Student debt forgiveness has quickly risen from the fringes and become one of the most widely discussed topics going into the 2020 election.
Many of the Democratic candidates for president have begun floating their plans to forgive some student loans or eliminate them entirely.
Up to $50,000 in debt would be wiped out for students with household income lower than $100,000 under Sen. Elizabeth Warren’s plan. Sen. Bernie Sanders has been outspoken since the last election about his position on free public college.
You can also find other smaller plans hovering around Congress, like Illinois Sen. Dick Durbin’s bill to cancel student debt for people that file for bankruptcy.
Everett Westmeyer teaches accounting and economics at Kishwaukee College. He’s been paying attention to this issue for quite some time, both as someone interested in economics and as someone who sees students in his own classroom grapple with the realities of college debt.
For him, the devil is in the details. How would this really work for private loans, for instance? U.S. students currently owe over $100 billion in private loans, a number that has increased 20% in the last five years.
“So with the federal loans, the money is already gone so to speak, right? It's already gone, but with a private loan, someone would have to write a check to those private entities, presumably financial companies. Okay, so you're gonna have to write a check to Discover; Discover is under no obligation to write that off,” said Westmeyer.
He notes there's no benefit for them to write that off. "And then, if Discover does write that off, that's obviously a loss for them. And I'm sure their stock will take a hit and their shareholders won't be very happy about that,” he said.
Not many plans have been clear about how this would play. Elizabeth Warren says private loans would be eligible to be eliminated, but you’d first have to refinance your loans to make them federal.
Westmeyer is primarily focused on taxes. Debt forgiveness is taxable by the IRS. You pay taxes on it like you would your income. But some plans, Warren’s included, say you shouldn’t have to do that, which makes no sense to Westmeyer.
“I mean, if you’re going to get your loan forgiven, I’m going to expect you at a minimum to pay taxes on that loan forgiveness. It’s only fair from my perspective, from an accounting and economics perspective.”
Bernie Sanders’ plan would parlay debt forgiveness into his free public college plan.
And Westmeyer is quick to remind you how free “free college” could really be.
“That's wonderful. Free education is a wonderful thing. But the reality is, it's not free,” he said.
“Someone has to pay for the building, someone has to pay for the utility, someone has to pay for the maintenance, someone has to pay for the salaries of the professors, the professional staff, the administration -- who pays for that? The taxpayers pay for that.”
It’s estimated Sanders’ plan would cost at least $2.2 trillion over 10 years. He claims it could be paid for by another of his proposed taxes: this one on Wall Street.
But Westmeyer says taxpayers would push back on the prospect of raising taxes for free college or debt forgiveness.
“So you made some decisions that weren't in your best interest. But did you have advice and counseling on the way? You probably did. So why should I pay for your loan forgiveness? And I believe a lot of taxpayers will be in that boat. They're not going to want to do this,” he said.
Westmeyer was a student at the University of Illinois in the mid-1970s. He studied accounting.
“The state provided over 60% of our support,” he said. “My tuition was $500 a year, right? A lot of money at the time, but not a lot of money compared to what's going on today.”
He’s seen first-hand tuition prices at schools across the country skyrocket during his time in education.
But in the conversation around free college and debt forgiveness, he thinks the role of the individual states has flown under the radar.
“It's not just the feds providing free education, the states also have to step up, because the states, as far as higher education, have really dialed back, especially in recent years,” he said.
“But also from the primary and secondary levels, they've dialed back a bit in recent years. There's only so far you can go in education making more with less.”
Only about a quarter of the University of Illinois System’s budget in the 2019 fiscal year came from the state. And although Illinois has started reinvesting in education over the last year, higher-ed funding is still a long way away from its peak in 2002.
With the amount of debt people are in, and how expensive college has become, is canceling student debt just the right thing to do? And then, if so, whose debt?
Does the public have to compensate people who really struggled to pay off their student loans, but eventually did finish?
Westmeyer thinks you’d probably have to. “Once you start dividing up and say, ‘Okay, we'll forgive yours, but we won't forgive yours’ -- then you open up another can of worms.”
What of parents who take out Parent PLUS loans on behalf of their kids’ education? Since the turn of the century, the number of parents on the hook for big student loans -- loans more than $50,000 -- has grown to 10% of the loans of that size.
Do those parents’ debts get erased? For up to that $50,000 figure, Elizabeth Warren would once again say yes.
Say Warren gets elected president and gets her student debt plan passed. What happens to the economy then, besides all of those taxes we touched on earlier?
“Students can start buying homes, right? So the debt marketplace is going to benefit from that because, again, it's pretty hard to get a home loan if you're up to your eyeballs in student debt,” he said.
“Marriage and family formation, right? This is an interesting one, I saw this in a couple different places: the growth of small business. This would give students the opportunity to build a contingency fund. Saving for retirement. GDP would be increased,” said Westmeyer.
Those seem like generally positive things, but he hasn’t gotten to the negatives yet.
“I'm looking at the budget deficit, and the one ratio they mentioned here is deficit to GDP.”
Westmeyer also notes there would be plenty of effects on the state level since they’d provide a bulk of the education funding.
But even if someone like Warren was elected, he doesn’t think this sort of widespread student debt relief would pass right away.
“If you follow the last decade or so in Washington, the past decade and a half, very little gets done. In my review of the candidates and what each of the candidates was proposing, I got the sense that they're not expecting anything to happen today or tomorrow,” he said before adding:
“But they want the conversation. They want the conversation started. They want the conversation to continue in the hopes that this grows and whatever they end up with helps students.”