Julian Castro’s Student Loan Plan
Former Obama housing Secretary, San Antonio mayor and Democratic Party presidential candidate Julian Castro has proposed a detailed plan for student loan forgiveness. It’s part of what he calls his “People First” plan for education reform.
Since this is primarily a student loan blog, we’ll focus first on the aspects of his plan specific to student loan borrowers.
The Castro Student Loan plan proposes the following:
1. Cap payments at zero for all debtors currently earning 250% of the federal poverty line or less. As of 2019, that would mean capping payments at zero for:
- Single earners earning $31,225 per year or less;
- Couples or two-person households earning $42,275 or less;
- Three-person households earning $53,325 or less;
- 4-person households earning $64,375 or less;
- 5-person households earning $75,425 or less.
2. No interest accrual on unpaid balances for three years;
3. Exempt half of unpaid interest after three years;
4. Once borrowers are earning more than 250% of the federal poverty level for their households, payments are capped at 10% of their adjusted gross incomes – over and above an exempted amount equal to 250% of the federal poverty line;
Interest and Forgiveness
5. Forgiveness of any remaining balances after 240 monthly payments, tax-free (at the federal level);
6. Limit total accumulated interest to 50 percent of the original loan amount. Any balances in excess of 150% of the original amount of the loan will be forgiven;
7. Enrollment in payment plans will be automatic, once loans go into repayment;
8. Borrowers will receive credit for payments already made under other programs, including existing income-driven repayment programs;
9. The current bunch of income-driven repayment options will be ended for future borrowers and replaced by a 10% payment plan over and above an exemption amount equal to 250% of the poverty line;
10. Student loan lenders will no longer be allowed to charge origination fees or similar fees;
11. Create a new program of targeted loan forgiveness to forgive a proportion of loans for individuals who qualify for and receive means-tested federal assistance, such as Supplemental Security Income (SSI), Supplemental Nutritional Assistance Program (SNAP) or Medicaid for any three years within a five-year period;
12. Allow borrowers to discharge or restructure student loan debt through bankruptcy;
13. Automate the enrollment process for Public Service Loan Forgiveness (PSLF);
14. Allow for consolidated loans, legacy Federal Family Education Loan Program (FFEL) loans and all other types of student loans to be eligible for PSLF. Currently, FFEL loans are not eligible for loan forgiveness under PSLF – though if you have an FFEL loan, you can convert it by refinancing to a federal direct student loan and that loan will qualify for PSLF. The catch: You won’t get credit for past payments. Your 10-year PSLF clock starts from your first payment on your refinance loan;
15. Grant early credit toward loan forgiveness at intervals before ten years have elapsed;
16. Increase Pell grants to $10,000, and allow them to be used for living expenses, summer programs, short-term programs, and emergency assistance. The current maximum Pell grant amount is $6,195.
17. Repeal restrictions on access to federal assistance for formerly incarcerated persons. End discrimination against the formerly incarcerated in school admission and financial aid decisions;
Requirements of Colleges and Universities
Additionally, Castro would require colleges and universities to certify private loans, provide financial counseling, and inform students about any federal loans that may offer more favorable terms compared to private loans.
The Castro student loan plan also proposes ending federal support for for-profit colleges and universities, including federal benefits eligibility and access to federally-guaranteed student loan dollars.
The plan includes $3 billion per year for historically black colleges and universities (HBCUs) and minority institutions, targeted at increasing college access for low-income students.
Castro’s student loan plan isn’t limited to student loan issues. Among his other proposals:
- Eliminate tuition at public universities and community colleges, including technical and vocational schools;
- Create a national, federal and universal pre-Kindergarten program for 3 to 4-year-olds. Castro has a track record on early childhood education, having rolled out the Pre-K for SA program during his tenure as mayor of San Antonio;
- Commit $150 billion to modernizing schools and close the “technology gap” between well-funded and poorly-funded schools;
- Support sustained training and education for pre-K teachers;
- Support investment in music, arts, and foreign language programs at the high school level.
- Increase access to dual enrollment, accelerated learning and early college to allow all students to graduate high school with at least one year of college credit, at no additional cost;
- Establish trade programs in high schools and expand workplace learning programs through school-employer partnerships. This would be driven in part by labor market needs. Castro would provide federal tax credits to support hiring and on-the-job education and training for high school students;
- Streamline the financial aid application process, including technology to pre-populate FAFSA forms with information from the parents’ or students’ tax returns on file;
- Provide a federal tax credit of between $2,000 and $10,000 per year, which would increase teacher income dollar-for-dollar. The higher tax credits will go to teachers working at schools with high percentages of students who qualify for free or reduced-price school lunches;
- Support unionization for educators at all levels – including graduate students;
- Expand incentives to teachers who work in the highest-need communities;
- Increased federal funding for resources necessary to educate students with disabilities.
All told, the price tag for Castro’s education plan, including his K-12 initiatives and the cost of making colleges and universities tuition-free will run to an estimated $1.5 trillion.
To offset these costs, Castro wants to repeal the Tax Cuts and Jobs Act, and raise taxes on wealthier Americans and corporations. He expressed support for Rep. Alexandria Ocasio-Cortez’s (D-NY) plan to increase the top marginal tax bracket to between 60 and 70 percent.
Jason Van Steenwyk is an experienced financial industry reporter and writer. He is a former staff reporter for Mutual Funds, and has been published in SeekingAlpha, Nasdaq.com, NerdWallet, Value Penguin, RealEstate.com, WealthManagement.com, Senior Market Advisor, Life and Health Pro and many other outlets over the past two decades. He is also an avid fiddle player and guitarist. He lives in Orlando, Florida.