Sanders and Omar’s Plan Would Wipe Out Every Outstanding Student Loan

Today, Rep. Ilhan Omar of Minnesota released a bill to cancel all student debt in the nation, called the Student Debt Cancellation Act. Sen. Bernie Sanders is also introducing companion legislation for complete student debt cancellation as a part of broader package he is introducing on college affordability. While Representative Omar’s Student Debt Cancellation Act isn’t the first bill ever to propose canceling all student debt, it comes at a time when wide-scale student debt cancellation as a policy proposal is finally being treated with the seriousness it’s always deserved.

Representative Omar’s legislation would enact universal debt cancellation — which means every single outstanding student loan, federal or private, would be wiped out. The bill comes two months after presidential candidate Sen. Elizabeth Warren released a proposal to wipe out all student debt for 75 percent of borrowers. Omar’s bill goes further than Warren’s plan, which caps debt cancellation at $50,000. Over 7.8 million borrowers (17 percent of all student debtors) owe $50,000 or more on their student loans, according to data from the New York Fed Reserve. This includes many borrowers who’ve pursued graduate degrees, and not only lawyers and people with MBAs. The average debt load of those who completed a master’s of education degree from 2015-16 was $55,200; for a master of science, it was $62,300. And of those pursuing any kind of advanced degree, Black and Latinx graduates are the most likely to have borrowed $50,000 or more.

There are also many parents like Christopher Raymond who’d benefit from universal debt cancellation. Raymond borrowed $136,000 toward his two children’s higher education using Parent PLUS loans. He’s not alone: As of 2014, 13 percent of parents with Parent PLUS loans owe more than $50,000, and 4 percent owe over $100,000. Those with high loan balances are also likely to struggle to repay: almost 30 percent of all dollars in default are held by borrowers who owe over $50,000.

Omar’s bill doesn’t just call for no ceiling on individual debt cancellation: it makes everyone eligible for it, regardless of income. Be it partial or universal, the concept of student debt cancellation of any kind has already drawn fire, with some saying they don’t support policies that benefit the children of billionaires. There is some debate over what universal debt cancellation would do to the racial wealth gap: The think tank Demos wrote in 2015 that the gap would widen; in a 2018 Roosevelt Institute paper, Marshall Steinbaum estimated that it would narrow. Instead of the median wealth of white households being 12 times higher than the median wealth of Black households (12:1), in the absence of student debt, Steinbaum found the gap would instead be 5:1. But research shows that universal student debt cancellation would boost the economy for everyone, even if a handful of very wealthy people benefited from it. A 2018 study by the Levy Institute showed that universal student debt cancellation could boost GDP by as much as $108 billion per year, and add up to 1.5 million jobs per year, both over a 10-year period.

It’s also worth considering the benefits of a universal policy versus one that’s “means tested” — only available to people with certain incomes. Creating income limits on who’s eligible for debt cancellation requires additional bureaucracy. Universal benefits are more durable, stronger politically, and don’t require extra effort or new bureaucracies to administer. And is the best way to tackle inequality really to ensure the ultra-wealthy don’t receive student debt cancellation? Perhaps it’s better to have student debt cancellation for all, and instead use progressive taxation to take money back from the ultra-wealthy, as Ryan Cooper has argued. Julie Margetta Morgan, a fellow at the Roosevelt Institute, argues that “building an inclusive and strong economy means letting go of the notion that only those who suffer the most extreme harms deserve relief through cancellation.”

Income limits on loan cancellation also risk leaving out some people who would be eligible, but don’t know how to apply. Representative Omar’s plan would automatically grant cancellation for everyone with federal loans, no form required. An application would still be needed for the estimated $119 million in private student loans, since unlike with federal loans, the government doesn’t have centralized information about all private loans and where they’re held.

In the only context where we’ve seen large amounts of student debt canceled — 50,000 former students who attended for-profit colleges with widespread fraud — advocates called for automatic and universal cancellation, in order to ensure no one was left out. Instead, the Department of Education insisted that every former defrauded student apply individually, even though the Department itself took action against illegal acts by for-profits like Corinthian Colleges, Inc. That meant that many of the 500,000 students who attended Corinthian historically didn’t even know they could apply for relief (only 218,366 students from any school have applied for debt cancellation).

If the idea of canceling all student debt seems like just a pipe dream, it’s worth reading the bill text to see the actual mechanics of how it would work. It directs the Department of Education to cancel every single outstanding federal student loan (both interest and the principal), within 180 days of the bill being enacted. (The bill’s authors even made sure to add that any loan payments made during those 180 days of limbo would be refunded.) It would cancel all federal loans originated since 1965, including consolidated loans and Parent PLUS. This is all possible because the Department of Education holds the vast majority of the $1.5 trillion in student loans — something it makes a profit off of currently — and has the authority to cancel it. The bill takes care of private student loans by giving the Education and Treasury Departments temporary authority to create a program to purchase and then cancel outstanding private student loans. Importantly, the bill also makes clear that none of the debt canceled would be taxed as income (something that’s unfortunately not always true when student debt is canceled).

Representative Omar isn’t the first to introduce legislation to cancel all student loans. Last Congress, former Rep. and now-Colorado Gov. Jared Polis proposed a bill to simultaneously cancel all student debt in the country and roll back the Trump tax cuts that favored the wealthy and corporations (which cost an estimated $1.9 trillion). But the new bill comes at a time when broad plans for student debt cancellation are finally “being taken seriously,” as a trade publication for higher education wrote this month. Since Warren revealed her plan, three think tanks (the Aspen Institute, Demos and the Center for American Progress) have put out policy papers either advancing the idea of wide-scale student debt cancellation or examining the impacts of approaches to student debt cancellation. Several polls on student loan cancellation indicate that there’s majority support for student debt cancellation. A Quinnipiac poll from May that showed 57 percent support for cancelling student debt for those who make less than $250,000, and a Newsy/Ipsos poll that showed 55 percent of respondents who’d already paid off their own loans support debt cancellation for others.

Student debt cancellation would help boost the economy and could help lift homeownership rates among young people. It would help not only the younger people we think of when we contemplate student debt, but also the 40,000 older borrowers who had their Social Security garnished in 2015 due to student loans, and the 37 percent of U.S. residents over 65 that are in default on their student loans.

Universal student debt cancellation would also bring the country’s public policy in line with its ostensible ideals. Education is lauded as a universal good, a cure-all for social ills. If the U.S. truly believes this, it should do more than make fixes at the margins. We need to make higher education a public good we invest in as a country. Wiping out the debt that’s holding back more than 44 million U.S. residents would put us well on the way to doing just that.