Sen. Elizabeth Warren (D-Mass.) vowed to wipe out existing student loan debt for most Americans while making college tuition free for future students, should she beat President Donald Trump in the 2020 presidential race.
According to her proposal, 42 million of the 45 million Americans with student loans would have as much as $50,000 of their loans wiped clear. Depending on their income, 75 percent of student loan carriers would have their debts fully forgiven.
She believes this policy is necessary to revitalize the economy because young adults will have the financial liberty to start a business, buy a home, or otherwise participate in the economy at a large scale.
After she wipes out most people’s debt, Warren would have the federal government foot the bill for any American’s two- or four-year degrees. The senator claims the plan would “give every American the opportunity to attend a two-year or four-year public college without paying a dime in tuition or fees.”
She plans to pay for the loan forgiveness and future tuition-free higher education system with her proposed “Ultra-Millionaire Tax.”
Watch Warren explain her proposal:
I’m calling for universal free college and the cancellation of student loan debt for more than 95% of Americans. This is the kind of big, structural change we need to make sure our kids have opportunity in this country. pic.twitter.com/KERw3APDMo
— Elizabeth Warren (@ewarren) April 22, 2019
While Warren and her supporters see this as an easy way to address the student loan crisis in America, her proposal could just throw fuel on the fire. Here are a few ways Warren’s proposal to address student loans could backfire:
Warren’s plan is a bailout for students who made poor financial decisions.
No student is forced to take out student loans. Some students decide to go to colleges and universities they cannot afford and take out student loans. For some education pathways, such as medicine or engineering, taking out student loans is an investment that can later turn into a high-paying job that will allow the student plenty of income to pay off those debts.
Other academic pathways don’t guarantee high income and leave students strapped with debt they can’t afford to pay off. That is a poor financial decision.
Warren’s plan is a bailout for those who decided they would take on debt to pursue a four-year degree in an academic area that isn’t valued by the economy. Every year, millions of Americans decide not to take out student loans and, instead, attend low-cost trade schools or use their high school diploma to find work — both of which are financially sound decisions that don’t require the bailout Warren proposed.
Warren’s plan would provide government assistance to people who are already better off financially.
According to the Pew Research Center, Americans with four-year degrees earn an average of $17,500 per year more than people without a degree. A Georgetown University study found that college graduates make $1 million more over a lifetime than high school graduates.
While there is an argument that Warren’s universal free college could help low-income families, her loan forgiveness proposal is a redistribution program that would only help those who are already better off.
Warren’s plan unnecessarily incentivizes four-year degree programs.
As IJR previously reported, former “Dirty Jobs” host Mike Rowe has been working to get more students to consider going to trade school. Not only do students dodge massive student loans, but they also have excellent employment opportunities.
“We have 7 million jobs that are currently available, 75 percent of which don’t require a four-year degree,” Rowe said in an interview with Fox News.
A four-year degree isn’t necessary to fill the holes in the U.S. economy. Warren’s plan creates an incentive to get a degree that isn’t needed for most high-demand career paths.
Warren’s plan doesn’t address skyrocketing tuition rates.
In her proposal, Warren wrote:
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.
She’s right about the problem, but her solution won’t address it. As Warren noted in her video, she could go to school for $50 per semester, which was easily affordable with a part-time job.
But affordability went out the window with easy access to student loans. Universities could continue to raise tuition to rates that students couldn’t afford because the loans would always come through. If no one can afford to go to a school or has access to loans, the university would either lower its prices or shut its doors forever.
In her current proposal, Warren has no method to force universities to keep prices low or discourage administrative bloat.
Warren’s “Ultra-Millionaire Tax” payment plan is uncertain.
As the senator points out, the “Ultra-Millionaire Tax” is a 2 percent tax on households with a net worth of $50 million or more —meaning this is a wealth tax, not an income tax.
For example, if an individual has a total net worth of $50 million — including homes, land, and vehicles — and an annual income of $1 million, he or she would still pay $1 million in taxes.
This could bring in a lot of money, but as a report from NBC noted, wealth taxes are inefficient and hard to enforce because the IRS does not have an easy way to make people disclose their full wealth, and they could bring in much less money than Warren projects.
Beyond the uncertainty of the full revenue from the tax, it would also need to pass Congress in addition to the other legislation needed to pass universal free college and the loan forgiveness — two battles that would be uphill, to say the least.
Please note: This is a commentary piece. The views and opinions expressed within it are those of the author only and do not necessarily reflect the editorial opinion of IJR.