With this year’s presidential candidates vying to win their respective party’s nomination for the highest office in the country, the issue of student loans has become a hot topic in town hall meetings, debates, and even one-on-one encounters with voters. That’s because millennials, future and current students, and recent college graduates continue to voice their support or opposition for candidates based in-part on how they intend to address the pressing issue of outstanding student loans.
In an attempt to rally the student base behind them, Hillary Clinton, Marco Rubio, and Bernie Sanders have presented detailed plans which discuss what they would do about student debt if elected. While Ted Cruz, John Kasich, and Donald Trump have acknowledged that student loans are a problem for many, they haven’t provided plans that discuss how they would change the current system.
All you have to do to understand why the issue of student loans is important to so many American citizens and politicians is look at the numbers. According to an estimate by the U.S. Census Bureau, the population of the United States was just over 322,762,000 at the beginning of 2016.
Out of the nearly 323 million people living in America, approximately 40 million individuals are burdened by student debt. The amount of outstanding student loans held by the federal government totals more than $876 billion, an amount that represents over 35 percent of the nation’s overall consumer credit. The default rate on federal student loans is currently 14 percent.
While every state in the nation has residents who owe student loans, certain states have a significantly greater number of individuals who are indebted to the federal government as a result of continuing their education beyond high school. According to the U.S Department of Education, only three states have less than 100,000 residents who have federally backed student loans: Alaska, Utah, and Wyoming. There are also 12 states that are home to more than one million people who owe student loans to the federal government.
Following is a list of the states with more than one million student loan debtors, the number of borrowers, and the total amount owed to the federal government:
- California: 4,156,000 borrowers, $112,268,605,000 owed
- Florida: 2,457,000 borrowers, $68,567,793,000 owed
- Georgia: 1,454,000 borrowers, $44,263,989,000 owed
- Illinois: 1,809,000 borrowers, $49,391,513,000 owed
- Michigan: 1,516,000 borrowers, $40,142,155,000 owed
- New Jersey: 1,206,000 borrowers, $30,880,072,000 owed
- New York: 2,821,000 borrowers, $77,516,686,000 owed
- North Carolina: 1,155,000 borrowers, $31,072,214,000 owed
- Ohio: 1,970,000 borrowers, $49,645,391,000 owed
- Pennsylvania: 2,082,000 borrowers, $53,303,909,000 owed
- Texas: 3,303,000 borrowers, $81,850,800,000 owed
- Virginia: 1,058,000 borrowers, $30,118,363,000 owed
Just like people in every state in the country have student loans, individuals graduating from different types of four-year degree programs have debt regardless of whether they attended a private or public college. According to the Institute for College Access & Success, approximately 1.3 million students graduated from college in debt in 2012.
The Institute for College Access & Success also reported the following:
- Public Colleges: Sixty-six percent of graduates from public colleges had student loans. The average debt per graduate was $25,550 in 2012.
- Private, Non-Profit Colleges: Seventy-five percent of graduates from private, non-profit colleges had student debt, with individual students owing an average of $32,300.
- For-Profit Colleges: In 2012, 88 percent of graduates from for-profit colleges had student loans. The average debt per individual was $39,950.
Consequences of Student Loan Debt
With the total number of Americans struggling under student debt being greater than four times the entire population of Sweden, many individuals are experiencing the consequences of having student loans firsthand. According to Young Invincibles’ report, Denied? The Impact of Student Debt on the Ability to Buy a House, the average debt-to-income ratio for an individual student borrower has grown to .49 from .43 in 2002.
Due to this increase, Young Invincibles’ report makes the following claims:
- “The average single student debtor is likely ineligible for the typical home mortgage due to their debt-to-income ratio.”
- “For couples looking to buy a house, it is more difficult to qualify for a home mortgage when even one of the buyers has student debt, and even harder if both buyers have student debt.”
In addition to making it more difficult for college graduates to buy homes, student loan debt is one of the reasons why millennials are postponing buying vehicles and starting families. According to a study by One Wisconsin Institute, the burden that student loans puts on consumers results in the auto industry losing more than $6 billion in sales annually. Between 2007 and 2011, the average age for a male and female marrying for the first time increased from 27.5 to 28.7 and 25.6 to 26.5, respectively. During the same time frame, the number of births per 1,000 women between the ages of 15 and 44 dropped from 69.3 to just 65.
Consequences of Default
While the consequences of carrying student debt are troublesome, the potential consequences of defaulting on a student loan are even more severe. If you’re applying for your first job, you may need to submit your transcript to a prospective employer. If you’re behind on your student loan payments, your alma mater might refuse to release your transcripts to prospective employers, disqualifying you from consideration, for example.
Additional consequences of defaulting on a student loan may include the following:
- Ruined Credit Score: Approximately 60 percent of employers perform credit checks before they hire new employees or promote current ones. If you default of your student loan, your credit score could fall to a level that makes it impossible for you to get a job or be promoted to a new position. Defaulting on a student loan can also disqualify you from ever working for certain employers such as the federal government.
- Loss of License(s): Depending on the industry in which you work, you could lose the license you need to continue working in that field if you get behind with your student loan payments. Nursing and the securities industries are two examples of professions where your job could be in jeopardy if you default on a loan. In certain states such as Montana, you might also lose your driver’s license if you fail to repay your student loans.
- Lack of Protection: When it comes to student loans, you don’t have the protection that the legal system provides to consumers who accumulate debt for reasons such as overspending or gambling. Even if you’re forced to file for bankruptcy, your student loans won’t be discharged by the court. With the Federal Student Loan Programs earning a profit of $41.3 billion in 2013 alone, a memo leaked by Sallie Mae stated that the second most important goal of agency officials is to continue to prevent individuals from being able to have their student loans discharged by bankruptcy petitions.
- Inherited Debt: If you borrowed money from the federal government to attend college, your debt will be forgiven upon your death. If you borrowed funds from a private lender, however, your student loans will become the responsibility of your family members if you pass away.
Views of Republican Presidential Candidates
Currently, four people are rivaling one another for the Republican nomination. Donald Trump, a business magnate and reality television personality, is the frontrunner as of now, ahead of Texas senator Ted Cruz, Florida senator Marco Rubio, and Ohio governor John Kasich. While the four men are competing for the same nomination, the way they claim they would handle some of the challenges facing the nation varies between the candidates.
While Trump leads the pack in the majority of credible polls, neither he nor Ted Cruz have offered specifics about how they would tackle the issue of student loans in America. By comparison, John Kasich has already made significant changes to lower the cost of higher education in Ohio, and Marco Rubio has published a plan to overhaul what he describes as America’s “outdated and broken” higher education system.
Below you will find a description of what each Republican candidate says he will do to address the nation’s student loan crisis if elected president:
- Marco Rubio
Marco Rubio has personal experience with student debt, having paid off $150,000 in college loans. Part of Rubio’s plan is to “reduce the complexity of the federal financial aid application” and replace the multiple tax incentives which exist for higher education with one simple tax provision. Rubio plans to redesign the accreditation system to allow credits earned by taking non-traditional education courses to transfer into the system, enabling people to possibly graduate faster with less debt.
Rubio’s plan also includes “Student Investment Plans” through which students would apply for financing for their postsecondary education from approved investors instead of applying for student loans.
Perhaps the cornerstone of Rubio’s comprehensive plan, however, is the establishment of an income-based repayment program, or IBR. According to Rubio, students who borrow money from the federal government to continue their education would be automatically enrolled in IBR, a universal student loan repayment program that would allow people to repay their loans in proportion to their earnings. Rubio may have already established the framework for IBR to succeed, too.
In a recent bipartisan bill he proposed, Rubio suggested that borrowers would pay 10 percent of their earned income toward their student loans. The maximum amount a debtor would be required to repay in a single tax year would be $10,000. The bill also stated that up to $57,500 in student loans would be forgiven after a maximum of 30 years, giving people in default the chance to rebuild their credit.
- Donald Trump
In an exclusive interview with TheHill.com, Donald Trump expressed his disapproval of the federal government making a profit off of student loans, saying, “That’s probably one of the only things the government shouldn’t make money off — I think it’s terrible that one of the only profit centers we have is student loans.” Trump went on to say, “One of the biggest questions I get is from people in college [about student loans]. They’re in college — they’re doing well but they’ve got student loans up to the neck. They’re swimming in these loans.”
While Trump acknowledged that many college graduates are overwhelmed with student loans, the current Republican frontrunner didn’t provide many details about how he would deal with the student loan crisis. In fact, the only step Trump has said he would take to resolve the crisis is to create more jobs. Ideally, job creation would enable people to repay their loans instead of defaulting on them or exercising deferment and forbearance options often permitted by Student Loan Forgiveness programs.
- Ted Cruz
Similar to Rubio, Ted Cruz also paid off student loans that totaled $100,000. While he has personal experience with student debt, Cruz has said little about how he would handle the country’s student loan crisis. If his actions as a senator are any indication, Cruz might not be as inclined as other presidential candidates are to take action on the issue if he’s elected, however.
For instance, Cruz wrote an amendment which slashed federal grants for low-income students and made it more difficult for graduates to repay their student loans. Cruz also voted against various proposals designed to lower interest rates on student loans.
- John Kasich
Although he hasn’t discussed his plan to address student loans on a national level, John Kasich claimed that his state is “changing the system” to reduce the cost of higher education in Ohio during the third Republican debate. The governor also said, “We need to take advantage of online education to reduce the costs.”
If Kasich’s governorship provides any indication, his approach to resolving the student loan crisis may include cost control. According to Mic, Kasich’s plan allows state schools to raise their tuition by only two percent in 2016 and prevents state schools from increasing tuition during fiscal year 2017. Kasich created a task force to streamline colleges and contain the costs related to higher education in his state.
Views of Democratic Presidential Candidates
Similar to the GOP candidates, the Democratic hopefuls also recognize the severity of the student loan crisis. While they don’t entirely agree on how the crisis should be managed, both former Secretary of State Hillary Clinton and Vermont Senator Bernie Sanders have plans to address the crisis that are similar in some ways, yet noticeably different in others.
Here are the basics of the plans each democratic candidate has to handle to student loan crisis if elected president:
- Hillary Clinton
In an article posted on Medium.com in August, 2015, Clinton wrote, “Over 40 percent of college students still haven’t graduated after six years — and many never do. It’s time to show some tough love to colleges and universities that let significant numbers of students fall behind and drop out, year after year.” With that in mind, part of Clinton’s plan requires public colleges to be held accountable for increasing their graduation rates.
Clinton’s New College Compact also requires schools to make higher education more affordable by controlling their costs. The compact calls for states to invest in higher education within their borders and for the federal government to increase its investment in higher learning. Clinton’s plan states that no student will have to borrow to pay tuition at a public school. Following president Obama’s example, the compact also provides tuition-free community college.
Clinton’s compact has provisions to strengthen educational benefits provided to veterans under the GI Bill and expand AmeriCorps. Similar to the bill recently introduced by Marco Rubio, Clinton’s plan calls for a universal income-based repayment system for student loan debtors.
Her plan also requires that current student loan borrowers be able to refinance their loans at lower interest rates. Clinton’s plan will prevent the federal government from making money off of student loans in the future as well. Clinton intends to fund her plan’s estimated $350 billion price tag by limiting the number of deductions the nation’s top wage earners can take on their federal tax returns.
- Bernie Sanders
Bernie Sanders’ stance on resolving the student loan crisis is very similar to Clinton’s and focuses on making higher learning more affordable by eliminating tuition and student debt. Sanders’ College for All Act would require the federal government to cover 67 percent of the cost of tuition at public colleges and universities while requiring the states to pay the remaining 33 percent.
For low-income students, Sanders’ plan mandates that all of their financial needs be satisfied. According to Sanders’ website this means, “Low-income students would be able to use federal, state and college financial aid to cover room and board, books and living expenses. And Sanders would more than triple the federal work study program to build valuable career experience that will help them after they graduate.”
Like the New College Compact, Sanders’ plan would enable people who already have student loans to refinance their student debt at lower interest rates. Sanders would revert back to the formula which was used to calculate student loan interest rates in 2006. If this formula were in use today, the interest rate on student loans would drop nearly two percentage points, from 4.29 percent to 2.37 percent.
According to Sanders’ website, his plan will cost approximately $75 billion per year. Sanders intends to fund his plan by imposing a new tax on people he refers to as “Wall Street speculators.” Sanders’ website further explains, “The cost of this $75 billion a year plan is fully paid for by imposing a tax of a fraction of a percent on Wall Street speculators who nearly destroyed the economy seven years ago…If the taxpayers of this country could bailout Wall Street in 2008, we can make public colleges and universities tuition free and debt free throughout the country.”
No matter what, receiving a post secondary education is important to landing a job in today’s market, and rising student debt is a serious problem. It will be interesting to see where the political tides take the issue and what will be done to resolve the student loan crisis.