Trump Proposed Shortening Student Debt Repayment Period Before Elizabeth Warren's Push For Loan Forgiveness

There's one big difference: canceled debt will not be taxed as income under Warren's plan.

(Photo via iStock)

Student loan debt accounts for $1.56 trillion in the collective consumer debt load. That’s the second highest total for any consumer debt category, behind only mortgage debt.

It’s a problem. Without the student loan payments that so many Americans have to make every month, the gross domestic product would get a boost of between 0.29 percent and 0.37 percent. Even so, obtaining a college education still tends to pay over the long haul for individuals, at least those who can stick it out and actually finish with a degree.

There are a lot of different studies out there on the lifetime dollar value of a college education. Some fairly conservative estimates from the Social Security Administration indicate that men with bachelor’s degrees earn about $900,000 more over a lifetime than men who did not pursue higher education after high school. College-educated women also do better than their high school-educated counterparts, with $630,000 more in median lifetime earnings. Those of us with graduate degrees do better still, with the median lifetime earnings of men and women who hold graduate degrees at $1.5 million and $1.1 million more, respectively, than the median lifetime earnings of men and women with only high school diplomas. Compare those gains in lifetime earnings with the average annual total charged for tuition, fees, room, and board for full-time undergraduate students — $22,432 — and it’s easy to see that college is a good deal for most people, even when they have a fairly big debt to repay at the end of it.

While higher education still ultimately economically benefits most people who pursue it, there are plenty of outliers who wind up with a big debt they can’t pay off. About 11.4 percent of borrowers with outstanding students loans are 90 or more days delinquent.

In late April, 2020 presidential candidate Elizabeth Warren laid out her ambitious plan for student loan debt: cancel it. The Warren plan would not affect student debt for very high earners, but it would offer a one-time cancellation of at least a portion of student debt balances for three out of four borrowers. Up to $50,000 in student loan debt would be canceled for every borrower with an annual household income under $100,000, and the amount of cancellation-eligible debt would progressively phase out as household income level increased from there. Borrowers with a household income above $250,000 would remain on the hook for the full amount of their student loan debt. Critics of Warren’s plan point out that a number of those it would benefit are on their way to becoming (or already are) well-compensated professionals.

No one seemed to notice that just a month earlier, another 2020 contender also took a swing at student debt. That’s right: President Donald J. Trump apparently agrees that it’s a good idea to make it easier to cancel certain student loan debts.

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True, in Trump’s 2020 budget proposal, the White House envisioned an end to the Public Student Loan Forgiveness program. That program was actually a George W. Bush creation, and offered forgiveness of federal student loans for public service and nonprofit workers who had made payments over 10 years. But the Public Student Loan Forgiveness program, while it sounded good in principle, has been a joke in practice. Of 41,221 borrowers who submitted applications to the program, only 423 had their applications approved. A mere 206 people in the entire country have actually received student loan debt forgiveness under the program. Trump’s proposal to ax the Public Student Loan Forgiveness program might sound monstrous at first, but it would actually almost be a kindness to put such an anemic debacle out of its misery.

Much more interesting in the budget proposal was Trump’s push to forgive undergraduate student loan debt for all borrowers after 15 years of monthly payments. That means student loan debt forgiveness would be available five years earlier than under current income-driven repayment plans. Under Trump’s plan, monthly student loan payments would be capped at 12.5 percent of discretionary income rather than the current standard cap (generally 10 percent of discretionary income). Still, by shortening the repayment period from 20 years to 15, after which any remaining balance would be totally forgiven, Trump’s plan would be more generous to borrowers than existing programs even with a slight increase in monthly payment amounts.

So, about a month apart from one another, Donald Trump and one of his most progressive 2020 challengers both proposed shortening the amount of time it would take student loan debtors to receive forgiveness of outstanding student loan balances. The difference between the proposals amounts to whether borrowers should get their student loan debts forgiven after making minimum monthly payments for 15 years or after making payments for however long they already have been. That’s… really not that big of a difference. In any rational world, a compromise would be reachable between two factions who both agree that student loan debt should be forgiven in a shorter period of time and only disagree on exactly how much shorter that length of time should be.


Jonathan Wolf is a litigation associate at a midsize, full-service Minnesota firm. He also teaches as an adjunct writing professor at Mitchell Hamline School of Law, has written for a wide variety of publications, and makes it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.

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