Written By Travis Hornsby, CFA®, CFP®
Updated on February 23, 2021
We surveyed our readers to ask how they would solve the student loan crisis, and they responded in a big way.
Over 1,200 registered voters responded to our 26-question survey, and they’re looking for significant changes for student loan reform. The most common desired changes cited in our survey were:
- Lower interest rates on the amount borrowed
- Being able to deduct interest on taxes
- Having more loan forgiveness options
- Eliminating the tax bomb on loan forgiveness
While those choices make sense, there also was a lot of data from our survey that surprised me. Let’s take a look at what our readers think about student loan reform and what fixing the student loan crisis might look like long-term.
Is student loan debt important to voters?
Because most of the respondents to our survey owe six figures in student loan debt, you might expect it to be a high-priority issue. Only 15% of respondents, however, said student loan debt is the most critical issue to them.
Student loan debt can cause a lot of financial stress and anxiety for borrowers, so you’d think the issue would be important to voters. Surprisingly, when watching the recent Democratic debate, I was shocked that candidates only mentioned student loans once (as an aside while discussing another topic, no less).
Voters have other issues that are higher on their lists, such as gun control and healthcare. A clear majority of our survey respondents put student loans as the third or fourth most important issue.
Would borrowers pay taxes to eliminate student loans?
There is a lot of talk about whether the federal government should forgive all student loan debt, so we turned to our readers to see how they felt about it.
When asked if readers wanted all debt forgiven, 67% of respondents said they wanted it wiped away and forgiven completely — without any further questioning of cost or payment plan.
But, we asked, what if eliminating student loan debt meant borrowers would have to pay higher taxes for the rest of their lives? Surprisingly, 60% would rather pay more in taxes than deal with student loan debt, even if it’s for the rest of their lives.
But how much are people willing to pay? Our survey found that borrowers would trade 13% of their income — on top of what they’re already paying in taxes — in exchange for no student loan debt.
Why a student loan tax makes sense
If you think about it, a student loan tax would address one of the biggest problems with the student loan system: access.
Before the government got involved in student loans, a person’s ability to go to college depended on their family’s ability to pay or their ability to get a loan from a private loan servicer. If your family wasn’t wealthy or you didn’t have a good credit score, your chances of qualifying for a private loan were slim.
The government viewed this as a civil rights issue, which is one of the primary reasons it got involved in student loans in the first place.
Transitioning student loans into people’s taxes could allow parents from every background to send their kids to medical school, dental school or to pursue higher education in other fields.
Who has the best plan for student loan reform?
Although it didn’t top the list of voter concerns, most of our readers liked Elizabeth Warren’s and Bernie Sanders’ plans when it came to student loan reform. Respondents had a mix of positive and negative responses to plans from President Trump.
Overall, borrowers are pessimistic about Washington helping them, as only 27% of respondents think whoever wins the presidential election will actually make positive changes for student loans.
Here’s a look at the candidates’ major plans regarding student loan debt:
The Biden Plan
Joe Biden recently introduced his plan to tackle student loan debt. It would require borrowers to pay just 5% of their discretionary income toward their student loans.
This low rate would be an attractive option for most borrowers. At 5%, even high-income earners would sign up because it would mean paying less than the borrowed amount in most cases.
The Sanders Plan
Bernie Sanders stands behind the idea that you need a good education to get a good job. His plan includes canceling all student loan debt and waiving future tuition of all public colleges and universities.
Sanders’ plan would transition the Pell Grant to cover non-tuition fees, such as housing, books, and other costs of living, for low-income students.
The Warren Plan
Like Sanders, Elizabeth Warren would eliminate tuition and fees at every public college in the U.S. She plans to use a wealth tax as the foundation to pay for the tuition costs and for a generous $50,000 student loan forgiveness for current borrowers.
Of course, there are stipulations. For instance, borrowers with a household income below $100,000 would get their forgiveness tax-free. But if you make more than $100,000, your benefit would be reduced by $1 for each $3 above the $100,000 income threshold.
The Trump Plan
It is important to note that the majority of people who answered the survey were not fond of President Trump. With that said, Trump proposed a plan in which student loan borrowers would pay 12.5% of their income for 30 years with the potential of also eliminating the tax bomb.
What’s interesting to me is that President Trump’s plan is very similar to what the average respondent in our survey said they’d be willing to opt in to.
Basically, most of our readers said they’d be willing to trade 13% of their income if it meant getting rid of their student loan debt.
Will student loan reform actually work?
The trouble with any change in government systems is that it takes a long time to implement. Introducing student loan reform now will likely take 18 to 20 months to roll out, which means changes probably wouldn’t be seen until 2022 at the earliest.
While it’s clear to me that the battle is going to be over how generous these plans will be for the future, I don’t think we’re headed toward mass forgiveness.
As this survey indicates, there are bigger things people care about. If the government starts taxing the wealthy or raising taxes overall, the money is more likely to be put toward other issues — issues that people care about more than student loans. This is surprising considering how heavy a burden student loan debt is on people’s personal finances.
What do you think should be done about student loan debt?
A huge concern is how student loan forgiveness would impact the student loan problem in the future. If the government forgives student loan debt without changing other rules, schools will continue to ravage students’ finances by charging whatever they want.
Unless significant regulations are put into place, such as limits on what students could borrow, blanket student loan forgiveness won’t solve the problem.
If you have feelings you want to share about what politicians should do to address student loan reform in the upcoming election, we would love to hear from you. You can leave comments and questions about the election survey at StudentLoanPlanner.com/Voicemail.
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