40 million Americans.
These are the ever-growing numbers associated with the massive issue of student loan debt in the United States: $1.3 trillion in outstanding student loans, impacting 40 million Americans who are leaving college with an average of $35,000 in student loans.
The numbers are staggering enough that student debt has become a top financial concern for millennials, who now number 92 million and represent the largest living generation in the U.S.
Given this, it's not at all surprising that student loan debt has become a key issue of the upcoming presidential election in November.
My company, CommonBond, is a fintech company that focuses on lowering the cost of student loans, primarily through refinancing. Here is a look at the plans of each of the major party candidates Hillary Clinton and Donald Trump for addressing the issue of student loan debt.
Hillary Clinton's Plan
Clinton has detailed a plan called The New College Compact that would apply to three groups of people: current student loan borrowers, future student loan borrowers and entrepreneurs. Here's a breakdown of how her plans would impact each group.
Current Student Loan Borrowers
For those who currently hold student debt, Clinton's plan focuses heavily on the government's responsibility in helping to lower the financial burden caused by student loans through initiatives that include:
Instating a three-month moratorium on student loan payments
Clinton promises to establish a three-month moratorium on student loan payments for all federal loan borrowers in order to give these borrowers a chance to consolidate loans and sign up for the federal government's income-based repayment plans.
Capping income-based repayment (IBR) plans: The government's IBR plan caps the amount of money someone puts toward their student loans every month, based on their income and family size. Clinton's plan includes capping all IBR plans at 10% of the borrower's monthly income, a reduction from the current cap of 15%.
Refinancing: Clinton's plan would also enable current borrowers to refinance their student loans at the current federal interest rate (which for some people would mean a lower interest rate than when they first took out their loan). Roughly one-third of the funds from the New College Compact would go toward relief on interest from student debt. While student loan refinancing isn't currently an option through the federal government (only consolidation is, though this doesn't lower the interest rate on student loans), private lenders offer refinancing options for those with student debt. Borrowers can save thousands of dollars by refinancing.
Future Student Loan Borrowers
For those beginning college in the future, through the New College Compact, Clinton has proposed debt-free or completely free college for qualifying students. The plan would make college at all four-year public universities free within the next five years for in-state residents whose families make less than $125,000 a year.
Both students and colleges would need to have skin in the game: students would be expected to work 10 hours per week to help contribute to the cost of school and to build their career skills, and colleges would be accountable for lowering costs and improving completion rates and learning outcomes for students.
Entrepreneurs with Student Debt
A report released last year by the Federal Reserve Bank of Philadelphia and Pennsylvania State University found a strong economic link between rising student debt and entrepreneurship in the U.S. Specifically, the higher the debt held by prospective entrepreneurs, the fewer the small businesses that were created.
As an entrepreneur with my own student debt, I had to make a decision early in the company's history: either keep building the company even though student loan payments were coming due soon, or quit the startup life for a safer job in order to generate certainty for my student loan payments. I chose the former (my belief in the company was particularly strong), but not everyone does.
Clinton's plan as it relates to entrepreneurs would allow young entrepreneurs to defer their federal student loan payments, without interest, for up to three years while they start their ventures. Additionally, those who create new businesses in distressed communities would be eligible for up to $17,500 in student loan forgiveness after five years.
Overall, Clinton's plan is expected to cost $500 billion over ten years, according to a campaign aide cited in The Wall Street Journal.
Donald Trump's Plan
Trump has said that he wants to do something big in student loans. Beyond that, he has not divulged much. At a Town Hall event in response to a student's question on the high cost of college, he made statements such as, "Colleges are not watching their costs. We're going to really look into that, and that he would do something with extensions and low interest rates."
Candidate plans and proposals aside, one thing is clear: student loan debt has a very real impact on millennials' lives. As a group, millennials are poised to have a strong impact on this year's election. By having a greater understanding of the implications of this election on student debt policy, millennials (and everyone else) will be in a stronger position to advocate for their financial futures.
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