Evan Stern: Why forgiving student loan debt is a bad idea
We all know attending college in this country has gotten expensive. In the last three decades, taking inflation into account, the average cost of attending a four-year institution in this country has doubled, while data indicates the price tag of earning a college degree rose eight times faster than wages in that same timespan.
The result is a staggering student loan crisis that has burdened millions of college graduates who regularly find themselves trapped by tens of thousands of dollars in debt. The average American household with student loan debt owes almost $50,000, according to figures published by personal finance website NerdWallet, and a total of $1.6 trillion of debt still has to be paid back by approximately 43 million borrowers.
With the growth of tuition consistently outpacing that of paychecks, Americans are finding it increasingly difficult to recover and purchase a home, start a family and even appreciate the benefits of a college degree. And given the popularity of higher education, this crisis will affect more and more Americans if a solution is not quickly found.
Here at the University of Michigan, we are fortunate to have great programs that allow lower income-earners to receive a world-class education, regardless of socioeconomic status. With the Go Blue Guarantee, in-state students admitted to the Ann Arbor campus with a family income of $65,000 or less can receive free tuition, while families with an income of up to $180,000 receive some kind of financial support.
But sadly, many students are not as fortunate. Across the nation, a great number of students are forced to take out risky loans in order to graduate from college. Even here in Ann Arbor, many students who don’t qualify for the Go Blue Guarantee encounter difficulties. After college, graduates are faced with the challenging task of paying back this debt.
In order to address this crippling problem, many people have pointed to blanket student-loan debt forgiveness, which would effectively cancel much (or all) of the debt that borrowers are still working to pay back. And with the 2020 presidential election now less than a year away, many of the more liberal members of the Democratic field, especially Sen. Bernie Sanders, I-Vt., and Sen. Elizabeth Warren, D-Mass., have gotten on board with this plan in an effort to give some relief to graduates and make college less costly as a whole.
While Warren says she would aim to cancel or significantly reduce the debt owed by households with income under $250,000, according to her “Affordable Higher Education for All” proposal, Sanders says he would ambitiously work to forgive the entire $1.6 trillion owed by Americans, as his public education plan states. In order to gather enough money to pay for student loan debt cancellation, both would take revenue from their controversial “Wealth Tax” proposals.
On the surface, forgiving student loan debt may sound attractive. As marketed by Warren, Sanders and others, it appears at first as a compassionate policy move, a proposal that would assist pained graduates who are burdened by debt. But on the whole, blanket student loan forgiveness would precipitate a cascade of problems in our economic and educational systems.
One of the largest issues with blanket debt cancellation is the staggering cost. Like some of Warren and Sanders’ other plans, such as “Medicare-for-All,” which they have expressed unwavering support for, this proposal carries a disturbing price tag that will have a profound effect on all of us. According to a report sent to her campaign, Warren’s loan forgiveness plan would cost well over $600 billion dollars.
While these candidates and other politicians promise that only the wealthy will be taxed, it is inevitable this cost will spread through society and impact everybody in some way. One of the most notable ways a debt forgiveness program could leave its mark on society could be by widening the wealth gap, especially between white and black households. “While eliminating student debt for all households regardless of income increases median net worth for young white and Black households, white families see a greater benefit likely due to a higher likelihood of completing college and graduate degree programs,” according to research released by Demos and the Institute on Assets and Social Policy in 2015. Since people who have taken out student loans are likely already better off financially and likely have a college degree and good-paying job, student loan forgiveness could actually make them even better off relative to those who never attended college.
Yet another issue with student loan debt forgiveness is the possibility that it could erode the high quality of college education that is so common in American institutions. According to Forbes in June, debt cancellation would ensure that “nobody (would be) on the hook for the growing costs of higher education. …” Why would a college care as much about maintaining the level of its programs in a responsible manner if it knew many of its students were essentially coming there for free? Blanket loan forgiveness creates a broad accountability problem in the end.
Finally, setting everything else aside, debt cancellation truly sets a strikingly bad precedent. If all graduates with student loans can suddenly wake up one day with all of their debt completely gone, what kind of model does that set for the future? In a nation with blanket student loan forgiveness, we may soon see others who are burdened by debt from different sources trying to convince the government to forgive their loans as well.
Ultimately, a student loan forgiveness program would systematically undermine the unparalleled nature of our respected educational system while directly harming our economy. It is simple common sense to realize that instead of working to mitigate the problems stemming from our broken student loan system, we must truly work to revamp this failing system itself. In the end, that will revolutionize our system of higher education here in the United States much more than blanket debt forgiveness ever could.
Evan Stern can be reached at firstname.lastname@example.org.