Although some object to labeling it a “crisis,” there is at least widespread consensus that, whatever we call it, our higher education system could be improved. Student loan debt in the United States tops $1.6 trillion. And as many as one in 10 of those 44 million borrowers are defaulting on their debt.
Higher education costs and student loan debt are hot topics, and every 2020 presidential candidate has some plan to address the rising costs of secondary education, the debt load and defaults on that debt affecting many students today. From one side, there have been proposals for free college and widespread forgiveness of federal debt. From the other side, there have been proposals for different forms of tax relief related to loans, different repayment programs and some discussion of the current system of federal grants and loans. Here are some of the hottest issues today.
• Student loan forgiveness: many progressive Democrats are pressing for student loan forgiveness. Sen. Elizabeth Warren, D-Mass., for example, has suggested canceling $50,000 in debt for households with income of up to $100,000. Households of up to $250,000 would be eligible for some cancellation on a graduated scale. Ostensibly, there would be a mechanism to seek cancellation of privately funded debt as well, and the forgiven debts would not be taxable as income. Others vary in their opinions as to how this would be structured, but there is definitely a progressive push toward widespread cancellation of existing debt.
• School costs: another sweeping change suggested by progressives is, of course, the idea of “free college.” Sen. Bernie Sanders, I-Vt., suggests eliminating tuition and fees at all public colleges, universities, community colleges, tribal schools, trade schools and apprenticeship programs. He would then look to divert more funding to already existing programs such as work-study and Pell grants to help out families living closest to the poverty level close the gap on other expenses of schooling, like housing and food. While campaigning in 2016, President Donald Trump was in favor of pushing the schools to do more to help lower income students attend, specifically by using endowment dollars for this purpose, rather than relying on federal funds.
• Income-based repayment plans: Democratic presidential candidate Andrew Yang proposes loan repayment plans that are income based, up to 10% of income, paid for a period of 10 years, after which time the remaining debt would be forgiven. Trump is pressing for streamlining currently available repayment plans into one similar plan, with a repayment cap of 12.5% of income, paid for a period of 15 years.
• Bankruptcy: Common wisdom says student loans are not dischargeable in bankruptcy at all. This is not quite true, but the burden is so high as to make it nearly impossible. Generally, an effort must have been made to pay back the student loans, and a significant financial hardship must be shown, both in that a basic standard of living could not be sustained if the loans are repaid, and that the hardship would last for the majority of the payback period. There has been some talk around better defining what an “undue hardship” is and, in general, making it easier to discharge student loans in bankruptcy.
• Tax breaks: The recent Tax Cuts and Jobs Act did away with taxation on student loan discharge for death and disability, which decreases the already heavy burden faced by those who have experienced the death or disability of a breadwinner. But the future of the student loan interest deduction is unclear. Even though it did remain in the final version of the Tax Cuts and Jobs Act, Trump originally proposed eliminating it. This deduction provides up to $2,500 in deduction of interest paid on a student loan. There are a number of very different thoughts on how to tackle the problems of higher education costs and rising student loan debt. This is sure to be a hot topic throughout the 2020 election and beyond.
Andrew Zashin writes about law for the Cleveland Jewish News. He is a co-managing partner with Zashin & Rich, with offices in Cleveland and Columbus.