Bills
| 3.23.22

Should All Student Loans Be Forgiven? (H.R. 3448)

Do you support or oppose this bill?

What is H.R. 3448?

(Updated January 29, 2021)

This bill — the Student Debt Cancellation Act of 2019 — would direct the Dept. of Education to cancel all student loans, including consolidated loans and Parent PLUS loans, taken out since 1965 within 180 days of this bill’s enactment. It would also grant the Dept. of Education and Treasury Dept. the ability to temporarily purchase, and then cancel, all private student loans.

Argument in favor

Student loan debt is a major crisis in the U.S. that’s holding many borrowers back from economic security, starting families, pursuing homeownership and more. Forgiving all student loan debt would give borrowers freedom to pursue their financial dreams.

Argument opposed

This proposal would be wildly expensive, and it’s not clear that the funding mechanism of taxing the wealthy and stock transactions would raise enough money to pay for it, in which case this would add billions to the ballooning and unsustainable national debt.

Impact

Student loan borrowers; student loan debt; holders of student loan debt; securers of student loan debt; Dept. of Education; and the Treasury Dept.

Cost of H.R. 3448

A CBO cost estimate is unavailable.

Additional Info

In-Depth: Rep. Ilhan Omar (D-MN) introduced this bill to forgive $1.6 trillion in student debt for 45 million Americans as part of a package with Sen. Bernie Sanders (I-VT) and Rep. Pramila Jayapal (D-WA). The package also included legislation to make four-year colleges tuition- and fee-free. In a press release, Rep. Omar said: 

“There are currently 45 million Americans with student debt. That’s 45 million people who are being held back from purchasing their first home; 45 million people who may feel that they can’t start a family; 45 million people who have dreams of opening a business or going into public service, but are held back. My bill would end this crisis by cancelling all $1.6 trillion in student loan debt. This would not only allow Americans struggling with debt pursue their dreams, but would unleash billions of dollars in economic growth—stimulating our entire economy. We can fully fund this with a small tax on Wall Street speculation. The American people bailed out Wall Street. It’s time for Wall Street to bail out American people.”

In remarks upon introducing this bill, Rep. Omar explained the reasoning behind offering debt forgiveness for all, not just those who can’t pay off student loan debt: 

“You may ask, ‘Why full cancellation? What about the people who can pay off their debt? Well, let me say this: The children of Donald Trump aren’t taking out student loans. Canceling student debt is a problem of the poor and the middle class, not of the rich. So rather than making exceptions, let’s end this crisis entirely once and for all.”

Sen. Bernie Sanders (I-VT), who is sponsoring the Senate version of this bill and making this proposal and fee- and tuition-free college core parts of his platform as he runs for the 2020 Democratic presidential nomination, says: 

“This is truly a revolutionary proposal which accomplishes three major goals. First, in a highly competitive global economy, it makes certain that all Americans, regardless of income, can get the college education or job training they need to secure decent paying jobs by making public colleges, universities and trade schools tuition-free and debt-free. Second, in a generation hard hit by the Wall Street crash of 2008, it cancels all student debt and ends the absurdity of sentencing an entire generation to a lifetime of debt for the ‘crime’ of getting a college education. Third, it pays for these proposals by implementing a tax on Wall Street speculators. In 2008, the American people bailed out Wall Street. Now, it is Wall Street's turn to help the middle class and working class of this country.”

Like Omar, Sanders also defended making this universal, saying, “I believe in universality, and that means if Donald Trump wants to send his kids to a public school, he can do that… [A]ll Americans are entitled to Social Security, are entitled to Medicare, are entitled to education as a right.” Advocates of universal student loan forgiveness argue that there maybe some administrative benefits, as it may require less bureaucracy to administer (as compared to means-tested programs, which would require a bureaucratic infrastructure to support them). A universal program that covers everyone, even highly-paid professions that tend to carry large debt burdens, would also eliminate class divides between those in such professions that come from low-income families and their peers. Finally, a universal program that automatically forgives debt, versus one wherein people have to apply for loan forgiveness, won’t miss people who fail to apply for it due to lack of knowledge about it or lack of clarity about their eligibility.

Sen. Amy Klobuchar (D-MN), who is also seeking the 2020 Democratic presidential nomination, called student debt cancellation “unrealistic” in a CNN town hall at St. Anselm College in Manchester, New Hampshire in April 2019. Noting that there’s $1.5 trillion in student debt and saying she shouldn’t support proposals to offer free college tuition or forgive student debt because they’re unrealistic, she said: 

“I wish I could staple a free college diploma under every one of your chairs—I do. Don’t look. It’s not there. I wish I could do that but I have to be straight with you and tell you the truth.”

However, Sen. Klobuchar did express support for allowing students and former students to refinance students at a lower rate (below 3% or even lower), proposed expanding Pell Grants and suggesting bringing back President Obama’s proposal to make community college free.

Critics of this proposal and those offered by other Democratic presidential nominee hopefuls argue that top earners would find their way around the wealth taxes they propose using to pay for these bills. If this happened, these proposals would add to the growing national deficit.  Other critics of this proposal say they don’t support policies that benefit the children of billionaires. 

Yet other critics of mass debt cancellation argue that these proposals would benefit well-off Americans the most, as the people who take out the largest loans do so to pay for expensive graduate degrees that help them eventually earn higher salaries (which make them more able to pay debts back). Similarly, the Brookings Institute found that Sen. Elizabeth Warren’s (D-MA) student debt forgiveness proposal, which is less generous than this legislation owing to its tapering off of benefits for high-income earners, would be regressive — a finding that would apply even more acutely to this bill.

There’s also some debate over what universal debt cancellation would do to the racial wealth gap. One 2015 analysis by Demos, a left-leaning think tank, found that eliminating all student debt per this plan would increase the wealth gap between white and black households. In 2018, the Roosevelt Institute’s Marshall Steinbaum estimated that it would narrow. Steinbaum found that in the absence of student debt, the current 12:1 ratio between the average median wealth of white versus black households would decrease to 5:1. fIn a 2018 study, the Levy Institute found that universal student debt cancellation could raise GAP by $108 billion annually and add up to 1.5 million jobs a year over a 10-year period. 

In response to these concerns, Marshall Steinbaum, an economics professor at the University of Utah and co-author of a 2018 paper from the Levy Economics Institute at Bard College calling for the federal government to wipe away all $1.5 trillion in federal student loan debt, argues that claims that student debt cancellation proposals are regressive underestimate the extent to which lower-income borrowers increasingly struggle to manage their student loans. He adds that such arguments also rely on outdate views of who holds student loan debt when it’s increasingly the case that a college degree is required to compete for good-paying jobs. Steinbaum says: 

“Having student debt used to mean you were relatively privileged. Now it's the case that having student debt, at least among younger cohorts, means you're relatively deprived." 

Some economists also argue that wiping out student loan debt on a wide scale could contribute to the ever-rising cost of college if students take loans out expecting debt forgiveness down the line, and already-pricey colleges wouldn’t have any incentive to keep costs down. The conservative-leaning Manhattan Institute’s Beth Akers says, “If we get into a system where people anticipate that their loans will be forgiven in the future, I think we're only going to see [the problem of expensive college tuitions] exacerbated.”

This bill has 10 Democratic House cosponsors. Sen. Sanders’ College for All Act S. 1947), which includes this bill, doesn’t have any cosponsors.

This bill is endorsed by the American Federation of Teachers, the National Education Association, Freedom to Prosper, Social Security Works, Progress America, Progressive Democrats of America, Student Action, People's Action, Debt Collective, the American Medical Student Association, CREDO Action, MoveOn and the Council for Opportunity in Education (COE).

Other Democratic presidential candidates have also proposed bills to address student loan debt. Sen. Elizabeth Warren (D-MA) proposes making all public colleges in the U.S. free and eliminating student debt for some Americans by allowing households making less than $100,000 to receive a $50,000 debt cancellation and giving all households making under $250,000 some amount of debt cancellation. Warren’s plan would be paid for by a 2% tax on wealth above $50 million and a 1% tax on wealth over $1 billion. It’d cancel student debt entirely for 75% of borrowers and provide debt relief to 95% of student loan borrowers.

Julián Castro, former mayor of San Antonio and Secretary of the Dept. of Housing and Urban Development in the Obama administration, has proposed a plan offering partial loan forgiveness for those receiving public assistance benefits such as the Supplemental Nutrition Assistance Program (SNAP) or Medicaid.


Of Note: Sen. Sanders’ office contends that the cost of this bill would be paid for by a tax on Wall Street speculation, arguing that after receiving the largest taxpayer bailout in U..S. history during the financial crisis, “it’s Wall Street’s turn to help rebuild the disappearing middle class.” To this end, Sen. Sanders, Rep. Omar and the cosponsors of this proposal want to impose a 0.5% Wall Street speculation tax on stock trades, a 0.1% fee on bonds, and a 0.005% fee on derivatives. Combined, they project that these fees would raise $2.4 trillion over the next decade. Sen. Sanders’ office reports that over 1,000 economists have endorsed a tax on Wall Street speculation and “some 40 countries” have imposed a similar transactions tax. 

The New York Fed Reserve reports that over 7.8 million borrowers (17% of all student debtors) own $50,000 or more on their student loans. 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. Student loan debt also affects parents. As of 2014, 13% of parents with Parent PLUS loans owed over $50,000 and 4% owed over $100,000. 


Media:

Summary by Lorelei Yang

(Photo Credit: iStockphoto.com / zimmytws)