Moneybox

Bernie Sanders Wants to Forgive All Student Debt. His Plan Doesn’t Make a Lot of Sense.

Bernie Sanders addresses the crowd at a packed rally inside the gymnasium at Clinton College.
Bernie Sanders addresses the crowd at a packed rally inside the gymnasium at Clinton College, a historically black college, on Saturday.
Logan Cyrus/Getty Images

A couple of months ago, Sen. Elizabeth Warren introduced a plan to make public colleges tuition-free while canceling outstanding student debt for the vast majority of borrowers. It was a thoughtful proposal that addressed some of the common criticisms of mass loan forgiveness—namely, that it would waste a lot of money on corporate lawyers, doctors, and MBAs who borrowed for their professional degrees—by capping relief at $50,000 per person and gradually tapering it off for households that earn six figures. As a result, its benefits were pretty well-targeted at the middle class.

On Monday, Sen. Bernie Sanders released his own plan to make college tuition-free while canceling education debt. Unlike Warren’s policy, Sanders’ would forgive all $1.6 trillion worth of student loans that Americans currently owe, no exceptions. His broader, more generous approach will surely win him points with some some voters in the Democratic primary. But conceptually, it’s kind of a mess.

By itself, student loan forgiveness is sort of an odd priority for the left. It would do an enormous amount of good for many financially burdened young adults, but a disproportionate share of the relief would go to upper-middle-class and wealthy families. Currently, about one-third of the debt is held by households in the top quarter of the nation’s income distribution.

One reason for this is that people who go to college just generally tend to make more money than people who don’t. Another is that a lot of student debt is held by people with advanced degrees in fields like law and medicine who borrow enormously for school, but tend to make a nice living. Last time I ran the numbers, about 39 percent of all new student loan dollars were being taken out for graduate school. Granted, a chunk of that cash is being borrowed by future teachers and social workers. But a ton of it is funding those business and medical degrees. If Republicans stood up and said they were going to pass a $1.6 trillion tax cut exclusively for people who had already attended college or grad school, and that the biggest benefits were going to people who trained to be surgeons, democratic socialist types would probably think it was insane. And yet, that’s pretty much what universal student debt relief is—at least if you look at it in isolation.

Student debt forgiveness starts to look a whole lot more reasonable, however, if you make it part of a wider reform to higher education that eliminates tuition or at least makes school radically cheaper for tomorrow’s students. In that context loan relief becomes part of a big reset, in which the government admits that our college finance policy over the last several decades has been a mistake, and wipes the slate clean for yesterday’s borrowers while ensuring we don’t repeat this failed experiment in the future. Some people would still probably find this grand bargain unfair: Those who chose to pay for college out of pocket, either with help from their parents or by working during school, might feel shortchanged. So would a lot of people who already paid their loans off, or who never went to college in the first place. But at least their own kids would stand to benefit going forward.

This is the basic framework that both Warren and Sanders have embraced. The problem with Sanders’ approach is that while it would forgive a lot of graduate school debt sitting on the books today, it does little to address the problem of graduate school debt going forward. His bill would cap interest rates on all student loans at 1.88 percent which, sure, would be helpful. But it wouldn’t lessen the amount students need to borrow in the first place, and that’s the more serious issue. There is also a provision that would limit how much public universities can raise tuition for graduate programs each year, essentially capping increases so they don’t grow faster than the cost of educating students. The problem there is that grad school is already quite pricey, and the expense of running a university tends to increase faster than overall inflation. It is also unclear what limits there would be on tuition for new graduate degree programs. (I asked a Sanders spokesperson, and they weren’t sure.) In the end, there’s nothing in his proposed legislation to prevent future generations from piling up ungodly amounts of debt trying to become legal-aid lawyers or high school principals or nurse practitioners. When it comes to grad school, there’s really no big reset.*

Philosophically, this doesn’t make much sense. Some on the social-democrat left like to defend the idea of forgiving all student debt by arguing that simple, universal government programs are more popular, and thus more politically stable, than means-tested ones where benefits are limited to the poor. But student loan forgiveness isn’t really a program—it’s a large, one-time cash transfer—and by definition it isn’t universal, since it excludes people who don’t have any education debt. If the Department of Education unconditionally zeros out all of America’s outstanding grad school loans, it’ll be a one-off windfall skewed toward the upper-middle class.

From a pure fairness perspective, this would be pretty questionable use of federal tax dollars. Worse yet, it would create some terrible incentives for colleges, which are increasingly relying on poorly regulated and pricey online masters degree programs to generate tuition. This is not just a problem in the dwindling for-profit sector: As New America’s Kevin Carey has documented, nonprofit and public universities are also deep into the hustle as well. By forgiving all graduate school debt without putting any reforms in place for the future, Sanders would essentially be begging those schools to double down on their existing shady practices.

Warren’s plan does suffer from this problem a bit as well. Just like Sanders’ plan, her proposal would forgive loans whether they were borrowed for college or graduate school. But by capping the amount of debt anybody can have canceled and reducing it for high earners, Warren at least focuses relief on people who need it most and limits the amount of money that will go to reducing six-figure law, medical, and business school debts.

To be clear, there are reasonable arguments for reforming the way Americans pay for graduate school and forgiving some of that debt right now. At the moment, teachers who earn a master’s in education—which is a requirement in some states and a necessity to advance in others—borrow an average of $55,000. Social workers and public defenders also have to borrow an immense amount to pursue low-paying careers. Many of them should be able to have their balances wiped under the Public Service Loan Forgiveness Program, which is supposed to clear student debt for people who spend about 10 years working in government or at a nonprofit. But that program is a bureaucratic disaster that, at the moment at least, is rejecting the vast majority of applicants. It might be time to think about ways people can have a career in K–12 education without acquiring a five-figure debt burden in the first place. But Sanders’ bill doesn’t really try to accomplish that. (He does have a separate plan to increase teacher pay, but that’s not quite the same.)

There are other things to like about Sanders legislation. It would require states to cover the full cost of attending school, including things like housing and books, for low-income students to ensure that they could truly graduate debt-free. Once tuition is taken care of, it creates a matching grant program that could funnel more money to higher ed to pay for more faculty and academic support. It’s an ambitious vision. Its main fault may be that, when it comes to student debt, it’s not quite ambitious enough. Sanders is thinking about yesterday’s borrowers without thinking enough about tomorrow’s.

*Update, June 24, 4:10 PM: This post has been updated to note that the bill also includes a provision that would slow tuition increases for graduate programs at public colleges. I initially missed the clause while reading the bill, which does not refer to directly to advanced degree programs or graduate students but sets limits on tuition for “non-eligible in-state students.“ (It refers to undergraduates as “eligible” students.) After noticing the section, I confirmed with Sanders’ staff—which previously had failed to respond to my questions for this piece—that it was meant to set limits on grad tuition.