Can the 2020 presidential election help you shed debt?
Student loan debt is no doubt a drag on the U.S. economy, holding back how much money young consumers can spend on cars, homes and even invest in 401(k) plans or new businesses.
But the debt crisis is giving an early kick start to the 2020 Democratic presidential race. One candidate after another has generated some buzz by offering up one freebie or another for tackling $1.5 trillion in student loan debt.
The political rhetoric reflects the ongoing financial anxiety. So it wouldn’t be surprising to hear more about student loans during the second round of Democratic Party presidential debates comes to Detroit on Tuesday and Wednesday, hosted by CNN.
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Dealing with old student loans has become so overwhelming for many families that it has now somehow risen to the level of, say, climate change or criminal justice reform.
Why student loan debt is a hot topic
Sure, presidential candidates have talked about pocketbook issues in the past. Debates have focused on how candidates could create more jobs, cut tax bills and give a boost to a lackluster U.S. economy.
Yet the high cost of college — and the increasingly overwhelming debt loads — could resonate, just like jobs, throughout the 2020 campaign.
“It’s cutting off opportunity in such a profound way that it’s pretty hard to ignore,” said Julia Barnard, a researcher at the Center for Responsible Lending, a consumer advocacy group.
We once talked about student loans as what some called “good debt,” creating more opportunity for jobs. But as the interest builds on that debt, many people owe far more than the annual salary they’d receive in a given career.
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The true crisis, of course, surrounds those who take on $5,000 or $10,000 in college loans but never complete a degree and have no chance for a good job.
Borrowers of color hit hard by college loans
The sheer amount of outstanding student loans — as well as the impact on borrowers — poses a “significant risk to the country’s economic well-being,” according to the new study called “Quicksand: Borrowers of Color & the Student Debt Crisis” issued by the Center for Responsible Lending and the NAACP. The report was released in conjunction with the NAACP’s 110th National Convention in Detroit.
“Now, student debt threatens the well-being of an entire generation of students and their families,” according to the researchers.
The student loan debt crisis can be viewed in the context of both a “civil rights and economic justice issue,” the report noted.
Nearly 69% of all those who obtained a bachelor’s degree in 2016 had some amount of student loan debt, based on the center’s research. The average: $29,669.
The debt burden is significantly higher for some groups. Nearly 85% of African Americans who earned undergraduate degrees in 2016 had student loan debt. The average debt for that group was $33,993.
Over half of all families with African American heads of household ages 25-40 have student debt, the report noted.
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The high cost of college grabbed headlines, of course, in the 2016 presidential race, too. Back in 2015, U.S. Sen. Bernie Sanders, D-Vermont, who was then seeking the Democratic nomination, introduced legislation that would eliminate undergraduate tuition at public four-year colleges.
And he’s carrying that message into the 2020 race, now proposing eliminating all $1.5 trillion in student loan debt. His plan has no eligibility limitations.
During the second night of debates in Miami on June 27 Sanders said: “I believe that we must make public colleges and universities tuition-free and eliminate student debt. And we do that by placing a tax on Wall Street.”
Candidates open up about their student loans
We’ve spotted other signs that student loans will be debate-worthy in 2020, too.
Former tech executive Andrew Yang, who is seeking the Democratic nomination, already has admitted he had $100,000 in student loan debt himself.
South Bend Indiana Mayor Pete Buttigieg acknowledged during the first debates in Miami that he and his husband Chasten “have six-figure student debt.” He favors reducing student debt, possibly by refinancing it. The interest rates on his student loans range from range from 3.4% to 6.8%, according to a report in the Indianapolis Star.
U.S. Sen. Elizabeth Warren, D-Massachusetts, has begun pushing the message that consumer debt, including student loan debt, could help fuel the “coming economic crash.”
“A generation of stagnant wages and rising costs for basics like housing, child care and education have forced American families to take on more debt than ever before,” Warren wrote online on July 22.
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“The student debt load has more than doubled since the financial crisis,” she wrote.
Warren introduced a bill Tuesday called the Student Loan Debt Relief Act that would forgive student loans for millions of borrowers. The bill calls for cancelling up to $50,000 in student loan debt for borrowers with $100,000 or less in household gross income. Others would see partial debt cancellation for each borrower with household gross income between $100,001 and $250,000.
Whether consumer debt could contribute to the next recession is debatable, but the rising debt load is real.
Student debt crisis keeps growing
Student loan debt overall was $507 billion in the first quarter of 2007. Those under age 30 had $192 billion in student loan debt then, according to data from the Federal Reserve Bank of New York.
In just five years, the debt load went up by 78% to $902 billion in the first quarter of 2012. It was $292 billion for those under 30 in early 2012.
Rising college costs, lost savings after the Great Recession, tight state budgets all have put the squeeze on student loan borrowers.
As families faced foreclosures on their homes, job losses and deep cuts to the values of their 401(k) plans, many weren’t able to save as much as planned for college.
Student loan debt is on path to hit $2 trillion by late 2023 or early 2024 if the current trend continues, according to Mark Kantrowitz, publisher and vice president of research for Savingforcollege.com.
“Borrowers are becoming more vocal about their debt,” Kantrowitz said.
The same could be said about Democratic presidential candidates and their vitriol.
During the first Democratic presidential debate in Miami, U.S. Sen. Amy Klobuchar of Minnesota said she would “make it easier for students to pay off their student loans. Because I can tell you this: If billionaires can pay off their yachts, students should be able to pay off their student loans.”
So, Klobuchar is calling for making community college free and doubling Pell Grants from $6,000 to $12,000 a year, as well as expanding Pell Grants to families that earn up to $100,000 a year. Pell Grants are often only awarded to families with exceptional need.
A federal Pell Grant, unlike a loan, does not have to be repaid, except under certain circumstances. The maximum federal Pell Grant award is $6,195 for the July 1 through June 30, 2020 year.
Student loans: Student debt is not just a young person’s problem
Getting a college degree, of course, is but the first step for many toward getting a footing in the middle class.
So should higher education be treated more consistently as something that benefits society’s greater good — and the U.S. economy — or should much of the bill fall directly on the individual?
We’re dealing with the challenges of making college more affordable in the future, so young consumers aren’t discouraged from attending, as well as the challenge of addressing the mounting student loan debt that’s already on the books.
Barnard, a co-author of the “Borrowers of Color & the Student Debt Crisis” report, said she’s concerned that some people will start treating the idea of going to college as hopeless. If so, they could overlook the intrinsic value of an education and a lifetime of of higher wages.
She noted that one borrower stressed that her college education was 100% worth it, even though she dealt with much anxiety over her debt.
“I feel like I came so far from where I was,” she said. “I owe that to being able to go to school and do everything that I’ve done.”
How well anyone can get ahead from here could depend a great deal on what lights a spark on the 2020 election trail.
Follow Susan Tompor on Twitter @tompor