You know I love to talk about student loans. With the upcoming election, there’s even more to talk about.
I asked Lauryn Williams to weigh in on some of the hot election topics going on right now. Williams is a student loan advisor with Student Loan Planner. She’s also a financial planner, CFP® and an Olympic gold medalist.
The 2020 election is fast approaching. We recently had the New Hampshire primary and Nevada Democratic caucuses. People are talking about Bernie Sanders, Elizabeth Warren, Joe Biden and Pete Buttigieg as being the more prominent candidates. And Amy Klobuchar, the senator from Minnesota who almost got second place in New Hampshire, is still hanging in there as well, while Mike Bloomberg tries to enter the fray.
Some of the candidates have specific student loan plans. Elizabeth Warren, for instance, has an extreme level of detail in her proposed student loan plans. But the other candidates’ plans to address the student debt crisis are more general.
Bernie’s student debt forgiveness plan
“Bernie [Sanders] is ‘let’s forgive all the debt,’ so he wants to guarantee free tuition for public colleges,” said Williams. She also notes that he has talked a lot about the racial wealth divide and how that’s affecting education.
“I thought Bernie’s plan was very interesting, but canceling all student loan debt for 45 million Americans is a pretty big deal — it will have profound economic implications,” said Williams.
Moody’s has an excellent research piece about how widespread student loan forgiveness could benefit the economy. But it’s questionable as to whether it really would pay for itself through positive feedback loops.
One option Williams brings up is the Wall Street tax, referring to a comment Sanders made. “We bailed out Wall Street and spent all this money during the big economic crisis, why not bail out student loans?”
Basically, his plan would charge a tax every time you buy or sell a stock or a mutual fund. You don’t see these costs directly, but mutual funds pass along transaction costs to investors. A tax like this could hurt the middle class because they’re more likely to hold mutual funds and pension funds.
“The devil is always in the details,” said Williams. “You see something on the surface level and think it sounds great, but then you have to go that next step to see what the implications might be.”
Warren’s targeted student loan forgiveness strategy
If you look at Senator Warren’s plan, you’ll see that it’s more targeted.
Williams agrees. “One of Warren’s big things is that she’s going to do up to $50,000 of cancelation,” Williams said. “People with income less than $100,000 can get the full $50,000, and then there’s a phase-out like we do with taxes and other things.”
It’s more of a needs-based program in that sense. “If you make between $100K and $250K, they’re going to give you some forgiveness, but you don’t get anything if you make more than $250,000.”
Warren’s popularity has been a bit up and down lately, as she finished fourth in New Hampshire but has appeared to rebound on the last couple debate stages.
“I don’t know if she’s going to be done. I think it’s not over until the fat lady sings,” said Williams.
Klobuchar’s plan to cut student loan interest rates
Paying less interest can save people money. It’s why we like to help people refinance — a drop in interest can save you thousands of dollars over the life of your loan.
That’s what’s attractive about Klobuchar’s plan. First, she wants to refinance all student loans. She wants to cut current rates from what they are to a rate of around 3%.
It would be terrible for the Student Loan Planner business. But aside from that, refinancing all student loans at a level like she’s proposing would be very expensive.
“There would be an economic ripple from this that could put all of the refinancing companies out of business,” said Williams.
It also doesn’t do much to reign in the direct costs of going to school. If you look at New York University dental school as an example, it costs close to $600,000. Reducing all student loans to 3% might only drop your monthly payment on a 10-year standard plan from $6,000 to $5,000.
And $5,000 a month is still $60,000 a year, which is a huge chunk of money that would still be going toward student loans.
The racial wealth divide
Williams appreciated that each candidate had information and a thoughtful approach to being able to create a solution around the racial wealth divide.
If you look at all that has gone into creating the racial wealth divide, you’ll see that education is one of the things that needs to be addressed to bridge the gap.
When asked if student loan forgiveness would help, Williams said, “It would help shrink the divide, for sure.”
She also cited a statistic that claims, all things being equal, it would take 228 years for African Americans to catch up to white Americans, and 84 years for Latino Americans.
“It’s a huge divide, so it wouldn’t automatically close by fixing education, but it would lessen that amount and get us going in the right direction,” said Williams.
What can we expect going forward?
Many people have proposed changes to the world of student loans, and the plans vary quite a bit. Here’s a quick rundown of what we’ve seen so far:
- Obama’s 2015 budget
- Prosper Act
- Aim Higher Act
- What You Can Do for Your Country Act
- Senate Republican Plan
Now, with the 2020 presidential election coming up, candidates are proposing different solutions to tackle the student loan debt crisis we have in America.
“There are multiple plans on the table, some better than others, but the biggest thing is let’s not count our chickens before they hatch,” said Williams.
People ask us all the time, “What should I do?”
They’re not sure if keeping their federal loans or refinancing is the smarter option. While there is a lot of uncertainty, borrowers should keep going as planned based on what is currently in place.
“As soon as we know something different, Travis will be the first one reporting,” said Williams.
If you’re not sure whether you’re on the right plan, Lauryn Williams can help. She’s been with the Student Loan Planner team for over a year and specializes in helping borrowers with up to $400,000 in student loan debt.
Williams is also one of the only consultants who has weekend appointments available.
Don’t get stuck wondering if you might be able to save money. A student loan plan with Lauryn can help you know for sure.