Election 2020: How Trump, Democratic candidates could impact college debt, family finances

Charisse Jones, USA TODAY

This story is the third in a series that looks at how the presidential candidates could shape your family's finances.

Outstanding student loan debt in the U.S. currently stands at $1.6 trillion, a burden that stands in the way of many Americans buying a home, building up savings or planning for retirement.

Currently, income-driven repayment plans allow borrowers to put off making payments on federal loans if they're unemployed or earn less than 150% of the federal poverty line. That amounts to $18,735 for a single person and $24,360 for a family of two. After a period of years, remaining balances are also forgiven.

But some of the candidates vying for the presidency say they want to wipe away debt immediately for some borrowers.

Sen. Elizabeth Warren of Massachusetts would cancel student loan debt totaling $50,000 for every borrower whose household earns less than $100,000.

Those with higher incomes would also get some relief. For instance, a household earning $160,000 could have $30,000 in student loan debt forgiven. Those earning more than $250,000, however, wouldn't get a similar break.

Understanding student loan documents and financial aid award letters can be one of the biggest hurdles in financing a higher education.

Buttigieg aims to protect borrowers of student debt 

Pete Buttigieg, former mayor of South Bend, Indiana, says students who participated in expensive, for-profit educational programs will have their debts erased. And collection agencies will no longer be able to garnish the wages of lower-income borrowers who have defaulted on their college-related debt.

Sen. Bernie Sanders of Vermont promises to cancel the student loan debt of the roughly 45 million people who collectively owe about $1.6 trillion and to limit interest rates on future student loans to no more than 1.88%.

He says both free college and the cancellation of student loan debt will be paid for by a tax -- 50 cents on every $100 of stock -- and small fees that amount to a fraction of 1% on bond and derivative trades, generating $2.4 trillion over the next decade.

Warren's "ultra-millionaire tax'' of 2% a year on the 75,000 families with at least $50 million in wealth would pay for her plan to wipe out student debt and offer free college.

Sanders' plan might actually provide the greatest benefit to professionals who racked up significant debt pursuing advanced degrees, but who are better equipped to repay their loans because they earn higher incomes.  

"You're forgiving a lot of debt (held by) people like doctors and lawyers and people with MBA's,'' says Sandy Baum, senior fellow in the Center for Education, Data and Policy at the Urban Institute. "Very few people owe $50,000 who are low income.''

Biden student debt plan

Former Vice-President Joe Biden, meanwhile, says that those earning $25,000 or less won't have to make payments on federal loans taken out for their undergraduate education. Other borrowers will owe 5% of what they earn over $25,000.

Balances that remain after twenty years of "responsibly made payments ... will be 100% forgiven,'' Biden's site says. 

Sen. Amy Klobuchar of Minnesota says that during her first 100 days in office, she will make sure students will be able to refinance and secure lower interest rates for their loans. She'd pay for that policy, as well as community college and other aspects of her higher education plan, by repealing parts of the 2017 tax bill. She'd also close some tax loopholes and make tax rates the same for capital gains and regular income.

Students who claim they were defrauded by their schools could apply to have their college debt forgiven, potentially helping thousands of students, Klobuchar's site says. And she would push to open up a loan forgiveness program aimed at public service workers to others in what she deems "in-demand'' careers.

Former New York City mayor Mike Bloomberg would lower the rate borrowers pay on student loans through income-based plans to 5% of their discretionary income, rather than the current 10%. 

Trump administration proposes to end some grants, programs

But borrowers may owe billions more if recent proposals by the Trump administration are enacted.

Trump's latest budget presented to Congress earlier this month would end a grant program that assisted 1.7 million mostly lower-income students last year, as well as a program that forgives loans for social workers, firefighters and others in public service after they've made payments over ten years.

Elimination of the Federal Supplemental Educational Opportunity Grant would mean individual recipients lose hundreds of dollars in aid. Ending the public service loan forgiveness program could cost those workers much more.

But other proposed budget measures, such as capping how much parents and graduate students can borrow, and automatically enrolling those who've defaulted in a repayment plan, could help some borrowers better manage their debt, experts say.

Follow Charisse Jones on Twitter @charissejones

This article originally appeared on USA TODAY: Election 2020: How Trump, Democrats could affect college debt