Moneybox

Nobody Actually Knows What Forgiving Everyone’s Student Debt Would Cost

Bernie Sanders and Ilhan Omar smile at each other.
Nope, not even them.
Saul Loeb/AFP/Getty Images

As of now, three separate Democratic presidential candidates—Elizabeth Warren, Julián Castro, and Bernie Sanders—have released proposals to cancel vast quantities of America’s student debt. In doing so, they’ve taken an idea that once seemed like a fringe enthusiasm of the internet left and thrust it straight into the center of the White House race.

That makes now a good time to share an odd quirk about this topic that rarely if ever gets mentioned: Nobody really has any idea how much canceling all of the country’s student debt would cost.

I mean, somebody might. I imagine there could be some poor, Vitamin D–deficient creature locked deep inside the U.S. Department of Education guarding this secret knowledge. But I haven’t found them yet. Meanwhile, I have talked to economists, think tankers, and congressional staffers who all say the answer is still a mystery. “We spent a while thinking about if we could figure it out, and we just had no way,” Ben Miller, who heads up the higher education team at the Center for American Progress, told me. Adam Looney, a former U.S. Treasury economist now at Brookings who has long studied higher-ed finance, said much the same. “I agree that no one knows what it would cost,” he wrote in an email. Warren’s campaign tried to ballpark a price tag for her plan, but it was basically a guesstimate. According to one source I spoke with, the Congressional Budget Office believes that trying to calculate the figure would be “complicated.” In other words, Capitol Hill has no idea what a student debt jubilee would do to the budget, either.

Here’s the basic problem: In order to know how much student debt forgiveness would cost the government, you would need to know how much Washington actually expects to collect over time on its portfolio of outstanding loans. Bizarrely, the feds do not share that information. It publishes related figures. But there is no simple accounting statement that says, “We’ve already collected X dollars on these debts, and we expect to collect X more.”

Outsiders can’t reverse-engineer those numbers, either. Consider: The Department of Education currently has $1.16 trillion of direct loans on its books. In theory, it could collect more than that amount, or less. But how much more (or less) depends on the interest rates students pay, which repayment plans they choose, their remaining balances, how many borrowers eventually default, and how much debt the government will cancel at some point through the various forgiveness programs that already exist. Those details are not all publicly available; think tankers just don’t have enough pieces of the puzzle to complete the picture.

All of this might come as a surprise if you’ve read about how Washington sometimes makes a profit off student lending. But those estimates are based on how much the CBO thinks the government will make on new loans it issues over the coming decade, not the loans it already has on the books. When it comes to those, the government doesn’t really tell us much. The best we get is an annual report by the Department of Education that shows how much the value of its loan portfolio has gone up or down, but that doesn’t put a figure on what the whole thing is presently worth. Imagine if you could see that your 401(k) went up by $5,000 this year but had no way to figure out how much was actually in it. That’s more or less the conundrum education wonks who are interested in this issue are stuck dealing with.

All of this ambiguity can make it a little hard to debate the pros and cons of cancellation. After all, one of the big arguments against the idea is that it could be expensive, and there are other things the government might be better off doing with the money. But it’s possible that mass forgiveness would cost less than many suspect, since the government is already planning to wipe out a good deal of debt through different debt relief programs that are available to borrowers today, such as Public Service Loan Forgiveness. We just don’t really know.

There are some things about the economics of debt cancellation that we can more or less figure out. For instance, government surveys give us plenty of data on how much student debt different households owe and how much those Americans earn. As a result, it’s possible to say with some certainty that Elizabeth Warren’s plan, which caps forgiveness at $50,000 a person and lowers it for higher earners, would mostly help the middle class. At the same time, it’s pretty obvious that forgiving all debts, as Bernie Sanders has proposed, would give a disproportionate amount of help to lawyers and doctors with expensive professional degrees. In other words, we know enough for people to argue about it. “To be honest, the exact cost seems somewhat irrelevant given that I’m opposed to it on so many fronts,” Beth Akers, a senior fellow at the Manhattan Institute, told me. “If it were good policy then I’d endorse it even without a solid price tag.” The people who do think it’s a good policy feel that way too.