How Elizabeth Warren would cancel student loan debt
What would the plan do?
Sen. Elizabeth Warren on Tuesday introduced legislation that would carry out her campaign promise to wipe out some $640 billion of outstanding student loan debt.
“Student loan debt in this nation has reached crisis proportions,” the Massachusetts Democrat declared at a press conference alongside Rep. Jim Clyburn, the No. 3 Democrat in the House, who is leading a companion bill in that chamber.
Warren has pitched the debt cancellation plan as a way to tackle the racial wealth gap, noting that borrowers of color are disproportionately burdened by student loan debt.
It’s also meant as a broader economic stimulus. Warren said that the more than $1.5 trillion of outstanding student debt “is a drag on our entire economy” as loan borrowers delay or forgo economic activity such as buying a house or starting a business.
Who would qualify?
Student loan borrowers who have $100,000 or less of gross household income would receive up to $50,000 of forgiveness. Borrowers earning between $100,001 and $250,000 would receive proportionally less in loan forgiveness. Every $3 of income over $100,000 would reduce the cancellation amount by $1.
Borrowers earning more than $250,000 would not be eligible for any debt relief.
All federal student loan borrowers would qualify for loan forgiveness. Private student loan borrowers would also be eligible for debt relief, though they would first have to refinance their private debt into a federal student loan.
How would it work?
The federal government would automatically cancel eligible student loans without requiring borrowers to submit applications. That’s because the Education Department would use information that the government already has about borrowers’ income and debt levels to determine who qualifies.
The federal government would suspend the collection of student loan payments for a year while the Education Department carries out the loan forgiveness program. Any amount of loan forgiveness would not count as taxable income.
How much would it cost?
It’s not clear exactly how much the plan would cost, as the Congressional Budget Office has not yet scored the bill. But Warren has said the plan will wipe out some $640 billion in debt.
The legislation doesn’t include any mechanism to offset the spending, though Warren has floated the idea of funding it with a 2 percent “wealth tax” on individuals who have a net worth above $50 million. Clyburn, a South Carolina Democrat, said he’d like to fund the bill by reversing some of the tax breaks for high-income individuals and corporations in the GOP tax law.
What other provisions are in the bill?
The legislation would automatically lower the interest rate on all existing federal student loans. And the bill would make it much easier for borrowers of federal and private student loans to discharge their debt through bankruptcy.
The plan also calls for repairing the credit history of borrowers who defaulted and then have their loans canceled.
What have other Democrats proposed?
Sen. Bernie Sanders has a competing plan to cancel student loan debt. But unlike Warren’s plan, Sanders’ proposal would forgive all outstanding student loan debt, regardless of a borrower’s income.
Julián Castro, the former San Antonio mayor and housing secretary under President Barack Obama, has a smaller student loan forgiveness plan that seeks to target loan forgiveness for lower-income borrowers.
South Bend, Ind. Mayor Pete Buttigieg has proposed student loan cancellation for borrowers who commit to national service or who enrolled in low-performing career college programs, mostly at for-profit colleges.
