Student Loan Debt Forgiveness Should Be Tied To Income Comments By Sherif Monem sherifmonempolitics
Both candidates Elizabeth Warren and Bernie Sanders are advocates of student government loan debt programs. However, their advocacy is debt forgiveness varies. While Bernie advocates forgiveness for all Elizabeth calls for forgiveness based on tier scale. More reasonable the level of forgiveness should be tied to the income and wealth in graded levels and should be cut off completely at certain high income or net worth.
BERNIE SANDERS’ VS. ELIZABETH WARREN’S DEBT FORGIVENESS PLANS
Who Gets Forgiveness?
Sanders’ student loan forgiveness proposal is clear: Under his plan, all $1.6 trillion in student loan debt would be cancelled—no matter what the borrower’s background or income level might be.
Under Warren’s student loan forgiveness plan, debt cancellation would come in tiers based on income. Borrowers who earn $100,000 or less annually would be eligible for the maximum benefit of $50,000.
Those who fall between $100,000 and $250,000 per year would receive a benefit that gradually phases down (the more you earn the less debt will be cancelled). And borrowers who earn more than $250,000 annually would not be eligible at all for forgiveness under the plan.
Critics of Sanders’ plan, on the other hand, say eliminating all student debt may seem like the right thing to do, but in reality its biggest benefits will go to wealthy families.
Speaking of Taxes, Will the Canceled Debt Be Taxed?
Canceled debt would not be taxed as income under either Sanders’ or Warren’s plan.
Under some other federal repayment programs, your remaining balance may be eligible to be forgiven after 20 or 25 years, but what’s left on your loans—the amount that’s forgiven—may be considered taxable income. (We know it’s probably pretty obvious here, but always consult with a tax professional if you have questions about anything tax-related.)
Which Loan Types Would Qualify for Forgiveness?
Under both candidates’ proposals, federal and private student loans would be eligible for forgiveness. No loans have been exempted at this time, including loans to parents. But there would be a difference in how federal and private loans are handled.
Under Sanders’ proposal, which he introduced in the Senate in June as the College for All Act of 2019, the secretary of education would have 180 days to forgive outstanding balances as of the day the bill is signed into law.
The legislation also gives the secretary of education temporary authority to purchase private student loans that are held by banks or other private lenders and then forgive the loan. (The purchase would include unpaid principal, accrued unpaid interest, and any late charges owed to a private lender.)
The borrower would then be issued a Federal Direct Forgiveness Loan equal to the amount paid to the private lender, and that loan would immediately be cancelled.
Warren’s plan states that for most Americans, cancellation will be done “automatically,” using information available to the federal government. It says the federal government “will work with those holding private student loan debt” to provide relief.
The feedback so far:
Though private student loan borrowers may complain down the road if the forgiveness process is slower for them, there hasn’t been much commentary yet on this part of the candidates’ plans.
Meanwhile … Don’t Hold Your Breath—Or Payments
Some borrowers might take this long-awaited political action on student debt as a sign that they should hold off on paying off their loans completely, and maybe wait and see what happens. Not to be a wet blanket, but the presidential election is more than a year away—and there is no guarantee, of course, that either of these candidates will be elected.
The newly-elected (or re-elected) president might not have a student loan forgiveness plan at all. Even if he or she does have a plan, it would have to pass both the House and Senate to become law. And before any plan eventually passes, it would likely go through some modifications.
In other words, this could take a while.
In the meantime, there are a variety of federal programs that may provide relief from student debt, from income-driven repayment plans to PSLF and other career-specific forgiveness programs for those with federal student loans.
Though borrowers with private loans aren’t eligible for those options, SoFi offers several private student loan repayment plans—including plans that require moderate, or no payments at all while in school. To make it even easier, you can complete the entire application online, and there are absolutely no fees.
A private student loan with a payment plan that works best for you might help make your payments more manageable. That’s a plan you can put your support behind any time you’re ready.
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