Total student loan forgiveness proposals have the potential to create moral hazards for both current and future students, as well as existing student loan borrowers.
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Democratic presidential candidate, Sen. Bernie Sanders, I-Vt., flanked by Rep. Ilhan Omar, D-Minn., left, and Rep. Pramila Jayapal, D-Wash., right, calls for legislation to cancel all student debt, at the Capitol in Washington, Monday, June 24, 2019. Sanders called the student debt burden in this country the absurdity of sentencing an entire generation, the millennial generation, to a lifetime of debt for the crime of doing the right thing.
But costs and rising tax bills are only two problems that will plague student loan forgiveness on such a broad scale. There are much more egregious moral hazards to be aware of — hazards that could lead to a whirlwind of consequences for pretty much everyone involved, and especially taxpayers.One of the biggest moral hazards of Warren’s plan is that it punishes people who put their college degrees to good use — as in, to earn a lot of money.
On the flip side, someone who borrowed $150,000 for a bachelor’s degree in general studies and works only part-time would likely see some of their loans forgiven. How fair is that?According to financial attorney Leslie Tayne of, it really boils down to the fact that you’re asking taxpayers to cover individual decisions regardless of how good or bad they are. And the fact the plan only involves additional taxes for “the rich” right now is a sign of higher costs for all of us down the road.
“So many fell through the cracks, and things were often made worse for the mortgagee,” says Tayne. “The banks and government-backed loans had options to manage, so the debts were not written off.”Another problem — student loans are held by consumers who hopefully got a college degree out of the deal. This means they have a better shot at finding higher-paying employment than someone with only a high school diploma.
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