Why “Debt-Free” College Will Upset Some Students

In a major higher education policy proposal, former Senator and current Democratic presidential frontrunner Hillary Clinton recently announced plans for higher education reforms that come close to debt-free college by increasing grant aid to students and reducing interest rates on current loans. She is following in the footsteps of the other two main candidates for the Democratic nomination—Vermont independent senator Bernie Sanders and former Maryland governor Martin O’Malley—both of whom have called for some sort of debt-free higher education option.

Putting aside the substantial cost to federal taxpayers ($350 billion over 10 years) and state governments (unknown at this point) for a while, any plan for student loan reforms or debt-free college should make those who know the burden of student loan debt happy. Right? Perhaps not so much. A somewhat similar example comes out of Seattle, where credit card processor Gravity Payments announced earlier this year that its employees would be paid a minimum of $70,000 per year. Again, this is an idea that sounds great—essentially double the wages received by lower-level employees and get an outpouring of good publicity. However, although Gravity signed up a number of new customers, the company has faced some unexpected opposition.

As detailed in a recent New York Times article, Gravity lost a number of existing customers over fears that increasing wages would result in higher future charges, even though the CEO cut his salary to partially pay for the wage increases. That doesn’t really have a corollary to higher education, but the other key point in the article does. Gravity lost two employees making over $70,000 per year as a result of the wage increase for everyone else, as they did not feel valued in a company that paid lower-skilled workers similar amounts to what they earned.

This raises an important point—whenever a program such as a dramatically higher wage floor, student loan reforms that reduce borrowing costs, or debt free college is introduced, at least some similar people who do not qualify for the new program are likely to be upset. Consider the case of a student who just finished repaying $15,000 in student loans by making additional payments in order to become debt-free as soon as possible. She may have sacrificed by working additional hours while in college, attending a less-selective college, and forgoing buying a newer, more reliable car. If the terms on student loan debt change in a way that essentially reward a student who borrowed $35,000 in order to not work in college and enjoy a slightly higher standard of living, it’s reasonable to expect the student with less debt to be upset. (Let’s also not forget the group of lower-income students who are debt-averse and will do anything not to borrow for college. They wouldn’t benefit from any student loan reforms.)

A move to debt-free college works in a similar way, as students who go to college after such a program is instituted get to benefit, while students who attended a few years earlier get nothing. This is happening to some extent in states like Tennessee, where all students can go to a community college tuition-free, and there is no constitutional amendment saying that life must be fair for all. But when plans for debt-free college and reducing student loan burdens get introduced, let’s not forget that some people will get upset because they perceive themselves as getting the short end of the stick. And when presidential campaigns try to build up support, they should do everything they can to make this group happy.

Author: Robert

I am an a professor at the University of Tennessee, Knoxville who studies higher education finance, accountability policies and practices, and student financial aid. All opinions expressed here are my own.

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