Sen. Elizabeth Warren has now introduced legislation to cancel most student debt in America, matching a proposal she’s made as a presidential candidate. Sen. Bernie Sanders, also running for president, would go even further by canceling all student debt, regardless of how wealthy the student is.
Like most something-for-nothing ideas, canceling student debt sounds better than it is. Here are four problems with the plan:
It only works if a college education is free. Canceling student debt once wouldn’t make sense if a new generation of students came along and started wracking up debt all over again. That’s why the Warren and Sanders plans both include free college at public universities for anybody who wants it. In Warren’s plan, canceling up to $50,000 in student debt for about 42 million people would come at a one-time cost of $640 billion, almost equal to the entire defense budget for a year. Free college would cost an additional $62 billion per year on top of that, or about $1.3 trillion over a decade. The Sanders plan would cancel all $1.6 trillion in student debt, for a total 10-year cost of $2.2 trillion, including free college. This is a lot of money, even by Washington standards, and might generate a better return, with less disruption, if used to fund infrastructure development, education improvements, expanded pre-K or universal child care.
Free college would mess up higher ed. If tuition were free, more people would go to school, which would be a good thing if people who wouldn’t otherwise attend college ended up getting degrees. But a flood of new students would strain the capacity of public universities, which in turn would push more people toward private schools—where tuition and other costs would skyrocket, on account of the new demand. Private-school tuition is already rising by way more than inflation or income, straining middle-class budgets. This would worsen. Any plan that didn’t account for such unintended consequences would end up screwing families that earn too much to qualify for free college but lack the cash to pay steep private-school tuition.
It would be generationally unfair. If you graduated with student debt the same year a debt-cancellation plan went into effect, you’d be delighted because nearly the whole tab would be wiped out. If you were five or 10 years into paying off your college loans, you’d only get partial cancellation and might feel a bit cheated. And if you made your last student-loan payment before a cancellation plan went into effect, you’d get no benefit. It’s not always possible to spread the benefit of new programs equally, but spreading them very unequally makes voters resentful and undermines public support for the plan. See: Obamacare.
Why just student loans? If you can make a case for forgiving student loans people take out willingly, you could make the same case for forgiving federally backed loans for small businesses, first-time home buyers, veterans and farmers. Why favor college graduates over everybody else? Other than buying their votes, that is? Oh. Maybe that’s the whole point.
Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman