Key Points
- The higher education narrative has been dominated by the student loan crisis as of late. While the magnitude of this problem is often oversold, borrowers do sometimes need help.
- However, debt forgiveness plans, such as those proposed by Sens. Bernie Sanders (I-VT) and Elizabeth Warren (D-MA), deliver the biggest benefits to those who need it least.
- A better solution would be a government-sponsored income share agreement, in which the amount due each month depends only on how much the borrower is earning, and a simplified IRS-managed income withholding repayment system.
Introduction
We hear a lot about how student loans are unaffordable for borrowers. That notion was central in the 2020 Democratic primary race, with Sens. Bernie Sanders (I-VT) and Elizabeth Warren (D-MA) proposing to wipe away massive amounts of debt. Student loans—an oft-forgotten policy issue in days past—were addressed in the first COVID-19 relief bill, even though many other more pressing areas of the economy were left untouched.
The problem with generous debt forgiveness plans like Sanders’ and Warren’s is that they deliver the biggest benefit to those who need it least.1 College typically pays huge dividends during a career. Even with a student loan payment, people with college and graduate degrees are among the more well-off in the economy.