Massachusetts Senator and Presidential candidate Elizabeth Warren raised some eyebrows last week when she rolled out an ambitious plan to forgive 75% of all American student loan debt. Under her plan, up to $50,000 of debt will be canceled for everyone earning less than $100,000 and lower amounts will be canceled for those earning up to $250,000.
Warren says her end goal is for college to be seen as a public good in the same way we see K-12 education. What makes her plan different is that it is more fleshed out than any similar proposal from her competitors. But whether it’s Warren’s debt forgiveness plan or Bernie Sander’s shouts of “free college for all,” I have problems with any plan to erase large amounts of federally-owned student loan debt.
I have a friend named Kelly. Kelly did well in high school, immediately went to a state university, got a degree in mathematics, and in the process, accumulated a fair amount of debt. After school, Kelly got a decent paying job, but she decided to live with her parents and pay off her debt before she moved out. Kelly was mocked relentlessly for being a 24-year-old college graduate living with her parents, but by 26 she had completely paid off her school debts and was moving out on her own.
Kelly had debt and made sacrifices so that she could pay that off quickly. Now that she’s debt free, should she be responsible for helping pay off the debts of others?
What about me? When I was choosing where to college, I made the decision with money on my mind. I ended up going to the school that gave me the best financial package, which I knew would allow me to graduate debt free. Had money not been a factor I’m not sure where I would’ve ended up because I would’ve been making a different calculus. I made choices to avoid having to pay off college debt. Should I be obligated for helping pay off the debts of others?
We could list off others. Patrick who went to the trade school. Joe who took a gap year to work, then spent two years at the community college, and finished his program at the state school with more debt on his car than from college.
This counter-argument is usually that Kelly or Joe now enjoying a middle-class life debt free will not be the ones paying for the debt. The rich will. This is true in a sense. Warren’s proposal says that the $1.75 trillion price tag (no insignificant amount of money) will be financed through her wealth tax on ultra-millionaires. I’m going to ignore questions about the wealth tax and assume that it will work the way Warren expects it to. But even if this is the case, this isn’t a legitimate distinction. Something being paid for by taxpayers makes it a public expense. As a member of the public, that makes it my expense. If our government spends money on something, I as a member of this political community and a taxpayer am spending money on something.
Going around Twitter last week was an argument that this wouldn’t be an expense at all. The government owns college debt, so them forgiving it doesn’t actually cost than anything. The problem is that repaid college debts are counted among future government assets, so this doesn’t quite check out either. Student loan forgiveness is not a cost in that it will require the government to spend money, but it is a cost in that it decreases the money they will receive down the line.
The problem with any of these student loan forgiveness plans is that they are subsidies for the middle class. A study by the Brookings Institute found that almost two-thirds of the benefits from Warren’s plan will go to the top 40% of earners, those making more than $68,000 a year. The top 20%, those making more than $112,000 a year, will receive 27% of the benefit, almost twice as much as the lowest 40%, those making less than $42,000 a year, who will receive only 14% of the benefit. That doesn’t seem very progressive to me. This is an inevitably of loan forgiveness. According to the Urban Institute, 64% of all student loan debt is owed by those making more than $52,000 a year. Debt is also owned disproportionately by those with graduate degrees, who will generally make more money than anyone else. To quote the Urban Institute, “the concentration of education debt among the relatively affluent means that some policies designed to reduce the burden of education debt are actually regressive.” Warren’s is no exception.
I’m also not sure whether more people going to college is an unqualified good thing. Some people, even very smart people, don’t learn well in a classroom. That is perfectly fine, but trying to force them into one, and in the process saddling them with college debt, doesn’t help anybody, especially if these kids drop out after a semester or two. Growing up in the northeast, the expectation that college comes after high school is very real. That worked out fine for me, but not everyone should or needs to go to college. Fine people end up biting off more than they are prepared to chew, which is why the largest proportion of borrowers (but the group with the least amount of debt) are those with associate degrees or less.
These proposals also ignore the problems of degree inflation, nor do they seek to solve the underlying problem of why college has gotten so expensive so rapidly. While I have used the word responsibility a lot, I believe there are options available to make college less expensive and debt more manageable. However, just because Elizabeth Warren made a proposal with numbers in it does not make it a legitimate answer to the problem. Her solution, like all student loan forgiveness programs, ends up inevitably an expensive subsidy for those who will go on to live quite comfortable. You want to help those who need help? There are much better options than this.