Student Loan Debt Forgiveness: The Best Way To Do It

Editor’s note: Jay Urwitz served as Deputy General Counsel at the U.S. Department of Education from 2015 to 2017. Neal Urwitz is Public Relations Manager in Washington. The opinions expressed in this commentary are their own.

Whether you think of Elizabeth Warren and Bernie Sanders calls Forgiving student loan debt are thoughtful political solutions or pandering to millennial voters, there’s no doubt the senators are talking about a divisive issue. The Americans hold close $1.5 trillion in student loan debt, more than they do for credit card or cars. The average borrower of the class of 2017 will enter the labor market with $28,650 in loans. It’s no wonder Millennials put off everything from buying a residence to have children.

Warren wants to offer debt relief based on household income, while Sanders wants to forgive all of the $1.5 trillion student loan debt. But both plans miss the mark. The people who really need loan forgiveness are not those with expensive degrees. They are those who do not have these diplomas. While both plans would help those who dropped out, the vast majority of the benefits would go to those who graduated and earned degrees, as they spend more time in school and go into more debt.

It would be a mistake. We should not forgive graduate loans. Although their degrees are expensive, they are worth it. University graduates have a lot of earning potential and don’t need any help. On the contrary, we should only forgive people who took out student loans but never graduated. These are the people most in financial difficulty. This group has all the costs of student debt without most of the benefits.

Neither Warren’s plan nor Sanders’ plan recognizes that a college degree is always worth the high cost of tuition. According to one estimate, those with a university degree will, on average, to win nearly a million dollars more over their career than people without a college degree. The unemployment rate for university graduates is around half only for people with only a high school diploma.

College may be more expensive than we would like, but for individual students college is well worth it. The last iteration of the Higher Education Act (HEA) provides a post-graduate income buffer against debt by capping loan repayment rates at a percentage of the borrower’s income. Encouraging income-based repayment won’t be free, but it will be a fraction the cost of Warren and Sanders’ more comprehensive loan forgiveness plans.

Warren’s plan would cost $1.2 trillion over 10 years, and Sanders cost $2.2 trillion over a similar period. The plans are right costly redistributions to people who will soon earn more than enough to pay back the difference.

This is not the case with loan forgiveness for people who received student loans but did not graduate. And that’s no small problem. Of about 20 million people enrolled in post-secondary education each year, only about 57% will graduate within six years. As a result, millions of Americans have student loan debt but no degree, often for issues beyond their control. Whether it’s financial hardship, family and work obligations, or insufficient preparation for high school, students are dropping out of school and returning to the workforce.

These people are in big trouble. Since 2016, they detained an average of over $7,000 in debt. They win a medium by about $38,000 a year – far less than the nearly $60,000 a year for their counterparts with a college degree, and only slightly more than their counterparts with only a high school diploma. Unlike university graduates, these people are not soon part of the upper middle class. On the contrary, their debts will likely keep them firmly in the class of people struggling to make ends meet.

Loan forgiveness would change the lives of these people.

There are also corollary benefits to this limited loan forgiveness. The poorest students, who are generally mistrustful debt, may be less likely to attend only the cheapest colleges or forgo college altogether, leaving behind the possibility of attending more prestigious universities with lower dropout rates that would open up more lucrative career paths.

Additionally, the federal government would begin to view universities with high dropout rates as a costly burden since the Treasury would hand out billions of dollars in loan forgiveness to students those institutions failed to educate and retain. This realization could force the long overdue pressure on these colleges to improve America’s 57% graduation rate.

Finally, such loan forgiveness would not leave high school dropouts who fail to repay their loans with the double whammy of no college degree and lousy credit. According to the Brookings Institution, 40% of student loans will be in fault by 2023.

Critics may say that forgiving loans from those who do not complete their degree will encourage students to drop out of school. They are wrong. Given the value of a college degree, it’s unlikely someone would drop out of school just to wipe out a $7,000 loan. Others may say that this plan incentivizes schools to accept unprepared students — the government would end up with the bag if students fail to graduate and can’t repay their loans — but that incentive isn’t. bigger than with Warren or Sanders. plan. We can also address negative incentives by reinforcing the current – ​​but moribund – HEA requirement that schools must show students have the capacity to benefit before accepting them.

Warren and Sanders deserve credit for weathering the student loan crisis. Yet their solutions will not focus on those who need it most. For much less money, we could make a real difference in the lives of millions of people.

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