Former Education Department boss argues against student loan forgiveness and free community college

An Education Department (ED) secretary during the George W. Bush administration said she was opposed to student debt cancellation and free community college because those policies would distort the value and price of post-secondary education credentials.

“We need to empower consumers with better information about how much they spend and what the value of it is in the marketplace,” former Education Secretary Margaret Spellings said on Yahoo Finance Live (video above). “We need to reward families and students who make really prudent smart decisions by going to a community college, getting those couple of years under their belt and then transferring to their private university that’s more expensive. ... We want people to think about value and price when they shop for post-secondary education, just like they do in any other purchase they make or investment they make.”

Spellings, making the classic conservative argument against debt cancellation and free college, added that making higher education free by subsidizing community college or cancelling existing student debt removes the “motivation for the consumer to really be smart and wise in how they think about what are they getting, how much are they paying, and what’s the value in the marketplace.”

Other critics of the policies mentioned also raise issues about the federal budget deficit from mass loan forgiveness and cast doubt on the notion, asserted by progressives, that cancellation would have a stimulus-like effect on the U.S. economy.

“It’s going to be a huge, huge boost to our economy,” Senator Elizabeth Warren (D-MA) previously said in an interview with Yahoo Finance. “Good for the individual borrowers. Good for closing the racial wealth gap. Good for the economy overall.”

Prominent Democrats, including Warren, continue to urge a skeptical President Biden to cancel $50,000 in federally-held student loan debt via executive action (as opposed to legislation passed by Congress).

There are nearly 45 million borrowers holding more than $1.56 trillion in federal and federally-backed student loans, according to recent data from the Department of Education.

Out of the 36 million student loan borrowers who would benefit from $50,000 in cancellation, 9.4 million — a little more than a quarter — are currently in default.

Biden's plan for education this week was 'just, wow'

President Joe Biden recently introduced a new plan that places a heavy emphasis on education spending.

The American Families Plan proposed $109 billion to fund the free community college initiative, $85 billion for Pell Grants to make college more affordable for lower- and middle-income students, and $46 billion in investment for Historically Black Colleges and Universities (HBCUs), Tribal Colleges and Universities (TCUs), and other minority-serving institutions (MSIs).

“Well, it’s an eye-popping number, that’s for sure,” Spellings said about the proposal. With the addition of previous plans that have sent billions to schools and universities, “it’s a lot of money, and one of the things I want to make sure is that we’re going to be to spending those resources wisely,” added Spellings. “So lots of things to like but there’s some things to be worried about, and the scale is just, wow.”

Spellings, a former president of the University of North Carolina system, which includes 17 campuses, noted that she did support certain elements such as increased Pell Grants and investments in HBCUs and other colleges.

But policies that amount to free college “is not something that I would necessarily support,” Spellings added, because “it’s important for students to have skin in the game for them to invest in themselves, for us to empower consumers to think about price and value when they are shopping for higher education.”

Seana Smith contributed to this story.

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Aarthi is a reporter for Yahoo Finance. She can be reached at aarthi@yahoofinance.com. Follow her on Twitter @aarthiswami.

Read more:

• Student loan forgiveness: New bill aims to help active-duty military service members

• Senator Elizabeth Warren breaks down America's 'broken student loan system'

• Student loan forgiveness: New Education Department data highlights benefits of cancellation

• Warren and Schumer urge student debt cancellation of up to $50,000 for all federal borrowers

• Read the latest financial and business news from Yahoo Finance

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