Canceling Student Debt Doesn’t Make Problems Disappear

This means that the day after Senator Sanders “hits the reset button,” as he put it in the news conference, the national student debt odometer would begin rapidly spinning again.

Will those later debts be forgiven, too? If not, the plan would create a generation of student loan lottery winners, with losers on either side. People who had already paid back their loans would get nothing. People with future loans would get nothing. People with debt on the day the legislation was enacted would be rewarded.

If, on the other hand, the legislation creates an implicit promise that all kinds of future student debt will also be forgiven, it could have unintended consequences.

The Sanders and Warren plans control the cost of public undergraduate education by setting tuition to zero and keeping it there. So financing public higher education would become a matter of the federal government and states deciding how much they want to spend on higher learning. The universities would have no pricing power, because there would be no prices.

Graduate programs, by contrast, would still be mostly free to charge whatever they like, as is the case today. With the precedent of loan forgiveness established, graduate programs could be tempted to charge even more, since students might never have to pay back their loans.

Although the Warren plan would not arrest the exorbitant cost of graduate school, it has provisions that could limit unintended consequences to some degree. The plan would limit past loan forgiveness to $50,000, and only for families earning less than $100,000 per year. (Families earning up to $250,000 would receive partial forgiveness.) The Warren campaign estimates that only 47 percent of master’s degree borrowers and 27 percent of Ph.D. and professional school borrowers would have all of their loans forgiven.

The Sanders plan has no limits. It simply cancels all student debt. Keane Bhatt, a spokesman for Mr. Sanders, notes that the plan would substantially reduce interest rates on future graduate student loans, which are currently as high as 8.5 percent, and encourage states to limit graduate school tuition increases in public university systems. But he acknowledged that the plan would not make graduate and professional school free, or regulate private universities.

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