The Student Loan Debt Solution

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The student loan crisis took a generation to develop

The Student Tax OPtion (STOP) campaign is a grassroots effort to secure Congressional support to pass the Student Tax OPtion Act.  The first step in this process was a priority mailing to each member of Congress and candidates for Congress in the November 2020 election. The mailing consists of three documents: link to “transmittal letter", “The Pledge” and the “Draft of the STOP Act”.  This is a more realistic approach to solving the student loan crisis than the concept of loan forgiveness.

The concept that it can be resolved by waving a magic wand to forgive student loans is and has not been presented realistically.

First, most “forgiveness solutions” ignore the need to forgive loans year after year as more indebted students graduate or become liable for their student loans.

Second, most “forgiveness solutions” place income caps on whose loan could be forgiven.  One proposal sets the cap at $50,000 of income; the current Biden proposal sets a cap at $75,000.  Is there a reason why a student with an income of a dollar less than the cap should have their loans forgiven and student with an income of dollar more than the cap should not?

Third, “forgiveness solutions” reflect forgiveness on FEDERAL loans and students are still left with significant balances on their PRIVATE education loans.

Fourth, the current Biden proposal only covers FEDERAL loans from attending public colleges/universities and traditional black colleges/universities.  Private colleges/universities are not covered.

Fifth, a “forgiveness solution” creates significant disruption in the student loan program.

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A realistic solution provides a way for both current and future student loan holders to turn the tide on their financial situation in a gradual way as efforts to increase both federal and state support of post-secondary education gain success over the years.  That solution is to recognize student loan payments (principal, interest and fees) as federal tax CREDITS.  This immediately increases the CURRENT income of student loan holders directly proportional to their individual debt service and tax liability.  This also eliminates the need for Congress to appropriate funds to forgive student loans year after fiscal year.

A federal tax credit solution creates a new middle class.  A class that has disposable income that can be used for automobile purchases, home purchases, family formation (marriages and children).

Measurable outcomes include:

  • Reduction in student loan related divorces.
  • Reduction in poverty status of senior loan holders.
  • Reduction in student loan related bankruptcies.
  • Increase in student loan holder disposable income.
  • Funds available to stimulate the economy (estimated up to $17 billion a month).

This solution does not upset the current system because:

  • It allows the current student loan system to remain in place.
  • Accounts for disparities in higher education costs based on the institution.
  • Does not jeopardize the current private bank loan system for funding student loans.