Sen. Bernie Sanders, I-Vt., likes to think and govern in grand gestures. As a result he’s succeeded in changing our national conversation in a way almost no one could have imagined when he announced his first run for president four years ago. Ideas such as free public college tuition, and discussion about single-payer health insurance, things that were on the fringes of the party before his 2016 presidential run, are now fully in the mainstream of Democratic activism and thought.
But he isn’t done. On Monday, along with Reps. Pramila Jayapal, D-Wash., and Ilhan Omar, D-Minn., Sanders debuted an ambitious plan to wipe out Americans’ $1.6 trillion in student debt. You read that right: every last penny of federal student loans, privately held student loans, undergraduate debt, graduate school debt, the debt of college dropouts and that of lawyers and doctors earning six and seven figures annually.
The Sanders plan goes well beyond the one put out by Sen. Elizabeth Warren, D-Mass., in April. Her plan, which proposed eliminating up to $50,000 in debt per borrower and capped eligibility for forgiveness at $250,000 in annual income, would only do away with an estimated 75% of student loan debt. The financing of the plans differs, too: Warren pays for hers with a small part of the proceeds from her proposed tax on wealth in excess of $50 million, while Sanders opts for a financial transactions tax that will simultaneously discourage Wall Street speculation.
Student debt is a massive weight on the American economy. It impacts everything from homeownership rates to retirement savings, and not for the better. One study – cited by Sanders – released last year by Levy Economics Institute of Bard College made the argument that canceling the nation’s $1.6 trillion in student debt would result in a trillion dollar economic stimulus over the following decade.
Opponents of generous debt forgiveness plans like to argue that they favor the well-to-do. One calculation by Adam Looney at the Brookings Institution claimed that the lowest income borrowers received only a small portion of the overall gains in Warren’s plan, while the top 40% of earners made out. He thus concluded that the Warren plan was “regressive”; no doubt he’ll say worse about the Sanders plan.
Yet there is no question student debt increases the privilege gap in our age of inequality. A study released by the Roosevelt Institute last year found student loan debt forgiveness would significantly reduce the racial wealth gap. African Americans, Latino and lower income students are more likely to have attended for-profit colleges, which leave their students loaded with debt, often for little gain in return. African Americans also face a harder time paying down their student loan bills, thanks to more uncertain career trajectories and less family wealth.
The issue is a particularly heinous example of our political and economic breakdown. College and graduate school costs have soared well in excess of inflation over the past several decades even as household incomes stagnated. The federal student loan program originated as a way to help increase the number of Americans attending college, but it also allowed us as a society to put off the moment of reckoning with why the cost of college was increasing so rapidly.
At the same time, the student loan industrial complex is increasingly a boondoggle managed to the benefit of everyone but students themselves. Income-based and contingent repayment plans are enormously complicated, and difficult to navigate. Our public service forgiveness program is an empty promise, with few who thought they were eligible for debt forgiveness receiving it. So many former students are in default or behind on their bills that the student loan industry is a major player in robocall regulation and legislation because they want the ability to harass their debtors as much as possible. And in this environment, less than ethical behavior flourishes: The Consumer Financial Protection Bureau sued Navient, the nation’s largest student loan processor, alleging that when borrowers in financial distress reached out to seek help, they steered them toward options that left them further in debt.
No small amount of these problems exist precisely because of the role of profit in the student loan business. The for-profit college sector would likely be far smaller without the student loan industrial complex. At the same time, Wall Street – through publicly traded for-profit colleges and student loan processors – is profiting, too. (Navient’s stock, for instance, is up by double digits this year.) In fact, the financial services sector’s response to the student debt crisis is to push a new bit of loathsomeness called Income Share Agreements, which loan students money for their education in return for a percentage of their future earnings.
Our inability to get a grip on the issue of student debt is leaving people open to more and more radical solutions to the problem it poses. Warren’s plan polled quite well, and it will be interesting to see how both hers and Sanders’s plan do going forward. It’s quite possible that Sanders’s full forgiveness will, to borrow a concept from behavioral finance, serve as a reference point to ultimately help Warren’s plan gain backing from people who would otherwise dismiss it. Or perhaps, like his proposals for free college tuition and Medicare-for-all, it will alter the discussion on the topic permanently and spark a larger discussion on debt and its role in our society and age of inequality. If that’s the case, bring it on.