennials – the group hardest hit by rising college costs – to invest in big-ticket items like homes and automobiles.
“This is truly a revolutionary proposal,” Sanders said in a statement. “In a generation hard hit by the Wall Street crash of 2008, it forgives all student debt and ends the absurdity of sentencing an entire generation to a lifetime of debt for the ‘crime’ of getting a college education.”
A House version of Sanders’ College for All Act was co-sponsored by fellow Democratic presidential primary candidate, Rep. Tulsi Gabbard of Hawaii.
Proposals such as those by Warren and Sanders have rankled borrowers who have already gone through the trouble of paying off their student loans, while others argue that the plans penalize those who didn’t go to overpriced schools.
Former Bush press secretary Ari Fleischer quipped after Sanders pitched his plan that it should be "retroactive."
Republicans and even some Democrats have questioned how the government would pay for both debt forgiveness and free college. “I get a little bit concerned when I see attempts being made to address a specific issue and the attempts get diluted by bringing everyone into the process,” Rep. Jim Clyburn of South Carolina, the No. 3 House Democrat, told Politico earlier this year. He added that “if the money were unlimited that would be one thing, but it’s not.”
Student loan experts say that despite the cost of the plans from the two New England lawmakers, the proposals could help the country’s economy.
“There’s definitely a lot of upfront costs with these plans, but it would inject a lot of money into the economy,” Lux said. “While the proposals would directly benefit some Americans, they would indirectly benefit all Americans.”
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While the student debt cancellation plans by Sanders and Warren are the most noteworthy proposals to come out of the large field of Democratic primary candidates, they are far from the only ones.
Sen. Kamala Harris, D-Calif., has offered up a narrower – and arguably more complicated – plan to address the student loan crisis.
Harris’ plan would give borrowers $20,000 in loan forgiveness, but there are a number of caveats to qualify. First, the money would only be available to students who received Pell Grants; second, the grant recipients would need to start a business in an economically disadvantaged area; and third, the business would have to run for at least three years.
During those three years, however, the borrower would be granted interest-free deferment – meaning they do not have to make payments and they won’t accrue interest. The program would be funded through a capital grant program.
Harris’ plan has been blasted by critics who say the program is too narrow, too restrictive and wouldn’t come close to solving the student loan debt crisis.
“We already have plenty of experience with narrowly-tailored, overly-complex student loan relief programs, and they are a mess,” Adam Minsky, an attorney who works with student loan borrowers, wrote in Forbes. “The ultimate loan forgiveness award provided by Harris's plan is also relatively small -- just about half of the average undergraduate student loan debt burden -- which means that the few borrowers who do obtain the loan forgiveness award would likely still be on the look for a substantial amount of student loan debt.”
A number of other Democratic candidates – Sen. Kirsten Gillibrand of New York, former Rep. John Delaney of Maryland and former Rep. Beto O’Rourke of Texas – have proposed public service requirements as a way to reduce student debt and offset the costs of a college education.
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Delany has advocated for expanding programs like AmeriCorps, a federal public service program, and creating a Climate Corps, which would award participants with college scholarships.
Gillibrand has outlined a similar idea, in which the government would pay two years of community college or state school education in exchange for a year of service in a program like AmeriCorps, the Peace Corps, or Teach For America and four years of college for two years of service. The New York senator has also advocated for expanding the GI Bill to help veterans afford the cost of a higher education.
O’Rourke’s student debt plan would specifically forgive all debt for teachers who work in public schools.
Other candidates – such as primary front-runner Joe Biden, the former vice president, and Sen. Cory Booker of New Jersey – have not laid out specific proposals to tackle the student loan debt crisis, but Biden has said he supports the idea of a free four-year college education while Booker has co-sponsored a bill to use federal matching grants to incentivize states to invest more money in public colleges and allow students to attend debt-free.
As for the current occupant of the Oval Office, President Trump vowed on the campaign trail in 2016 to address the issue – saying he is “very good on loans” – but his recently proposed 2020 budget would phase out a plan from the administration of President George W. Bush to offer partial student-loan forgiveness to Americans who participated in national service. Along with eliminating the public service loan forgiveness option, Trump has also proposed limiting the amount of money a student can borrow and reducing the current number of income-driven repayment plans to just one.
The Associated Press contributed to this report.
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