Senator Bernie Sanders has announced his plan to cancel $1.6 trillion of student loans. Called the College For All Act, the bill will eliminate all existing undergraduate and graduate debt for almost 45 million Americans.
The legislation is sponsored by House members Rep. Ilhan Omar and Rep. Pramila Hayapal.
Sen. Sanders legislation is a step further than the plans shared by Senator Elizabeth Warren last April.
In Sen. Warren’s plan, a portion or all of student loan debt will be canceled depending on the student’s current capability to pay. However, in Sen. Sander’s proposal, all students with any student debt in the time of signing will be eligible.
Sen. Sanders is planning to pay student loan debts with a new tax on financial transactions, which he estimates will be more than $2 trillion over the next decade.
In an event in South Carolina last Saturday, Sen. Sanders shared a glimpse of his announcement. “We have for the first time in the modern history of this country a younger generation that if we don’t change it, and we intend to change it, will have a lower standard of living than their parents, more in debt, lower wages than their parents, unable to buy the house that they desire,” the Vermont Senator said.
In May, #CancelMyDebt trended on Twitter as debtors air their grievances about high education fees.
During the 2016 presidential campaign, Sen. Sanders ran a campaign on making colleges tuition-free and debt-free.
Student Loan Situation
One of the reasons for the out-of-control student loan debt crisis involved the financial crisis of 2008. A large number of workers, who at that time had student loan debts, had been laid off. Without a steady income, some borrowers defaulted on their loans.
From 2008, the job market also became more competitive. A limited number of jobs available meant for a credibility race among other applicants. Job seekers with graduate degrees get hired more. Hence, some borrowers will take out more student loan to pay off their Masters degrees.
Chuck DeVore, a former California State Assembly member, expressed his opinion via an article in Forbes. In 2016, he attributes the Student Debt Crisis to three reasons: (1) easier student loans led to higher tuition fees, (2) the decline of vocational education demanded additional training given by tertiary education, (3) and ongoing talk about forgiving student loan debts encourage students to continue to depend on or increase their student loans.
To DeVore’s first point, colleges have steadily increased their tuition fees. A study conducted in 2015 states that for every dollar of new subsidized loans, schools increase tuition by 60 cents. Thus, students are forced to take out higher loans, as well.
DeVore also mentions that vocational and career training in high school declined in the 1980s. Due to this, there is a gap between available job openings and qualified employees for “middle-skill” occupations. Since the Financial Crisis in 2008, most graduates failed to find jobs in their respective fields.
Lastly, Devore talks about the psychological effect of the government’s continued talks about forgiving student loan debts. He says that “borrowing money with the expectation of forgiveness leads people to borrow more money, just as a person ordering dinner at a restaurant may order a more expensive meal if he knows someone else is picking up the tab.”
Other ways to solve Student Loan Debts
Other than the debt forgiveness, there are different ways to help in lessening the student debt crisis. The problem is due to little to no education, information, or support to help students (and their families) to make better decisions related to their college education.
Understanding the job market could also help with student debt. If high school students know which jobs are in demand and which degrees could help them land those jobs, paying off student loan debt will be less stressful.
There’s also a need to shift the recruitment strategies for corporations. Instead of looking for applicants with multiple degrees, consider hiring new graduates, and train them with the necessary skills on-the-job. Not only will corporations help their workers pay off student loans, but also gain loyal employees in the process.