Student debt reform is a major issue within the upcoming 2020 presidential election. Two democratic champions, Elizabeth Warren and Bernie Sanders, wish to completely wipe out student debt if elected into office. The proposed debt reforms have a striking resemblance to the debt reform policies enacted by Solon’s seisachtheia in ancient Athens. The democrat’s debt policy resembles Solon’s seisactheia in the proposed implementation and the projected outcomes.
Elizabeth Warren intends on wiping out student debt day one in office via a means of an executive order (Mic). Waiving debt is the same thing Solon did once stepping into power. As a direct result of Solon’s policies peasants found it difficult to take out loans from the rich, which would have a resemblance to Elizabeth Warren’s proposal to start canceling student debt. Many organizations would immediately lose future revenue and would be costly as the chance of gaining back money would be slim. The low chance of recovery comes from the estimated six hundred forty billion dollars that would have to reimburse upon the executive order being issued (Mic).
At the same time the borrowers would be affected too, as the removal of a loan would affect their credit score (Market Watch). The immediate removal of a long term loan would be the same as removing a credit card with a long history, because credit score reporting agencies would have one less source to verify the credibility of borrowers. While not the same as what happened with the peasants of Athens it is similar because a lowered credit score may reduce the chance of approval for future loans. Simultaneously, under current income tax, laws those who are given debt forgiveness will have to pay taxes as if the loan was added to their income, which means that they can be put into a higher tax bracket (Market Watch). This is unfavorable because should someone owe taxes, as a direct result of debt relief, would still owe money to the Internal Revenue Service. By owing the Internal Revenue Service money the former borrower does not benefit as it does not support their credit score by paying the government rather than a lender. If the former borrower then owed taxes and held no other income other than the loan then the credit score of the borrower would be affected even more. Credit.com says on the issue of owed taxes affecting credit score, “And since the IRS can garnish your wages and put levies on your property, it could make it harder to pay other debts, creating a slippery slope that leads to a drastic drop in your credit score,” (Credit).
While many cons exist about the student debt relief there are positives that would be enjoyed with the debt reform. A study of ten thousand borrowers found that debt relief actually benefited them because most had defaulted on their loans before (Market Watch). Getting rid of the negative of defaulting on a loan is good for the borrower in terms of credit score, but it does not apply to all who would be affected by student debt relief. Many Americans are burdened by student debt, but it does not mean that all who are burdened by debt do not have the means to manage said debt. The resulting aftermath of removing a long term loan that has been consistently paid on time would negatively impact the credit score of the borrower.
As a direct result of student debt relief many of the borrowers would see long term impacts on their credit scores and will have a hard time taking out future loans due to a low credit score. Low credit score also means that the borrowers taking out loans will have higher interest rates on future loans, which will already lower their usable income. Both Sanders and Warrens’ plans for student debt relief while promising on paper would actually be catastrophic in practice just as Solon’s ancient policies affected Athens.
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Edited by: 4/C Metz