A few days ago, President Trump released his proposed budget, in which he plans to cut $5.6 billion in funding to the Department of Education. It also cuts $170 billion dollars in student loan spending. One of the more controversial proposals is to end the Public Service Loan Forgiveness program where federal student loans would be forgiven tax-free after 10 years of working in a public service position.
Conversely, some of the Democratic presidential candidates are promising to forgive existing student loans totaling $1.6 trillion. Bernie Sanders proposes to wipe out existing student loans completely with no strings attached. Elizabeth Warren’s forgiveness proposal would depend on the debtor’s income, although 95 percent of debtors would be eligible for some form of loan forgiveness.
But can either of these proposals or any wholesale student loan forgiveness plan actually become reality? This might be more complicated than it seems.
Not all voters are friendly to the idea of student loan forgiveness. Some think that forgiveness should only be awarded in extraordinary circumstances. Others believe that student loans should be paid in full regardless of the circumstances. Go to the comments section of any news story on student loan forgiveness and you are likely to see a heated debate from all sides.
From my observations, the issue crosses political ideologies. I have seen a fair number of liberals who don’t believe in student loan forgiveness, as well as a fair number of conservatives who believe that student loans should be forgiven. Would a voter vote against their party on the issue? Democratic strategist and commentator James Carville had this to say about the student loan issue in the upcoming elections:
Here’s another stupid thing: Democrats talking about free college tuition or debt forgiveness. I’m not here to debate the idea. What I can tell you is that people all over this country worked their way through school, sent their kids to school, paid off student loans. They don’t want to hear this s**t. And you saw Warren confronted by an angry voter over this. It’s just not a winning message.
How important is the issue of student loans in the upcoming elections? Unfortunately, that is not clear. A Fivethirtyeight poll showed that education is ranked lower than health care, the economy, gun issues, climate change, and wealth inequality. But a recent Gallup poll indicates that education is a top issue with 33 percent of respondents stating that it is an “extremely important” issue and 83 percent stating that it is an “extremely important and very important” issue. But whether education also covers student loan burdens is also unclear.
In the final analysis, on the issue of loan forgiveness, I think most people will vote based on self-interest. Understandably, those who are burdened with large student loans (in addition to their parents and those who are co-signers) will want forgiveness. They will argue that tuition and living expenses have increased considerably and that there will be an economic stimulus. Those who paid off their student loans are not likely to agree to loan forgives as it devalues their hard work and sacrifice, and they will be partially paying the forgiven debt through their taxes.
Perhaps loan forgiveness will be a serious political issue in a decade or two assuming nothing changes and more people are burdened with larger debts. But for now, even if Bernie Sanders or Elizabeth Warren were to win the presidency, chances are student loan forgiveness will probably not be on the legislative table for a very long time. While more young people are being vocal about their debt burden, it is not clear whether this is a popular issue among all voters. Not only that, the issue is a divisive and heated one since almost everyone has either paid them off, is on track to pay them off or will never pay them off. And every one of them has a personal story of sacrifice or hardship to support their position.
Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at sachimalbe@excite.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.