How Bernie Sanders would cancel all student loan debt
Anyone who owes a student loan would qualify, regardless of their income or the type of loan they have. This includes parents who have taken out loans to pay for their children’s education.
How would that work?
Sanders’ bill would automatically cancel student loans made, insured or guaranteed by the federal government. The process is quite simple: The Secretary of Education would have six months to write off the outstanding balances of all federal student loans from the day the bill is signed into law.
Private student loans are more complicated. The legislation gives the Secretary of Education temporary authority to purchase student loans held by banks or other private lenders. The government would pay the outstanding principal, accrued unpaid interest, and any late fees owed to a private student lender and then cancel the loan. Borrowers should apply for loan forgiveness through an application to the Department of Education within six months of the bill taking effect.
In either case, borrowers would not have to pay federal tax on the amount of loan forgiveness they receive.
How much would that cost?
The comprehensive higher education plan, including debt cancellation, would cost $2.2 trillion. Sanders would pay for it by imposing a new tax on Wall Street transactions. His campaign said the tax would generate more than $2.4 trillion over the next decade.
“If we could bail out Wall Street, we could definitely reduce student debt in this country,” Sanders said Sunday at a campaign event at Clinton College in Rock Hill, South Carolina.
What happens after the one-time debt cancellation?
Sanders’ legislation ties the sweeping loan forgiveness proposal to a tuition-free public college, which the Vermont independent first made popular during the 2016 presidential campaign. public college tuition for all students – and it provides new funding for low-income students to help pay for living expenses and tuition at some private institutions that serve large numbers of minority students.
But many students, such as those attending graduate schools or private undergraduate colleges, will still need to borrow money to fund their education. These students, or their parents, would borrow money from the federal government at a much lower cost under Sanders’ plan. Its legislation caps the interest rate on all types of new federal student loans at 1.88%. The current rate on new federal student loans ranges from around 4.5% to around 7%, depending on the type of loan.
What have the other Democrats proposed?
Sen. Elizabeth Warren was the first to walk through the door with a extensive student loan forgiveness plan. But unlike Sanders’ plan, Warren’s proposal seeks to limit loan forgiveness for the wealthiest student borrowers. It would cancel $50,000 of debt for borrowers earning less than $100,000, with proportionately less debt relief for those earning up to $250,000 and no benefit for borrowers beyond that income level. .
Julián Castro, the former mayor of San Antonio and housing secretary under President Barack Obama, has a smaller student loan forgiveness plan which aims to target loan forgiveness for low-income borrowers.
Republicans have strongly criticized the loan forgiveness plans as being too costly and unfair to former students who have already paid off their debts. But some more moderate Democratic candidates, such as Sen. Amy Klobuchar (D-Minn.) and Mayor Pete Buttigieg, have also said the sweeping loan cancellation goes too far because it doesn’t properly target benefits to groups in need, such as low-income families or working in the public service.