Bernie Sanders and Ilhan Omar

Dear Commons Community,

Senator Bernie Sanders, a Vermont Independent, and Representative Ilhan Omar, a Minnesota Democrat, yesterday  proposed new legislation on student-loan debt relief.  Essentially the proposed legislation would  cancel all federal and private student-loan debt, currently carried by about 45 million Americans.

“No exceptions, no questions asked,” said Omar at a news conference. “Full cancellation.”

Sanders’s proposal also calls for free tuition and fees at two- and four-year public colleges, and $1.3 billion a year to support students at historically black colleges and universities. Sanders, a Vermont Independent, proposed paying for the plan through taxes on Wall Street transactions in stocks, bonds, and derivatives.  Omar announced companion legislation in the House with Rep. Pramila Jayapal, a Washington Democrat.

As reported by The Chronicle of Higher Education:

“The country’s nearly $1.6-trillion load of student-loan debt, and college affordability more broadly, has become a common focus among 2020 presidential candidates. Sen. Elizabeth A. Warren staked out ground on the issue in April, calling for a $1.25-trillion plan that would cancel up to $50,000 in student-loan debt for borrowers with annual income under $100,000, scaling further benefits down for those with higher incomes. She proposed paying for the plan through a 2-percent asset tax on the country’s wealthiest 75,000 families.

This month Warren announced she would work with the House majority whip, James E. Clyburn of South Carolina, to introduce legislation to that effect, which they said would reduce debt for 95 percent of borrowers and eliminate it entirely for 75 percent.

Backers of the new bills said the Warren-Clyburn plan would not go far enough.

“Bottom line is, we should not be punishing people for getting a higher education,” Sanders said at the news conference, held with Jayapal, Ocasio-Cortez, and Omar near the U.S. Capitol. “It is time to hit the reset button.” He said the bill would cancel all student debt within six months.

“Student debt is not the result of bad choices or behavior,” Omar said. “It is the result of a system that tells students to get an education and go to college in order to have a stable life, but then does not provide the resources to afford that education.”

Help for the Most Affluent?

Researchers and policy makers have warned that student loans are a drag on the economy that may grow worse. Delinquency rates have risen in the past decade above other types of household debt, according to data from the Federal Reserve Bank of New York, with balances growing faster than those of home mortgages and auto loans.

Debtors underlined those challenges at the news conference, saying even $50,000 in debt relief would still leave them with huge balances.

Many progressives agree that debt relates to a key set of problems: disproportionate financial burdens on students of color, college dropout rates, and predatory practices by for-profit colleges. But they disagree on how to solve them. Some critics say blanket debt relief would amount to a subsidy for relatively affluent collegegoers.

The Future of Enrollment

Student debt is a serious problem for many people, said Sandy Baum, a nonresident fellow at the Urban Institute and a professor emerita of economics at Skidmore College. But much of it is held by people who went to graduate school and by upper-income households, she said. Sanders’s proposal “would help more-affluent people the most.”

The problems that affect higher education — “inadequate early childhood, inadequate K-12, inadequate health care” — are broader than debt, Baum said. Efforts should focus on solving those problems, Baum said, and on existing debt programs like income-driven repayment.

“I’m all for more-progressive taxation,” Baum said. But “the idea that we’re going to get enough revenue from that to do all of these things, I’m quite skeptical about.”

Other economists and politicians say that criticism misses the point. Sanders said that his proposal would not favor the wealthy because it would tax them in other areas.

And income-driven repayment “kicks the can down the road,” said Marshall I. Steinbaum, an economist who co-authored a report on student-debt cancellation for the Levy Economics Institute at Bard College. “It’s a less-effective version of the same thing.”

What Has Broken Down

Steinbaum’s report assessed the economic benefits of outright debt forgiveness, including growth in consumer spending, home purchases, and entrepreneurship. He denied that cancellation is regressive.

“The federal student-loan program is the federal government’s most ambitious labor-market policy undertaken in recent decades,” Steinbaum said. But that program was founded on faulty assumptions about how people move through college, and about their earnings after graduation to pay off their debt, he said. “That’s the real mechanism that’s broken down on the economic side.”

“It’s very heartening to see these significant policy proposals gaining traction on the campaign trail,” Steinbaum said. And it’s “highly realistic” that some kind of debt reform will pass eventually, given the broad attention among candidates and policy makers.

In the near term, the proposed legislation is unlikely to pass a Republican-controlled U.S. Senate or be signed by a Republican president.”

This is a provocative proposal and is appropriate as the presidential election cycle starts moving forward but would have zero chance of being approved in a Republican-controlled Senate or by President Donald Trump.

Tony