Student Loan Reform: Possible 2020 Outcome Latest Update.
Student Loan Reform: Student loan reform as always been the point of attraction for any candidate at the primary election. The student loan reform platforms I’ve seen for 2020 tell you a lot about the range of possible proposals that might come out of the Democratic Party now and in the future.
I can most likely predict what might happen for the student loan reform come 2020. So we will be looking at the possible outcome for the student loan reform.
Why Student Loan Reform Proposals Have Failed So Far
Why haven’t we seen action on student loan debt yet? Republicans tried passing the Prosper Act, and Democrats tried to pass the Aim Higher Act. Neither succeeded. Both would have simplified income-driven options from many to just one.
That’s where the similarities end, though. Republicans want borrowers to pay 15% of their income for more than two decades. Democrats want borrowers to pay 10% of their income for 20 years, while also reducing the payment even more for lower-income families by giving them a higher deduction.
This simple partisan disagreement is one big reason why we haven’t seen progress on student loan reform yet.
Why it Could Succeed in 2020
In all seriousness, the Democrats aren’t engaging with President Donald Trump on student loan reform because they believe they can beat him in 2020.
Why would you compromise and make a major change to a long-term federal program right now if you were House Speaker Nancy Pelosi?
You likely believe you’ll keep the House, take the White House, and possibly deal with a more moderate Republican Senate — if not win that, too.
Then you’ll have the power to push through whatever you want on student loan reform, which is what I think the Democrats are doing.
If Trump wins reelection, then I doubt the Democrats will lose the House or gain the Senate. This means the most likely outcome in that case is that nothing would change.
So, if I had to summarize my prediction on the chance for student loan reform:
Democrats win in 2020: major changes should be expected
Republicans win or win a split decision in 2020: No or limited student loan reform expected
Student Loan Predictions
The Democrats have a huge range of opinions concerning what to do about the student loan crisis (we’ve chronicled all those opinions, too).
Here’s what some of what the major candidates want, in no particular order:
Refinance federal student loans to a 2% to 4% interest rate
Expand the Public Service Loan Forgiveness (PSLF) program and make many borrowers qualify retroactively
Simplify income-based payment options
Make high-income borrowers pay more under most income-driven programs
Give low-income families a much bigger deduction before they have to pay anything on their student loans
Make public colleges and universities free at the undergraduate level
I anticipate that student loan debt which currently tops $1.5 trillion will be one of the biggest issues discussed on the campaign trail. After all, over 40 million Americans have student loans.
Candidates will need to craft bold policy proposals to differentiate themselves and make them stand out to voters. And if even some of these policy ideas get turned into actual legislation, they could transform the student debt landscape and our entire system of financing education. Here are some bold ideas to watch for during the next year and a half;
Multiple proposals to reduce or eliminate college tuition at public universities will be in motion. House Democrats have already proposed the Aim Higher Act, which would increase grant-based federal aid and provide federal financial incentives to states to eliminate or reduce tuition at state universities.
Some states have already gotten ahead of the curve to implement debt-free college programs. New York, for example, has proposed collegesfor students from lower-income families who commit to remaining in New York after graduation.
Steering students away from debt-financed degrees will be an important component of any student loan reform policy. But lawmakers will still have to address the $1.5 trillion in student loan debt that already exists.
One idea to help borrowers contain the cost of student loan repayment would be a federal program that allows them to refinance their student loans – both federal loans and, potentially, private loans – at much lower interest rates.
Caps on Interest Accrual
Reducing interest rates would be one way to lower the cost of student loan repayment. Another option would be to cap the amount of interest that can accrue on a student loan – perhaps at a percentage of the original principal balance.
It’s not uncommon for student loan borrowers to wind up repaying their original principal balances many times over. This is during the course of repayment due to interest that accrues during school.
Student Loan Forgiveness and Cancellation
Some consumer advocates argue that student loan interest and repayment reforms wouldn’t go far enough to address the student debt crisis. We are already seeing more radical ideas – such as the cancellation of student debt to stimulate the economy – discussion.
While I think it’s rather unlikely that a proposal to instantly wipe out $1.5 trillion in student debt could become law absent a fundamental shift in public opinion, we could certainly see a shoring up or expansion of existing student loan forgiveness programs.
One of the biggest roadblocks for struggling student loan borrowers is the fact that the bankruptcy code makes it extremely difficult for most people to discharge their student loans in bankruptcy.
Advocates are calling for reforms to reinstate the ability of borrowers to discharge their student debt in bankruptcy, just like any other type of consumer debt.
There is near-universal agreement that the current student loan system; which consists of a patchwork of government entities and private third-party servicers and debt collectors – is an unwieldy mess.
The system is plagued by accountability. Meanwhile, colleges and universities have little “skin in the game,” and thus they have minimal incentives to make sure their graduates get employed and can pay back their debts.
Framework for Student Loan Reform
Here are my wild predictions about what we’ll see after the election in 2020:
A push for restrictions on high-income professionals using PSLF (for future borrowers only)
Elimination of the tax bomb for student loan forgiveness in the private sector
A new kind of federal student loan with a single income-driven repayment option
Poorer families will pay less; richer families will pay more (on new loans only)
Current repayment options will remain
If Democrats win, federal student loan interest rates might decrease; if Republicans win, they might stay the same
Both parties at some point will realize that uncapped borrowing is a terrible idea
If you can predict the future of the 2020 election, I could tell you a lot more about the future of student loans. Until we have that result, borrowers should take comfort that most every student loan reform proposal in 2020 and before grandfathers current borrowers in undercurrent forgiveness and payment options. Should you be forced to move to something new, it will likely be more generous, not less.