Warren Proposes Student Loan Forgiveness and Free College
It's an interesting idea, although one fraught with moral hazard.
Elizabeth Warren is working hard to make herself the most progressive candidate in the Democratic field, outdoing even Bernie Sanders.
Sen. Elizabeth Warren on Monday proposed eliminating the student loan debts of tens of millions of Americans and making all public colleges tuition-free, staking out an ambitious stance on one of the central policy debates of the 2020 Democratic primary.
Student debt and college affordability have become a key dividing line in the Democratic race, between more progressive candidates who favor sweeping new tuition and student-loan benefits and others who support more incremental adjustments to the way Americans pay for education.
Warren’s new plan would forgive $50,000 in student loans for Americans in households earning less than $100,000 a year. According to analysis provided by her campaign, that would provide immediate relief to more than 95% of the 45 million Americans with student debt. The Massachusetts Democrat and 2020 contender is also calling for a drastic increase in federal spending on higher education that would make tuition and fees free for all students at two- and four-year public colleges and expand grants for lower-income and minority students to cover costs like housing, food, books and child care.
The campaign estimates that the plan would cost $1.25 trillion over 10 years.
The revenue from Warren’s wealth tax proposal — a 2% tax on wealth above $50 million and a 3% tax on wealth above $1 billion — would pay for her newest proposal, her campaign said. According to details shared by her campaign, the massive debt cancellation and free college plan additionally asks states to chip in to cover the cost of tuition and fees. Warren has also said her universal child care proposal would be paid for by her wealth tax.
Warren — a co-sponsor of Sen. Bernie Sanders’ 2017 legislation that would make four-year public colleges tuition-free for some students — said her new plan is “bigger” and “goes further” than Sanders’, who is also vying for the Democratic nomination.
“It covers more and it addresses both the access question of going to college and the problem of the debt burden for our students,” she said.
There is broad support among the Democratic presidential candidates for making college more affordable, though they differ on how to do so. Sens. Cory Booker, Kamala Harris, and Kirsten Gillibrand — along with Warren — are all co-sponsors of Sen. Brian Schatz’s Debt-Free College Act. It would establish a matching grant to states that commit to helping students pay for the full cost of attendance without taking out loans.
But other candidates — including Sen. Amy Klobuchar and South Bend, Indiana, Mayor Pete Buttigieg — have stopped short of embracing a free-college platform.
“I am not for free four-year college for all, no,” Klobuchar said at a CNN town hall in February, though she noted she would support making community colleges free.
Buttigieg has argued that free college would result in those who earn less because they didn’t go to college subsidizing those who did go to college and tend to enter higher-paying careers. But he has called for expanding Pell grants and incentivizing states to invest more money in higher education.CNN, “Elizabeth Warren releases sweeping student debt cancellation and free college plan”
Buttigieg isn’t the only one raising fairness issues. Philip Klein, the executive editor of the Washington Examiner, claims that the program would amount to “a slap in the face to all those who struggled to pay off their loans.”
The plan would be tremendously unfair to those who have been struggling for years to pay off their student loans.
It’s true, some people may simply earn too little to make a dent in student loans no matter how hard they work and no matter how much they reduce their expenses. But that doesn’t tell the whole story.
There are those who may have taken higher-paying jobs they didn’t necessarily want to pay off loans. And there are those who have cut expenses to the bare bones to pay off loans while watching their friends with similar salaries eat out and travel and de-prioritize paying off loans. Those who were more responsible will feel justifiably enraged at the idea that those who may have been more profligate will now get a bailout from the government.
This is the worst sort of pander from an increasingly desperate politician.
Klein’s tweet promoting the column
got “ratioed”—the phenomenon where replies vastly outnumber likes and retweets, indicating scathing disapproval. At this writing, there have been nearly 6000 replies compared to 906 likes and 203 retweets.
Klein updates his post in response:
[M]ost of the responses boil down to mocking my piece with sarcastic arguments structured as: “People have been enduring X and it’s bad, so we should oppose any policies that would prevent X in the future.” An example is: Saying student loan forgiveness would be unfair to those who struggled to pay off their loans would be like saying, we can’t cure cancer, because it would be unfair to those who already died from the disease.
Unlike those other examples, simply saying the government will cancel everybody’s loans does not solve the underlying issues associated with the rising cost of attending college in the same way that a theoretical cancer cure would actually eliminate the disease. This is only true if you believe government declaring something free is the equivalent of it having no cost.
Curing cancer would not have negative impacts on those who already suffered from cancer, whereas if the government were to take on the cost of student loans, it would be a burden that would be placed on other citizens either in the form of higher taxes or more debt. While Warren insists that her plan would be paid for by taxing ultra-millionaires, she has already promised that ultra-millionaires would be paying for a wide range of her policy proposals. In reality, should she be elected her agenda would not be able to be financed without higher taxes on the middle-class, as is the case in other nations with the type of social welfare state she envisions. Money is fungible, too, and a tax on ultra-millionaires being used to pay for student loan cancellation is revenue that is then not available to pay for other government priorities.
Those who made decisions such as going to a less expensive school that may not have been their top choice, taking a sub-optimal job, or living more frugally, will not receive the same benefits from government as those who went to the more expensive school, took the job they wanted, or lived in a more profligate manner.
Furthermore, there is no moral hazard issue involved with curing cancer. That is, paying off student loans would be another signal from the federal government that those who may be engaging in less responsible behavior will eventually be bailed out by government while those who make responsible decisions will receive no benefit. As we contemplate what to do about the long-term entitlement crisis, this sends a horrible signal — that there’s no reason to be a sucker and manage money wisely now, because at the end of the day, the government will always be there to step in.
While I don’t think the mocking tone in Klein’s original piece did his argument any favors, his premise is solid. It’s manifestly unfair to forgive the loans of people who haven’t paid them back while doing nothing to compensate those who have. Indeed, I see no rationale other than cost to treat like people differently in relief programs.
That said, while I have no doubt that this initiative is partly grounded in a desire to differentiate herself from a field that’s getting more crowded by the day, her motivation here strikes me as heartfelt. From her Medium post* linked from her campaign site:
I thought my dream of teaching was over. But then a friend told me about the University of Houston, a public four-year college about 40 minutes away. We were a young couple, watching every nickel. I figured I couldn’t afford it.
But it turned out that tuition was just $50 a semester. This was a quality, public education — and I could afford it on a part-time waitressing salary. This time, I had the good sense to grab my chance at college with both hands. I got my degree and I got to live my dream: I became a teacher for students with special needs.
Higher education opened a million doors for me. It’s how the daughter of a janitor in a small town in Oklahoma got to become a teacher, a law school professor, a U.S. Senator, and eventually, a candidate for President of the United States.
Today, it's virtually impossible for a young person to find that kind of opportunity. As states have invested less per-student at community colleges and public four-year colleges, the schools themselves have raised tuition and fees to make up the gap. And rather than stepping in to hold states accountable, or to pick up more of the tab and keep costs reasonable, the federal government went with a third option: pushing families that can't afford to pay the outrageous costs of higher education towards taking out loans.
The result is a huge student loan debt burden that’s crushing millions of families and acting as an anchor on our economy. It’s reducing home ownership rates. It’s leading fewer people to start businesses. It’s forcing students to drop out of school before getting a degree. It’s a problem for all of us.
We got into this crisis because state governments and the federal government decided that instead of treating higher education like our public school system — free and accessible to all Americans — they’d rather cut taxes for billionaires and giant corporations and offload the cost of higher education onto students and their families. The student debt crisis is the direct result of this failed experiment.
It’s time to end that experiment, to clean up the mess it’s caused, and to do better — better for people who want to go (or go back) to college, better for current students, better for graduates, better for their families, and better for our entire economy.
I’m skeptical that Warren’s personal example is widely generalizable. She’s an extraordinarily intelligent and hard-working individual who actually had an academic scholarship coming out of high school. Because she’s a woman and of a generation where women dropped out of college upon marriage, she did just that and delayed her education. But she was uniquely suited to rebounding and doing so spectacularly.
Her larger point, though, is one that most people over a certain age—perhaps even including Klein—don’t get: the cost of tuition has skyrocketed in recent years.
I managed to get three degrees from state universities (with a stint in the Army in between the second and third) without incurring debt. But my tuition for my undergrad degree was a mere $400 a semester ($895 in today’s dollars) and $525 ($1,128) for the master’s. It’s now $324 per credit hour—$5832 for an 18-hour load; $6804 for the 21-hour load I typically carried to speed my way through. That’s almost an eightfold increase in real dollars. And that’s not even looking at fees, books, housing, and other expenses. It’s a game-changer.
Warren is right to want to do something about it. Whether her plan to do this by increasing taxes on the highest earners is the right way to finance it is another question.
And so are the moral hazard questions.
I think Buttigieg’s concern that blue collar workers who didn’t go to college will wind up financing those who do go is likely to have more traction than Klein’s concern over those who went to college and paid their loans on time. But both are valid.
Those are solvable issues. Maybe we should tie loan forgiveness to public service, giving those who go into teaching or other occupations relief. Or maybe we should give people who took out loans from for-profit schools and had a rough time turning their degrees into well-paying jobs special consideration. In both cases, we could treat people who’ve met their payment obligations on an equal basis with those who haven’t.
Perhaps more importantly, it’s worth questioning Warren’s central premise that we ought encourage everyone to go to college—let alone a four-year bachelor’s program. Again, very few people are Elizabeth Warren.
*I find it amusing when public officials use third-party sites rather than self-hosting these messages. This is especially ironic in the case of Medium, which limits readers to four “free” articles a month before demanding access to their Facebook and Google accounts for data mining—a practice Warren and others rightly decry.