On Monday, Bernie Sanders (along with Rep. Ilhan Omar and Rep. Pramila Jayapal) introduced bills in the Senate and House to forgive all student loan debt. Before this is dismissed as another crazy socialist idea, take a moment to consider that this is not simply a free handout that he is championing. Much like the Housing Bubble that nearly crippled the U.S. economy in 2008, the rising tide of student loan debt appears to be the next big bubble. Finding a practical solution before the next economic downturn is critical to keeping the economy strong.
There is certainly a human factor to take under consideration. Similar to the subprime loans that were offered in the mortgage industry prior to 2008, student loans are often offered to children and young adults who have yet to establish credit or obtain jobs. Any teenager that walked in and asked for a $100,000 small business loan without collateral or a job would be laughed out of the bank, regardless of how great of a business idea they have. That is not the case for student loans.
Several of my attorney friends have been caught in the bubble. One in particular provided numbers when I pitched this article idea to her. She graduated from law school with $93,000 in student loan debt at 24 years of age. After 10 years of paying $700-1000/month (which equals my mortgage payment during that time) and without missing a single payment, she now owes $103,000. Even if you take the low end of $700 x 120 months (10 years), you realize she has paid more than $84,000 back to end up $10,000 in the hole.
Her situation is not an isolated incident. Another attorney provided an original loan amount of $82,000 on a Stafford Student Loan. After paying $20,000 on it, she was sickened to learn that only $4,500 was applied to the principal. The loan balance is now over $98,000, a $16,000 deficit.
This type of predatory lending is not sustainable, and borders on criminal. It is not an unfunded mandate to ask Wall Street to pay back Main Street for the 2008 bailout, and tuition forgiveness is one of many fair avenues to do so.