Sanders follows Warren's Lead - 'Bernie Sanders proposes canceling student debt for 45 million Americans'

[ProfessorDetective]

There's *already* such a tax. It's not really clear if it's actually tied to any major policy goal, though it has caused some minor headaches on a handful of campuses.

• The tax is 1.4%, which is probably too heavy given that endowments are designed to work off interest, which isn't much more than 2 or 3% in real terms. It may increase portfolio risk because the tax is static, but market returns are always variable.
• The tax doesn't apply on funds smaller than $500,000 per student. The tax is not phased in progressively - it's either 0% or 1.4%. So the incentive is actually to evade the tax with a paper forest of specially designed asset structures.
• It is a strong disincentive to letting universities build an endowment large enough to pay off their students' tuition. Only a couple actually even bother to try this in the first place, but the handful that do have scrambled for an exemption.
• An endowment tax is a sin tax on a public good. When people donate to an educational institution, that is a *good thing*. So why put up a roadblock?
• Even removing all $480 billion from college endowments could not resolve the full extent of the $1000+ billion student debt crisis.

A tax on endowments is this small, boutique thing. It can't actually solve the real, broad-based problems with the cost of worker training. Even if you confined yourself just to the student debt that ought to be discharged in bankruptcy, the math is off by 2 or more orders of magnitude.

So, genuine question, how SHOULD we attack this problem? I'm saying we cap how much the universities can charge to something much more reasonable, quash the predatory student loans practices and remove that bankruptcy exemption. (Why is that even in place, honestly? What makes student debt different enough to warrant special treatment?)

[BridgeConsoleMasher]

Where does all the tuition go anyway? Research?

Edit: Seems to be instruction and research.

[LittleRaven]

So, genuine question, how SHOULD we attack this problem?

Historically, if you want to lower the price of something, you have two options:

• Increase the supply.
• Reduce the demand.

Anything else is just an invitation to market manipulation.

So if you want college to be cheaper, we should either build a lot more colleges...which we could totally do, but which would be very expensive....or we should reduce the demand for college, which we could totally do, but which would be very painful.

(Why is that even in place, honestly? What makes student debt different enough to warrant special treatment?)

Generally, when a person gives you a loan, they want some form of collateral...something they can seize in the event that you default on the payments. If you buy a car, or a house...then the creditor can seize that asset if you fall behind, so they are quite willing to give you money. If you want another kind of loan, like, say, a business loan, then you're generally going to be asked to put something on the table....maybe business assets, maybe even personal assets.

Credit cards are NOT secured, and you can absolutely default on them with no more damage than a wrecked credit rating, but the credit card market works just fine because credit cards are completely discretionary - yeah, they're nice to have, but nobody NEEDS one.

But unsecured student loans have a few BIG problems:

• The people that need them often HAVE no assets...they're just out of high school for goodness sake. So they CAN'T put anything up as collateral.
• They're large. Like, REALLY large. College is EXPENSIVE.
• You can't repossess an education. So there's nothing for a creditor to seize if the student defaults.

So if we allow student loans to be discharged in bankruptcy, then what happens is that suddenly nobody wants to give a student a loan UNLESS that student is rich enough to have assets that they can put up as collateral. Which means only rich kids can get loans...and they're the ones that need them the least.

But we WANT people to be able to get student loans. So in an attempt to make the student loan market function, the government made student loan debt immune to bankruptcy. NOW the market can't write those loans fast enough, and will give one to anybody with a pulse, because they're the safest loans around....but that comes with it's own problems, as we're seeing.