You are using an older browser version. Please use a supported version for the best MSN experience.

Elizabeth Warren: It’s time to end the ‘failed experiment’ that caused the student debt crisis and cancel borrowers’ debt

MarketWatch logo MarketWatch 4/22/2019 Jillian Berman

Replay Video
Video by GeoBeats

For the past few years, a handful of economists and politicians have advocated for cancelling student debt. On Monday, that idea went mainstream.

As part of her campaign for the Democratic nomination for president, Sen. Elizabeth Warren, of Massachusetts, released a proposal that would provide significant student loan relief for a large share of borrowers.

Under her plan, borrowers with a household income under $100,000 would have $50,000 of their student debt cancelled. Borrowers with an income between $150,000 and $250,000 would be eligible for some debt cancellation, though not the full $50,000, and borrowers earning $250,000 or more wouldn’t have any of their debt cancelled.

In addition to cancelling debt on the back end, Warren is also proposing to make college more affordable on the front end by making public college tuition free and expanding the Pell grant program, which provides money to low-income students to attend college, by $100 billion over the next 10 years.

All told, the plan would forgive an estimated $640 billion in debt. The entire proposal would cost $1.25 trillion over 10 years, Warren’s camp estimates, and Warren is proposing to pay for it through a tax on the super rich.

a person wearing a costume: Sen. Elizabeth Warren, a Democrat of Massachusetts, is proposing to cancel a large share of student debt. (Photo by Drew Angerer/Getty Images) © Getty Images Sen. Elizabeth Warren, a Democrat of Massachusetts, is proposing to cancel a large share of student debt. (Photo by Drew Angerer/Getty Images) Warren’s proposal to address student debt and college affordability is the most dramatic to emerge in the presidential contest. Most of her opponents have expressed support for some sort of tuition-free college, but none has discussed large-scale debt cancellation. It’s also arguably the first effort by a major politician to walk the political tightrope between offering a student loan and college affordability proposal that’s clear and universal enough to gain broad support, but also targeted enough to provide the most relief to those struggling the most under the weight of their debt.

‘Where this plan is pretty elegant is it says in order to have a sustainable palatable policy for everyone we need to include as many people as possible in this’ — — Mark Huelsman, associate director of policy and research at Demos, a left-leaning think tank

“Where this plan is pretty elegant is it says in order to have a sustainable palatable policy for everyone we need to include as many people as possible in this,” said Mark Huelsman, associate director of policy and research at Demos, a left-leaning think tank, who also authored college affordability proposals that have been influential in Democratic presidential politics.

At the same time, Warren’s plan “also ensures that those who are most likely to struggle with debt don’t have debt anymore or never have to borrow for college again,” Huelsman said.

Who Warren’s proposal would benefit

Over the past several years, critics have derided proposals to cancel or make student debt less onerous because they worried that the benefits would flow largely to those with the most debt — which often means borrowers with the highest incomes (think health care professionals or others with six-figure debt, but also high six-figure salaries). By tying the debt cancellation to income, Warren’s plan may address some of those concerns. 

An analysis produced by professors at Brandeis University, Arizona State University and the University of Tennessee and distributed by Warren’s campaign found that 90% of households headed by someone who attended but didn’t complete college would receive full student loan cancellation under her plan. Just 28% of households headed by someone with a doctoral or professional degree would receive full cancellation under the plan.

Black and Latino borrowers would also benefit more from Warren’s proposal. Research indicates that student debt exacerbates the racial wealth gap.

See also: Where the 2020 candidates stand on student debt and college affordability

Warren’s plan takes a similarly broad but targeted approach to college affordability. One of the main complaints leveled against proposals for tuition free college is that it’s a giveaway to middle and upper-middle class families while failing to address the needs of low-income students. These students are likely to have their tuition covered by a Pell grant and other funding sources, but struggle to afford living expenses.

By making college tuition free and expanding the Pell grant at the same time, Warren’s plan would lighten the load for middle and upper-middle class families struggling to pay tuition while also working to cover other expenses for low-income students. “Not everyone gets the same flat benefit, but it’s the same guarantee,” Huelsman said.

Warren: The opportunities I had aren’t available today

Warren framed her proposal as a necessary antidote to policies from both the federal and state government, which has shifted the cost of college away from these entities to students and families over the past few decades.

In a post on Medium, Warren highlighted how a system where the government footed much of the bill for higher education allowed her to attend college and ultimately law school, despite her and her family’s shaky finances.

“Today, it’s virtually impossible for a young person to find that kind of opportunity,” Warren wrote in the post, because of a lack of investment in higher education from state and federal governments.

‘The student debt crisis is the direct result of this failed experiment.’ — — Sen. Elizabeth Warren, a Massachusetts Democrat

“The student debt crisis is the direct result of this failed experiment,” Warren added in the post. “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.”

In addition to the more headline-grabbing provisions, Warren’s proposal also includes elements that reflect her history as one of the fiercest critics of the student loan and for-profit college industries. For example, she’s proposing punishing student loan companies and executives when they violate the law and cutting off for-profit colleges from federal financial aid.

Though Warren’s proposal may shift the student loan and college affordability conversation in the Democratic primary, it’s unlikely to become a reality in its current form, even if she’s elected president.

Related slideshow: Photos of Elizabeth Warren campaigning for president (USA TODAY)


A bold proposal that’s a long way from becoming reality 

That’s because Warren would need Congress’ help and many elements of the plan will likely stoke the ire of congressional Republicans and the lobbying organizations of private nonprofit colleges and for-profit colleges, said Robert Kelchen, a professor of higher education finance at Seton Hall University.

For one, Warren is proposing cutting off federal financial aid funding to for-profit colleges. Lawmakers have been engaged in vigorous debate over the past several years about how to hold for-profit colleges accountable when they’ve been accused of luring students with misleading promises only to leave them with high student loan debt and little to show for it.

In addition, there’s already short history of pushback from the private non-profit college lobby to proposals that would make public colleges less expensive. Many private colleges are already struggling to attract students and maintain their finances. A plan that makes public colleges closer to free “could end up resulting in a number of private colleges closing and those tend to be politically popular institutions,” Kelchen said.

What’s more, congressional Republicans may also be concerned about the boost the plan gives to college graduates who may be held back by their debt from buying a home or car, but who will ultimately pay it off and wind up OK, Kelchen said. That it doesn’t benefit borrowers who worked to pay off their loans more quickly and arguably takes away some of the “skin in the game” students may have in college could also prompt criticism, Kelchen said.

Finally, there’s the plan’s estimated $1.25 trillion price tag, which Warren says will be covered by a tax on the super rich. Those who want to criticize the plan could frame it as a tax increase, Kelchen said.

But of course, those critics likely aren’t Warren’s target audience. The plan is “definitely aimed younger adults who are the driving force of the Democratic party right now,” Kelchen said.

AdChoices
AdChoices

More from Marketwatch

image beaconimage beaconimage beacon