It's no secret that the student debt crisis has gotten out of hand. Americans collectively owe more than $1.5 trillion in outstanding student loans, and many are nowhere close to paying them off. Not only that, but a large number of Americans are struggling to keep up with their monthly loan payments and are at risk of defaulting, which brings a host of unsavory consequences.
Vermont senator Bernie Sanders isn't all too pleased with the situation. That's why in June 2019, he announced a plan to wipe out student debt for an estimated 45 million Americans.
Sanders' plan is called The College for All Act, and it seeks to not only wipe out existing debt, but make also two- and four-year public colleges tuition-free so that future students won't have to rack up the same levels of debt.
To pay for this plan, Sanders is suggesting a tax on financial transactions such as stock and bond trades. Those taxes could raise up to $2.4 trillion over the next 10 years, according to Sanders' projections.
Of course, critics of the plan say it's far too aggressive and expensive. Case in point: Earlier this year, Massachusetts senator Elizabeth Warren also released a student debt relief plan, but whereas Sanders seeks to eliminate that debt completely, Warren's proposal only forgives up to $50,000 per borrower. It also doesn’t extend to higher earners who, conceivably, have the means to pay their debt off.
Don't bank on a bailout
Though Sanders’ proposal might seem like something to celebrate, it’s important to recognize that the chances of it going through in its current form are somewhat slim, especially since his proposed tax on financial transactions is likely to be met with resistance. Of course, this isn’t to say that some form of student debt relief won’t be on the table, but until it’s made official, individual borrowers should take steps to make their loans more manageable.
Those who took out federal loans for college are entitled to certain protections, like income-driven repayment plans (which can lower monthly payments substantially) or even deferment. Those who borrowed privately for college might face more of an uphill battle with their lenders, but they can still reach out and aim to negotiate better loan terms that serve the very important purpose of lowering their monthly payments. Even though private lenders have no technical obligation to accommodate such requests, many will ultimately make concessions to avoid having borrowers default on their payments completely.
Borrowers with private student loan debt can also look into refinancing to get lower rates if their lenders are unwilling to budge. This especially holds true for those with great credit, or whose credit has improved since borrowing that money in the first place.
Could student debt really get wiped out completely? A number of well-known politicians are advocating for change, but it’s too soon to know how these various proposals will fare. For now, the best borrowers can do is explore their options for relief, and share their stories so that others are aware of the dangers of taking on too much educational debt.