Published in: Student Loans | April 23, 2019

Elizabeth Warren's Student Debt Cancellation Plan: How It Could Work

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Student debt is a crippling problem for millions of Americans. Could Senator Warren's plan provide some much-needed relief?
young college graduate wearing robe and mortarboard with price tag hanging from it

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The student debt problem has escalated to crisis levels in recent years. Americans now owe upward of $1.5 trillion in student loans, many of which are private loans and thus offer little to no protection for borrowers struggling to keep up with their payments.

But there may be a glimmer of hope on the horizon thanks to 2020 presidential candidate Elizabeth Warren. The Massachusetts senator just introduced a plan to forgive up to $50,000 in student debt for millions of Americans, as well as to reform the higher education system that many feel has been broken for years.

Will your student debt get wiped out?

Warren's student debt solution is fairly simple on the surface: cancel $50,000 in loans for every borrower with a household income below $100,000. That $50,000 would then phase out at higher incomes, dropping by $1 for every $3 in income over $100,000. Those earning above $250,000 would not qualify for any sort of debt cancellation.

The problem, however, is that this solution comes at a $640 billion cost to the federal government -- not a negligible amount. Still, Warren has been quick to argue the merits of such a program. For one thing, it would help prevent wage garnishments -- a protection available to lenders when a borrower fails to make payments. Student debt is one of the few debts that isn't dischargeable in bankruptcy, and currently, about 11.5% of student loans are at least 90 days delinquent or in default.

Warren also feels strongly that student debt relief would act as a major economic stimulus for the millions of Americans who currently struggle with it. Lifting that burden, she argues, might boost credit scores, make homeownership a more attainable goal, and improve college completion rates, thereby helping more people earn higher wages.

In addition to wiping out student debt, Warren is calling for the elimination of tuition at all public two- and four-year colleges -- an idea first presented by Vermont Senator Bernie Sanders during the 2016 presidential race. She also wants to create a $50 billion or greater fund for historically black colleges and cut off federal subsidies among for-profit colleges.

Of course, whether or not Warren succeeds in moving her proposal forward is yet to be determined. But those who are saddled with student debt are apt to appreciate her determination.

Tackling your student loans in the interim

If Warren's student debt elimination plan does move forward, it won't become law for quite some time, so if you're currently dealing with nagging debt, it pays to explore your options for keeping it manageable. Falling behind on your loan payments puts you at risk of damaging your credit score, not to mention having your wages garnished to make your lenders whole.

If you took out federal loans, you may be in luck in this regard, as they offer a number of borrower protections. For one thing, you can look into an income-based repayment plan. Federal loans are generally repaid over a 10-year time frame, so your monthly payments are initially determined by multiplying your loan amount by your interest rate and then dividing the result by 120 (the number of months you have to pay the loan off). If that monthly payment is too much of a burden for you, you can apply to have that figure calculated as a reasonable percentage of your current income.

If you really can't afford to make any sort of student loan payment (say you've lost your job or fallen on hard financial times), you can also apply to have your loans deferred. This isn't a perfect solution, as it will effectively lengthen your repayment window, but it will allow you to stop making payments temporarily without having to worry about having your wages garnished.

If you got a student loan through a private lender, your options are, unfortunately, more limited. Still, you can look into refinancing your loans by swapping your current ones for a new loan at a lower interest rate, thereby reducing your monthly payments in the process.

No matter what steps you take to ease your personal student loan burden, don't give up until you've exhausted all of your options. Though debt relief might be on the table in Congress, for now, the responsibility is still entirely yours.

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