(AmericanProsperity.com) – Student loan debt is growing at an alarming rate and is currently a $1.6 trillion problem. While student loan forgiveness also sounds like a good idea, what would happen if the government approved wiping out everyone’s student debts?
Democratic presidential candidates Sen. Bernie Sanders (D-VT) and Sen. Elizabeth Warren (D-MA) both have plans that either wipe out student loan debt altogether or forgive up to $50,000.
Sanders’ plan proposes eliminating all $1.6 trillion student loan debt and Warren’s $640 billion plan would pay for up to $50,000 in student loan debt forgiveness.
Where is the government going to get the money?
Both Sanders and Warren say increasing taxes on the wealthy is the answer.
Is that really the best answer, though?
Some Economists Express Doubt
Some concerned economists fear that wiping out the student loan debt may make a bad problem even worse. For one, it may contribute to colleges and universities increasing the cost of higher education if more people apply to college and if students take out more loans and expect debt forgiveness down the road.
College is big business. Like any other business, prices increase where there’s an increase for demand and supply remains fixed in the forms of dorms and classroom space to name a few.
A perpetual state of loan forgiveness is not a solution. It simply creates a new problem that has to be solved again in the future.
Government Picks Winners and Losers
The two plans proposed by Sanders and Warren to eliminate or reduce student loan debt empower the government to pick winners and losers. Many who start their higher education journey come from poor to upper-middle-class homes. Some will go to school and spend a decade or more in higher education.
However, under the proposed plans, those who make more than $250,000 will not have their loans forgiven. High-salary careers in that range include doctors, lawyers, scientists, or other essential high-end professions. Eventually, they will make significant money and still have significant debt.
This plan is a penalty for those who put their school loans to good use. However, some would also say they are the ones who will benefit the most at the expense of others.
Student Loan Forgiveness Doesn’t Solve the Problem
These plans do not solve the problems of why college has gotten so expensive. It’s possible that loan forgiveness could make the problem even worse.
According to Forbes, increases in federal aid to colleges and universities have given them a reason to raise their tuition rates. In some cases, schools increased tuition 65 cents for every additional federal dollar they receive.
The wealthy have the means to absorb the increased costs in education.
However, the lower and middle class do not have the same means. It’s them that will be affected by both higher taxes to pay for loan forgiveness and higher tuition as colleges raise their prices when more people take out loans anticipating that the government will once again pay off their debts.
It’s a business model — more aid will enable a student to pay a higher price.
Student loan forgiveness doesn’t solve the problem; it enables and perpetuates it.
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