Free at a Steep Price

Reasserting himself atop the Liberal progressive heap, 2020 presidential candidate Bernie Sanders announced he would submit legislation to make $1.6 trillion of student loan debt disappear. Sanders’ plan is massive, more than twice as large as fellow candidate Elizabeth Warren’s $640 billion “loan forgiveness” plan. Approximately 45 million Americans and their families would qualify and their debt would be wiped out as soon as the legislation is passed. How that would happen is unclear.

The money for Sanders’ clemency comes from a new 0.5% tax on stock trades, or $1.00 for every $200 worth of stock traded, a 0.1% levy on bonds and 0.005% fee on the ginormous $1.2 quadrillion derivatives market. Sanders estimates his plan would raise $2.2 trillion over the next 10 years. Market reaction to the proposed new taxes was negligible as traders assumed a Republican controlled Senate would not pass the legislation. That said, taking $2.2 trillion out of any industry would have consequences and likely result in fewer transactions.

Unintended Consequences

According to the College Board’s “Trends in College Pricing 2017” report a four-year non-profit private institution, tuition and room and board averages $46,950 a year, while a similar four-year public college averages just $20,770. College costs vary widely but one can assume that increasing public school’s cost advantage through free tuition will put enormous pressure on private institutions’ current revenue models. It’s hard to compete against “free” but private schools have been competing against free K-12 public schools for decades.

Sanders did not mention the impact his proposal will have on for-profit schools but explained his proposal encompasses public universities, community colleges, and trade schools. The nuts-and-bolts of Sander’s reimbursement scheme for these institutions remain unclear as well, but he will have to either (1) replace the schools existing tuition schedules or (2) implement a new fee schedules by fiat.

Emotion and Fact in Clickbait World

An effusive Sanders proclaimed, “This is a truly revolutionary proposal,” before adding, “In a generation hard hit by the Wall Street crash of 2008, it forgives 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.” Switching to Twitter Sanders bemoaned, without citing his proof-sources, that, “Nearly half of all college students are going hungry and the average college senior takes on $30,000 in debt.”

The debt estimate is verifiable and seems to be low, although estimates vary. The “hungry” estimate is problematic. Almost 20 million students enrolled in colleges in 2018 so if Bernie’s estimates are correct there are almost 10 million “hungry” students roaming the halls of higher education. If true, if 3% of the US population is engulfed in hunger, one suspects another proposal will be forthcoming.