What would happen if we forgave student debt?
Two weeks ago, fellow Democratic presidential hopeful and former Obama administration official Julian Castro released his own plan to make public universities free and defer student loan repayment until the person is making more than 250 per cent of the federal poverty line.
This week, an American billionaire likely enshrined himself in the hearts of heavily indebted folks everywhere by announcing that he planned to pay off the student loans of this year’s graduating class at Morehouse College in Atlanta to the tune of $40 million.
Those graduates are “lucky,” says Erika Shaker, director of the education project at the Canadian Centre for Policy Alternatives — and therein lies the issue.
“The problem is freeing our young people from that system shouldn’t be because they were lucky or because they happened to be at that university at that time.”
If Shaker is grateful for anything, it’s the attention those presidential hopefuls and that philanthropic billionaire have focused on the issue of student debt. Just look at the stories tagged with the Warren-led Twitter hashtag #CancelMyDebt.
In Canada — where the post-secondary education system is differently structured, but debt levels are nonetheless an issue — what would happen if we repaid everyone’s student loans?
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People are worried about debt
Debt has a shackling impact, Shaker says. It causes some people to put off having kids, delay buying houses or even just remain living in their parents’ basement.
Canada’s post-secondary education system is cobbled-together as a “part-public, part-private, part-corporate funding model,” she says. Different provinces have different qualifying rules for student loans and grant money, and even those rules can change, as evidenced by the Ontario government announcing in January that it would cut tuition fees by 10 per cent and eliminate free tuition for low-income students.
“We’re in a situation where things really changed very radically,” Shaker says. That can impact the choices people are able to make around whether or not they can actually afford to go to university or college at a given time, or at all.
“By downloading these costs onto students and their families, they’re in a more precarious position after they graduate because of the debt you’ve had to accumulate … and the anxiety that comes with knowing you have to pay it back quickly, you can’t fall into arrears.”
Debt anxiety features heavily in the response to #CancelMyDebt:
What student loan forgiveness could look like
Under Castro’s plan, public college attendees would see their repayments deferred until they earn more than 250 per cent of the federal poverty line. After that, they would pay up to 10 per cent of their qualified income each month and, after 240 monthly payments (20 years), they would receive “non-taxable forgiveness” on whatever remains.
Under Warren’s plan, the government would pay a one-time cost of US$640 billion to wipe out student debt for roughly 42 million Americans whose household incomes are less than $100,000 as well as approximately $1.25 trillion over 10 years to cover tuition at public colleges, in addition to expanding certain grants for low-income students and education funds for historically black colleges and universities.
Starting in August, Nova Scotia undergraduate students who are staying to study in the province will not have to pay back provincial student loans, according to the Coast. And while some acknowledge it as a “step in the right direction,” they’ve been clear that it won’t help the out-of-province students who make up nearly half of Nova Scotia’s student population.
How people feel about forgiving student loans
The online reaction to Warren’s plan is mixed. While some are keen, sharing personal stories of lingering and debilitating debt, others decry what they call a “free pass.”
Shaker says it doesn’t solve the underlying issues.
“We’re really talking about applying a partial Band-Aid to the situation after the fact, rather than actually acknowledging that the issue is the degree to which students can actually access a post-secondary education, which we know is good for them, and it’s good for all of us,” she says.
Linyuan Guo-Brennan, an associate professor in the faculty of education at the University of Prince Edward Island, says it’s neither a good nor bad thing because it’s not actually about education. What it is, she says, is an economic question.
“Is it practical and workable in a Canadian context? Probably not,” she says.
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Bringing student loan forgiveness to Canada
One of the main reasons Guo-Brennan says forgiving Canadian student loans wouldn’t work is money. If we’re forgiving them, where is that money coming from?
“The obvious answer is from federal tax or provincial tax,” she says. But then there are always concerns around what impact higher taxes might have: less motivation for innovation? Businesses choosing other countries for investment opportunities?
Canada is ripe for a conversation about the value of higher education when it no longer comes with the same guarantee of a good job and steady income, Guo-Brennan says, but the solutions conversation needs to consider social, cultural and economic impacts. Too often, she says, we’re focused on the former and not the latter.
“What are the consequences or impact of this decision on the other citizens who are paying for higher education?”
WATCH: Students still struggling to pay off debt years after graduation
There are also many logistical considerations, says Dan Lang, a professor emeritus at the University of Toronto. For instance, Canada has a number of education tax credits — if we forgave student loans, would those be axed? And if that was the trade-off, would Canadians want that?
“If we’re trying to address that rising cost problem, we have an array of options that simply don’t exist in the United States,” Lang says.
Alternatives to a ‘blanket payoff’
Brenda Spotton Visano is a professor of economics and public policy at York University. She works with students to help “rehabilitate their debt.”
While Spotton Visano isn’t in favour of a “blanket payoff,” she says there are a group of students who would benefit from, and who are entitled to, having their student loans paid off or significantly reduced.
There is a group of low-income students who are strapped for cash that Spotton Visano says should have “student debt repatriation,” as well as a group “forced” due to student loan programs to take on higher debt levels.
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Those people are the students Shaker alluded to earlier: those caught amid changes to how student loans and grants operate. Changes in Ontario are such that students graduating in 2005 and 2010 have more loans than their counterparts graduating in the same circumstances in 2015, Spotton Visano says.
While we need to talk about support for those people, on one point Spotton Visano is unequivocal:
“I absolutely oppose using public funds for people who have the funds to pay their own debt.”
—With files from the Associated Press
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