This student loan forgiveness proposal would raise taxes

Ilhan Omar has proposed to write off all $ 1.7 trillion in student loans.

Here’s what you need to know – what it means to you.

Student loans

The latest student debt statistics show that 45 million borrowers collectively owe $ 1.7 trillion in student loans. There have been countless proposals to cancel student loan debt, which include, among others:

Student Loan Cancellation: Wall Street Tax

In the wake of the GameStop

GME
Stock rally, Representative Omar (D-MA) tweeted another proposal to write off student loan debt: a Wall Street transaction tax.

Omar says Congress should levy a 0.1% tax on every “Wall Street trade.” While Omar does not define which transactions would be included, Omar writes that such a transaction tax would reduce high frequency transactions, a “practice that drains profits from retail investors and only benefits the very rich.” According to Omar, a financial transaction tax would raise around $ 1 billion, which could be used to “write off all student loan debts and make university free.” Presumably, if the financial transaction tax increases by $ 1 billion, Congress would need to top the delta between $ 1 trillion and the remaining cost of the total cancellation of tuition-free student and college loans (which, collectively, would also exceed at least another trillion dollars).

Bernie Sanders: Student Loan Cancellation

Omar’s plan is similar to a Wall Street financial transaction tax approved by Sanders. Sanders says his the tuition-free public college plan and its student loan forgiveness plan would cost around $ 2.2 trillion. To pay for these plans, Sanders would institute a “Wall Street speculation tax” that would raise around $ 2.4 trillion over the next ten years. The “speculation tax” would work as follows: a 0.5% tax on stock transactions, a 0.1% fee on bond transactions and a 0.005% fee on derivative transactions. For example, if $ 100 of shares are traded, the “speculation tax” would be $ 0.50.

Like Sanders, Omar believes that among other benefits, canceling the student loan would help millions of borrowers lead better financial lives and boost the economy. For example, student loan cancellation can help borrowers buy a home, saving for retirement, start new businesses, start a family, reduce racial disparities and stimulate the middle class economy.

Will your student loans be canceled?

Will your student loans be canceled? Biden proposed to cancel student loans in three ways. This means that Congress could cancel student loans through one or more of these proposals. That said, Congress is unlikely to impose a financial transaction tax on Wall Street. First, Schumer represents New York and is unlikely to impose a tax on Wall Street, where many of his constituents work. Second, a financial transaction tax would also be borne by many individual and retail investors (not just large financial institutions). Congress could write off student loan debt in new stimulus package or through autonomous legislation. However, do not expect a student loan cancellation because there is no guarantee. Make sure you are prepared and have a game plan for your student loans if Congress does not cancel student loans or limit the cancellation of student loans. Start with these three options, all free:

Related reading

Congress could cancel student loans in new stimulus package

10 ways Biden can change student loans