Like millions of Americans, Palm Beach County paralegal Melanie Kovar grapples with large student loans.
Kovar unwittingly took on $ 60,000 in debt while going to college as a single mother. She is among the 45 million Americans who owe $ 1.6 trillion in student loans, a financial surplus that is blamed for everything from the lukewarm formation of new households to modest home sales to first-time buyers.
“I will never pay off my student debt,” Kovar said. “I only pay my interest.
His uplifting tale is familiar. In good times and bad, Americans can be counted on to borrow for college.
Even in the depths of the Great recession, Americans kept borrowing for school. The debt burden has more than doubled from less than $ 750 million in mid-2009 to $ 1.64 trillion in mid-2019, according to the Federal Reserve. (In contrast, outstanding auto loans have grown much more modestly in recent years and declined during the economic downturn.)
The oversized numbers have caught the attention of the progressive wing of the Democratic Party. Presidential candidates Elizabeth Warren and Bernie Sanders advocate forgiving big chunks of student debt.
Warren, a US senator from Massachusetts, is proposing to write off up to $ 50,000 in student loan debt for 42 million Americans. She says the move would prove to be “really transformational.”
It offers full loan forgiveness to borrowers earning less than $ 100,000. Americans doing more than that would only have a portion of their loans canceled.
Warren calls for a tax on the rich to pay for loan cancellations.
Sanders, a senator from Vermont, goes even further. He wants to write off all student debt – some $ 1.6 trillion in loans held by 45 million Americans. It would also cap interest rates on future student loans at 1.88%, well below current levels.
The federal student loan interest rate for undergraduates is 4.53% for the 2019-2020 school year. Federal loan rates for graduate students and parents are higher, and the rates charged by private lenders are even higher.
Last year, Sanders introduced a bill that would also spend $ 48 billion a year to eliminate tuition and tuition fees at all four-year public colleges and universities, community colleges, tribal colleges , trade schools and apprenticeship programs. Neither loan cancellation nor free education would be constrained by family income.
Sanders offers to pay for the program with a tax on transactions in stocks, bonds and derivatives.
On the stages of the Democratic debate, the proposals were rejected by more moderate candidates, including former Vice President Joe Biden, Pete Buttigieg, the mayor of South Bend, Indiana, and United States Senator Amy Klobuchar of Minnesota.
They argue that these proposals are not affordable and they advocate less extensive solutions to student debt.
Student loan experts are also skeptical of the political feasibility of Warren’s or Sander’s plans.
“It’s just hard to give up all student loan debt,” said Paul Beltrun, co-founder of Credit Brain Student Loans in West Palm Beach. “You are talking about $ 1.6 trillion.”
There’s also the reality that Republicans hold a comfortable majority in the U.S. Senate, so even if a progressive Democrat wins the White House, loan cancellation wouldn’t be a sure thing.
“When you face a divided Congress, nothing gets done,” said JL Winn, manager of TrustRight student loan services in Boca Raton.
Kovar, the student loan borrower, offers a different perspective: She’s unlikely to pay off her entire balance, so forgiving the full amount wouldn’t be particularly devastating.
Kovar hired Credit Brain Student Loans to help him negotiate an income-based repayment plan. Credit Brain was able to reduce their monthly payment from $ 600 to $ 136. As long as Kovar makes payments for 20 years, the balance will be forfeited. However, the IRS will consider the amount that set aside the taxable income.
Because Kovar was a single mom and needed the flexibility of evening and online classes, she chose to study at Strayer University’s Palm Beach campus, rather than opting for a more option. affordable like Florida Atlantic University.
“I thought I was getting financial aid,” Kovar said. “I was not receiving financial assistance; I was getting student loans.
Such confusion is common, considering that student loans are complicated instruments marketed to young people with little experience in the consumption of financial products. Surveys have found that many borrowers do not know how much they have borrowed in student loans, do not know what interest rates they have taken out, and do not know whether they have taken out federal or private loans.
In Kovar’s case, however, she was working in the legal field when she took out the loans, and now she is focusing on tax matters.
After negotiating an income-based repayment plan, Kovar had enough room in his budget to become a homeowner.
In another twist, there is no limit to the amount of debt a student can take on. While auto loans and mortgages are backed by collateral and credit card lines of credit are income-based, student loans are not tied to the borrower’s ability to repay.
Kovar, like many of the 45 million Americans on student loans, wishes they had made different choices while in school. Beltrun of Credit Brain Student Loans says many of its clients are struggling with loan balances of $ 60,000.
“There is a certain degree of remorse on the part of the buyer,” Beltrun said. “If they had to start all over again, they would investigate the cost of education. “
This story originally published at palmbeachpost.com, and was shared with other Florida newspapers in the new Gannett Media network.