FreedomWorks’ activist-chosen dumpster fires of the month for July 2019 are the Student Debt Cancellation Act, H.R. 3448, introduced by Rep. Ilhan Omar (D-Minn.) and the College for All Act, S. 1947, introduced by Sen. Bernie Sanders (I-Vt.). Both of these pieces of legislation would seek to erase all federal student loan debt and completely restructure the higher education system, forcing unwitting taxpayers to foot the $2.2 trillion bill.
Progressive proposals to magically wipe the slate clean are simultaneously fiscally irresponsible and completely unrealistic. Although supporting blanket loan forgiveness makes a great sound bite for Democratic presidential hopefuls, as with most public policy, the devil is in the details.
Instituting blanket student loan forgiveness would create a moral hazard for schools. As outlined by Assistant Professor of Finance Brandon Renfro, “[The] point here is that schools aren’t strictly accountable for the debts of their students. If students also aren’t responsible for their debt, then neither party to the transaction is responsible for the cost.” Blanket student loan forgiveness would remove the last vestiges of free-market competition from the higher education marketplace, destroying innovation and allowing costs to rise even higher.
The biggest problem with plans like the Student Debt Cancellation Act is that blanket student loan forgiveness is simply putting a band-aid on a bullet wound. Within the last few decades, we have seen the price of a college degree rise nearly eight times faster than wages. In 2018, the average total cost of attendance at a four-year institution was a whopping $104,480. That same degree in 1989 would have cost only $26,902 (half the current cost, when adjusted for inflation).
The rising cost of higher education is the reason we have a student loan bubble in the first place. When the cost of college outpaces wages and inflation, it is simple economics that students will be forced to foot the bill. Paying for new football stadiums and climbing walls isn’t cheap, which forces many college students to seek student loans as an investment in their future. Simply waving a magic wand and excusing all student loan debt would do nothing to fix the rising cost of higher education. Instead, it would simply make the taxpayers bear to an even greater extent those rising costs of college.
It is also important to remember that student loans are an entirely voluntary program. With the increasing quality of two-year institutions and trade schools – most of which are completely ignored under the current proposals – we should be encouraging students to look at their educational options seriously and be fiscally responsible rather than using tax dollars to fund economically irresponsible decisions. There are countless scholarships and government grants to provide students with the financial resources to attend college for a fraction of the sticker price. Yet, Democrats would force the American taxpayer to bear the cost of their impractical plan to provide “College for All.”
Furthermore, blanket forgiveness plans are politically infeasible. Although it has been a prime talking point in the Democratic primary, student loan forgiveness is still a hot button issue among most members of Congress. Even in a Democratically controlled House and Senate, progressives would face staunch opposition from moderate Democrats. For example, a much more moderate plan to simplify and expand Public Service Loan Forgiveness sponsored by Sen. Tim Kaine (D-VA) and Sen. Kirsten Gillibrand (D-NY) failed to gain any real traction in the Senate because it lacked any significant moderate support.
The biggest reason that blanket student loan forgiveness is unlikely to gain any traction among the American public is that it forces subsidization of a broken system without fixing the real problem. For example, “It is an outrage that our lending programs encourage schools like USC to charge $107,484 (and students to blithely enroll) for a master’s degree in social work (220 percent more than the equivalent course at UCLA) in a field where the median wage is $47,980.” Blanket student loan forgiveness would do nothing to encourage USC to lower the cost of their degree. Rather, blanket student loan forgiveness would simply pay the exorbitant cost with taxpayer money. Clearly, blanket student loan forgiveness is greatly insufficient to address these issues properly and Americans realize this.
Even worse, blanket student loan forgiveness also presents a fundamentally elitist perspective that a four year degree is necessary to succeed in America. Under blanket student loan forgiveness, blue collar workers in America who neither want nor need college degrees would be forced to subsidize the education of others.
As excellently stated by Forbes Senior Contributor Robert Farrington, “While plenty of folks grappling with soul-crushing student debt are in favor of loan forgiveness, there are plenty of people who never took out loans or repaid all their loans, many of which think it’s unfair that any borrower should have their loans forgiven.” This makes instituting a blanket loan forgiveness program practically impossible on a federal level. Rather than waste significant political capital attempting to push a student loan forgiveness plan that America doesn’t want, Congress should be focusing on realistic solutions to drive down the overall costs of higher education.
One such proposal that is actually grounded in reality is the Higher Education Reform and Opportunity (HERO) Act, S. 2339, sponsored by Sen. Mike Lee from Utah. Sen. Lee’s proposal would tackle all aspects of the issues associated with the rising cost of higher education by focusing on the four key areas that need improvement: accountability, affordability, transparency, and innovation. Perhaps most importantly, the bill would streamline the Federal Student Loan process into a single option that applies equally to all applicants. Furthermore, seeing as many institutions are not delivering on their promise of better employment opportunities needed to pay off loans, the HERO Act also incentivizes institutions to be at least somewhat accountable for high default rates. This forces colleges and universities to put some skin in the game, directly tying institutional success to student success. With the HERO Act, Sen. Lee provides one of the best avenues forward for America to address student loan debt and the increasingly dismal cost-benefit ratio of traditional higher education.
To those suffering under the immense weight of student loan debt, proposals that would wipe the slate clean may sound like a godsend. Yet, it is important for policymakers to take a step back from sound bites that may fire up their base and look at the reality of such a proposal. When it comes down to brass tacks, blanket student loan forgiveness might help the minority of people currently paying off their debt, but would do nothing to solve the underlying problems that face the next generation as they seek higher education. Our politicians should be focusing on real world solutions to the underlying problem rather than fiscally irresponsible and politically infeasible proposals that would cost the taxpayers trillions for uncertain benefits.