Editor's note: Beth Akers responds to Sen. Bernie Sanders’ plan to cancel all $1.6 trillion of U.S. student loan debt.
This morning, presidential hopeful Bernie Sanders endorsed a plan to “cancel” outstanding student loan debt. It’s a plan that goes even further than the plan endorsed by Senator Warren in April. This time, all borrowers are eligible to have their debts wiped away—even the super wealthy. There are several reasons why this plan is a bad idea:
- Taking borrowers off the hook for repaying their debts imposes a real cost on taxpayers. The money that is expected to be repaid on those loans has already been spent, so debt “cancelation” in a misnomer that is actually synonymous with higher taxes.
- Student debt forgiveness is highly regressive. The most generous benefits go to those who have borrowed a lot for college. It sounds good in theory, but in practice, high-balance borrowers tend to come from well-off families and have earned degrees that lead to big paychecks. Because of their investment in education, these people will go on to become the wealthiest in our economy, even without the help of a student loan jubilee.
- Supporters often argue that the payout to those who don’t need it is necessary to get middle- and upper-income constituents on board for a bailout of those who are struggling. I’m more inclined to think that the motive is more broadly political. It’s a plan that’s sure to be popular among new college graduates, 70 percent of whom have some student debt.
- Last, and perhaps most importantly, some borrowers really are struggling and deserve help. But we already have in place a plan that’s intended to let people off the hook when their loans are truly unaffordable. All borrowers have the options to make reduced payments based on their ability to pay (determined by income and family composition). If they don’t succeed in paying back their loans in 20 years (10 if you work for the government or a nonprofit) then they’ll have the remainder forgiven. Policy efforts with the goal of helping struggling borrowers should be focused on making this program work better.
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Beth Akers is a senior fellow at the Manhattan Institute and coauthor of "Game of Loans: The Rhetoric and Reality of Student Debt." Follow her on Twitter here.