Patricia A. O'Malley
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Established 1993
Patricia A. O'Malley
Social Policy & Programs Consulting
Training and Services for agencies working toward social and economic justice
Bernie Sanders’ Plan to Cancel Student Debt
It sounds great, but it’s not that easy.
July 3, 2019
Senator Bernie Sanders has been saying for years that he will make college free and cancel all outstanding student debt. Now, some Americans think their that their student debts will suddenly vanish. Don’t get too excited. This is why language matters.
HISTORY
Student financial aid in the United States began with a private scholarship to Harvard University in 1643. New York state founded the first government-related program in 1913. There were many small-scale, targeted, public and private aid programs throughout the years.
The G.I. Bill was the first large-scale program, extending college opportunities to all white veterans of World War II. The Higher Education Act of 1965 created most of the widely-available loan and grant programs we know today. They’ve undergone some additions, deletions, and adjustments over the years.
DEBT STATUS
According to Forbes Magazine “There are more than 44 million borrowers who collectively owe $1.5 trillion in student loan debt in the U.S. alone. Student loan debt is now the second highest consumer debt category - behind only mortgage debt - and higher than both credit cards and auto loans. Borrowers in the Class of 2017, on average, owe $28,650, according to the Institute for College Access and Success.”
Because of their massive debt, many college graduates are delaying other important life events, like buying houses and cars, getting married, starting families, and all of the other purchasing that goes along with those activities.
They’re back living with their aging baby boom parents.
Those delays squelch economic activity, stifling American economic growth and costing jobs.
THE BILL
The Senate bill is S. 1947. The House bill is HR 3472. Sen. Sanders (D-VT) and Reps. Pramila Jayapal (D-WA) and Ilhan Omar (D-MN) introduced them on June 26. The bills are identical. At this writing, the text is not available on Congress.gov, but will be eventually. You can track their progress there. Meanwhile, you can read it from Sen. Sanders’ website at the link below.
The bill imposes a tax on all Wall Street stock and bond transactions, then creates a fund to hold that money.
It also has a plan to expand student work-study programs and offer free college education to all.
PUBLIC DEBT
This is the easy part. The bill requires that the federal government buy the debts from all government agencies that issue student loans. The Secretary of Education will then forgive all student debts within 180 days after the bill becomes law.
All of that is pretty straightforward. The hard part is next.
PRIVATE DEBT
Private debt is a whole different story.
The government doesn’t own private debt. Private banks do. Those loans are the banks’ accounts receivable – their property, their assets. Businesses can buy and sell assets at will.
So your bank can sell your loan to another entity, but they don’t have to.
The Fifth Amendment to the US Constitution says that if the government takes your private property, it must pay you “just compensation”. That means market value. The process of taking property is called eminent domain.
So the government can not simply cancel all private debt.
The government will buy all outstanding principal, accrued interest, and late fees with tax dollars from the fund.
It won’t pay anything for future interest. Some banks will sell; some won’t, because they’ll lose the opportunity to make millions on that interest. So what if the banks don’t want to sell? There’s no provision in the bill for that. If the government tries to force the sale by eminent domain, they’ll be in court for a LONG time. Court battles will consume a whole bunch of money.
Because of their creative accounting, most banks will pay probably pay no taxes that sale.
Loan forgiveness is not automatic. Student debtors with both public and private loans must apply for forgiveness.
If they don’t apply, they won’t get it. And we all know people who won't do the paperwork.
LEGISLATIVE PROCESS
This is far from a done deal. The Senate Finance and the House Education and Labor Committees will review the bills. They will decide whether to hold hearings, recommend floor votes, or ignore the bills completely. The full House will most likely vote on it. Senate Majority Leader Mitch McConnell refuses to advance any Democratic bill and will probably refuse even to mention it.
Even if it does get through the committees, there’s a snowball’s chance in Mt. Kilauea that this bill will pass intact. There will be many amendments, but we don’t yet know what they’ll be. We could end up with something that no one wants.
This is where you come in.
If you like this plan, start lobbying for it.
Nothing moves in Washington unless someone pushes it.
Lobbying is not what the media tells you it is.
Lobbying is the effort to convince local, state, and federal officials to support or oppose legislation and policies reflecting your positions. Everyone can do it. It doesn't cost a dime.
Learn how to lobby at the link below.
Start with the House and Senate committee members. Those links are below too.
You may have spent years repaying your student loans. I did too.
No, you don’t get a refund. Be a part of making life better for those who follow you.
Pay it forward.
For More Information:
Read the Constitution
History of Student Financial Aid
S.1947 - A bill to amend the Higher Education Act of 1965 to ensure college for all.
HR 3472
Sanders Bill Text
Forbes Magazine: Student Loan Debt Statistics
Investopedia: Who Actually Owns Student Loan Debt
Magnify Money: How to Know If Your Student Loans are Private or Federal
Senate Finance Committee
House Education and Labor Committee
Photo Credit: CommonDreams.org
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