SALT LAKE CITY — Democratic presidential candidates Bernie Sanders and Elizabeth Warren struck a divisive chord this year when they introduced plans to cancel student debt, in its entirety or almost entirely.
“All student debt will be canceled in six months. By taking this action, we not only provide immediate financial relief to 45 million Americans who have $1.6 trillion in debt, but we will be improving the entire economy,” said Sanders, a senator from Vermont, in a press conference called to announce the proposal in June.
In a proposal posted to her medium page in April, Warren, a senator from Massachusetts, wrote, “The first step in addressing this crisis is to deal head-on with the outstanding debt that is weighing down millions of families and should never have been required in the first place. That’s why I’m calling for something truly transformational — the cancellation of up to $50,000 in student loan debt for 42 million Americans.”
Sanders proposed to pay for his plan with a tax on Wall Street speculation, while Warren said she would institute an “Ultra-Millionaire Tax” — a 2% tax on families with $50 million or more.
Reaction was mixed: Finally, politicians were listening to what the people wanted. Activists cheered. Hold on, said detractors on the right and left. It would cost too much, benefit high-income earners, and wouldn’t address the true sources of debt.
As some candidates race to the left, not all Democrats are willing to go that far. Most agree young Americans struggling under the weight of student loan debt is a problem, but few agree on what to do about it — and a number of approaches exist that don’t include loan forgiveness.
Americans owe about $1.5 trillion worth of student debt, and about 42% of those who have attended college took out loans to help pay for their education. Estimates for the average amount of student loan debt varies greatly. The Institute for College Access and Success estimates the average at $28,650, while the Federal Reserve calculates the mean debt at $32,731.
A third of those with student loans are behind on their payments. The rise in student debt has been linked to a host of adverse effects in the economy, from a decrease in home ownership to fewer large consumer purchases — not to mention horror stories of former students who have wages and social security checks garnished when they can’t meet their payments.
Whether or not widespread loan forgiveness comes to pass, other strategies for reducing student debt could be more politically and economically feasible. The Deseret News interviewed academics, educators and activists about what other potential solutions could be implemented. Here’s what we found.
Lower the cost of college
One way to lower student debt loads would be to lower the price tag of a bachelor’s degree.
The cost of attending college has skyrocketed. Data from the National Center for Education Statistics shows that over the past 30 years the price of college has approximately doubled. The reasons for this are contested. Some point to an increase in amenities (is that a rock climbing wall?) that colleges use to entice students in an increasingly competitive market. Others blame easy access to federal student loans. A New York Federal Reserve report from 2017 found that for every extra dollar of subsidized loans available, tuition rose by about 60 cents.
Mitch Daniels, the current president of Purdue University and former governor of Indiana, made headlines in 2012 when he announced he was going to freeze tuition and try to lower other costs of attendance, from meal plans to internship programs.
This year, the university announced that the freeze would remain in place through the 2020-21 school year. Thirty-percent of Purdue students receive federal loans, and those that do typically had $20,428 in debt by the time they graduate. (The University of Utah has a similar percentage of students who receive federal loans, but they typically graduate with $15,000 worth of debt.)
Compared to the rest of the country, Purdue is still within the average debt bracket. But Daniels is working on changing that and said the number of loans taken out at Purdue has been on the decline.
Daniels pointed to a few different reasons for the increase in costs of education, but said, “A lot of it is self inflicted and if you prioritize student affordability you can make some headway, and I think we have.”
“The best way to lower student cost is not to charge so darn much in the first place,” Daniels said.
The sentiment is starting to catch on. The University of Illinois system has frozen tuition rates for the past five years, and many private colleges have started cutting tuition. For example, Mills College in California reduced tuition by 36%, and Benedict College in South Carolina by 26%.
Spend more on higher education
Experts point to lower investment by states in public colleges as one factor in rising costs. Tuition at public colleges has risen by 36% over the past 10 years, while spending per student has generally decreased by 16%, according to a report from the Center on Budget and Policy Priorities.
“The best way to lower student cost is not to charge so darn much in the first place.”
The report also points out that in the years following 2008, when many public colleges had to reduce spending, the average amount of debt per student rose by 26%.
When state revenues decreased, there was less money to spend, tough choices to make, and a lot of different priorities, explained Lindsay Ahlman, a senior policy analyst at the Institute for College Access and Success. “Higher education was a big loser.”
Ahlman said that this decrease in funding shifted the cost of college from states to students. However, with an improved economy, she says, “Now’s the time to be thinking ahead. We’ve rebounded from the last recession, which puts us in a good place to think about making needed investments. At the same time, another recession will come and we need to be prepared.”
Increased spending hasn’t gained much traction on the state level. However, California’s Gov. Gavin Newsom recently signed a budget that increased funding for competitive and need-based grants, and the University of Texas-Austin announced that students from families making under $65,000 a year could attend tuition-free.
Cap graduate student loans
Students with heart-stoppingly high loan balances tend to be those with master’s degrees and doctorates research shows.
Constantine Yannelis, a University of Chicago professor who studies student loans, found that the largest amounts of debt (think more than $50,000, $100,000 or $200,000 in student loans) are mostly accrued by students getting advanced degrees. He points out that these students usually have higher incomes after graduating and a pretty good track record of paying them back. The students defaulting tend to have lower loan balances and struggle to pay them back.
This fact has been a major talking point in the debate over loan forgiveness. Republicans and Democrats worry that Sanders’ proposal to wipe out all debt would ultimately be a regressive tax — providing the most relief to high-income earners at a cost to the rest of society.
However, some graduate programs cost much more than students could ever possibly pay back. Adam Looney, a senior fellow at the Brookings Institution, pointed to the University of Southern California’s school of social work as a good example. Preliminary data from College Scorecard shows that the average debt for a master’s in social work from USC is about $109,000. The typical social worker makes only $49,470 per year.
One solution for graduate students with massive loans would be to limit the amount they can borrow from the federal government, said Looney. Currently, students pursuing advanced degrees can take out the full cost of tuition and room and board. Some say this allows universities to charge more for their programs, since students don’t have to pay out of pocket.
President Donald Trump has proposed a cap on graduate student loans as part of his list of suggested changes to the Higher Education Act, which sets rules for student lending policy and is up for reauthorization in Congress.
Expand income-based payment plans
Critics of Sanders’ and Warren’s proposals have pointed out that the government already has several loan forgiveness plans, though they involve waiting a few decades and the ultimate costs to the government and borrowers are difficult to predict. The plans work like this: Individuals make payments based on how much they earn, and after 20-25 years, any remaining debt they have is forgiven. The plans only apply to federal student loans and wouldn’t solve the problems surrounding private loans.
Enrolling in these plans also prevents people from defaulting and having their wages or social security checks garnished.
Yannelis believes the expansion of income-driven repayment plans is “low hanging fruit” that could be used to help borrowers. As of 2018, only 29% of federal loan borrowers were in enrolled in these plans.
“There’s a huge lack of awareness among student borrowers about their options,” said Yannelis. He believes making borrowers more aware of the programs and simplifying the process to enroll could help this.
The future of income-based repayment plans is uncertain. Under former President Barack Obama, they were expanded. However, the Trump administration’s proposed reforms would reduce the number of plans available.
Experiment with loan alternatives
Some colleges are trying out alternatives to student loans.
The University of Utah is the second large public college to institute an income-share agreement program, which will kick off this fall. Under the new Invest in U program, students are given a certain amount of money, and after graduation, they make a set number of payments based on their income.
Courtney McBeth, a special assistant to the university president, noted that Invest in U was not intended to act as a replacement to federal loans but was aimed at increasing graduation rates and alleviating the financial burden of students who are in their final year. “The income-share agreements are not a debt obligation because there’s no principal balance (or) accruing interest,” she said.
Income-share agreements may not technically be loans, but they function similarly.
Under the new program, for example, a student can take out $5,000 and sign a contract promising to pay a certain percentage of their income to the university once they are employed. After the student makes 57 payments or pays back two times the original amount they received, whichever comes first, their contract is fulfilled. It’s considered an investment in the student, and any money made from the investment goes back into the same fund to provide capital to future students.
Critics worry about income-share agreements because a portion of students end up paying back twice the amount they received. Some have even described the programs as modern-day “indentured servitude.”
Those who end up with high-paying jobs and successful careers are most likely to pay double. Those who go into less lucrative fields get the best deal.
Warren and Reps. Katie Porter (D-Calif.) and Ayanna Pressley (D-Mass.) sent letters to seven colleges that instituted income share agreements, warning the institutions that “ISA’s can also include some of the most exploitative terms in the private student loan industry.” They also sent a letter to Betsy DeVos, Secretary of Education, expressing concern over the agreements.
“I think there’s skepticism because this is a financial product coming from the private market,” explained Beth Akers, senior fellow at the Manhattan Institute who studies the economics of higher education. Akers said skepticism is warranted, but it should be focused on developing regulations rather than stopping the agreements altogether.
A paper published by the American Enterprise Institute, a Washington, D.C., think tank, claimed income share agreements are better than traditional loans because “traditional private student loans force students to bear significant risk of financial ruin if their educational investment does not pay off and they do not earn enough income to repay their debt with interest.” The risk of a low-paying career is on universities rather than students in these agreements.
Akers sees income share agreements growing in places where students can’t take out more federal loans and coding bootcamps, where federal aid is not available.
What comes next?
Individually, these proposals wouldn’t have the same immediate relief that forgiving all student debt would. Many of them also focus primarily on current or future students.
Because of that, activists say the time is right to cancel student debt.
Ann Larson, activist and founder of Debt Collective, an organization described by the Washington Post as the “people power behind Sanders’ debt cancellation plan” does not see anything less than canceling all student debt as a good option.
“The policy of making people pay out of pocket for higher education has been a failure, and this has had disastrous consequences. We need to repair it. And the way to repair it is to cancel the policy and just make college free,” Larson said. She believes that after years of activists calling attention to the rising student debt, politics has finally caught up. It doesn’t make sense to focus on smaller changes at this moment, she said.
Some think forgiving all student debt could be a boon to the economy. Proponents point to the “Levy study,” a report from the Levy Institute at Bard College that found canceling student debt would increase GDP and lower unemployment.
Another study by researchers at Harvard, Indiana University, and Georgia State University looked at a pool of individuals who had private student loans eliminated. They concluded that these borrowers were “significantly more likely to move, change job(s) and experience a significant increase in income.” They also found that the students were able to pay off other debts as well.
“The policy of making people pay out of pocket for higher education has been a failure, and this has had disastrous consequences. We need to repair it.”
However, not all students support the plan, even those who fear going into debt themselves. Sophia Bagley, an upcoming senior at the University of Utah studying quantitative analysis, said she doesn’t see “canceling” student debt as a practical option. “I do think the system is broken,” she said. But she is skeptical of the promise that the proposal would be paid for solely by a tax on Wall Street or the Ultra-Millionaire. She believes the middle and lower classes would also end up paying for the debt relief.
Experts are also dubious of Warren’s and Sanders’ proposals. “American taxpayers, including people who never went to college, are going to have to pay,” said Frederick Hess, director of education policy studies at the American Enterprise Institute. “Its hard for me to think of anything more calculated that poisons taxpayers’ confidence in government.”
Democrats have voiced similar fears, notably presidential candidate Pete Buttigieg, who has made headlines for his own hefty student loan balance. While Buttigieg supports free college for low and middle income students, he said, “I just don’t believe it makes sense to ask working class families to subsidize even the children of billionaires. I think the children of the wealthiest Americans can pay at least a little bit of tuition.”
Whether reform includes total loan forgiveness or smaller, piecemeal solutions, former and current students are eager for change. And although Daniels of Purdue doesn’t think forgiving student loans is a good idea, he does share a desire for reform.
“I want to see this problem of affordability solved because with all its flaws, higher education in America is still extraordinarily important,” said Daniels.
That’s a sentiment Warren would probably agree with. As she wrote in her proposal: “Higher education opened a million doors for me. It’s how the daughter of a janitor in a small town in Oklahoma got to become a teacher, a law school professor, a U.S. Senator, and eventually, a candidate for President of the United States.”
Correction: This article previously identified Bernie Sanders as a senator from Connecticut. He is a senator of Vermont.