The Independent Vermont Senator has a track record of solid financial strategies that he’s proposed to help with common American economic problems, such as closing the gendered and racial wage gaps, a minimum wage that allows the earner to afford basic housing, and taxation on Wall Street to help balance the wealth distribution back to favor the middle- and lower-classes.
Despite Sanders’ Many Strong Economic Plans, His Student Loans Ideas Flounder
But Senator Sanders’ statements on the astronomical cost of student loans doesn’t make nearly as much sense as his other economic strategies. While the sentiment he expresses is both common and valid; that the rising cost of student loans are crippling the middle class and keeping younger Americans from being able to save any money, and preventing their parents from retiring– his statements reveal some flaws in his thinking.
Here are a couple of his recent Tweets, where the problem in his plans for student loans reveals itself:
“It makes no sense that students and their parents pay higher interest rates for college than they pay for car loans or housing mortgages.” — Bernie Sanders (@BernieSanders) October 15, 2015
“It makes no sense that you can get an auto loan with an interest rate of 2.5% but millions of college graduates are forced to pay 7% or more” — Bernie Sanders (@SenSanders) October 25, 2015
The way loans are priced is a frustrating thing. It’s not necessarily fair. The poorest people don’t get the best loans… they get the worst ones. For many borrowers, it’s the most stressful thing in their lives. But even if it’s not ideal, there’s a method to the madness of loan rates.
Why Student Loans Are More Expensive Than Other Loans
Student loans are typically more expensive that mortgages, car loans, or registration loans in Arizona. That’s because there’s no collateral involved in student loans, so the rates are higher. When there’s no asset to back the loan, such as the assets of equity, property, and so on, the lender is putting at greater risk. So they up the cost to compensate for the risk that they’re taking.
If a borrower defaults on a car loan, the bank can repossess their car to cover some of the money that the borrower owes. What’s a college going to do if you default? Take away your diploma? Again; Sanders is right in saying that it’s a frustrating situation that plagues millions of Americans. But that doesn’t mean that completely eliminating tuition for college students is the answer.
Sen. Sanders’ Arguments Are Fair, But His Solution Isn’t Feasible
True, it doesn’t seem ethically sound for purchasing a home to cost less than a college education. According to the traditional American Dream Plan that Baby Boomers enjoyed, you’re supposed to be able to pay your way through college with a minimum wage part-time job which turns full-time in the summers, then you’ll automatically score a well-paying job in your chosen field immediately upon graduation, so you’ll be able to purchase a home and afford to support a family within a few years.
We already know that system is broken. And Sanders’ lamentations on behalf of the countless Americans who are financially frustrated, left stagnating, is well-founded. But eliminating college tuition and/or substantially lowering student loan rates isn’t the answer. A better solution still eludes lawmakers.