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Thread: Elizabeth Warren's student debt forgiveness plan - a common critical blind-spot

  1. #1

    Default Elizabeth Warren's student debt forgiveness plan - a common critical blind-spot

    EW's latest expansive reform proposal calls for universal free public college, as well as cancelling up to $50k in student debt for people with household incomes up to $100k. In addition,

    It provides substantial debt cancellation for every person with household income between $100,000 and $250,000. The $50,000 cancellation amount phases out by $1 for every $3 in income above $100,000, so, for example, a person with household income of $130,000 gets $40,000 in cancellation, while a person with household income of $160,000 gets $30,000 in cancellation.

    It offers no debt cancellation to people with household income above $250,000 (the top 5%).
    https://medium.com/@teamwarren/im-ca...f-a246cd0f910f

    This proposal has drawn the expected critical response from both left and right, but all these critics appear have a blind spot. I draw this conclusion from their universal fondness for the argument that people with student debt don't need (and/or shouldn't get) debt forgiveness because these predominantly middle-class people with degrees have a massive lifetime earnings premium that allows them to repay their loans.

    This is more or less true, but what these critics neglect to consider is that the six year graduation rate in the US is just under 60%. Most (but not all) of those 40% who don't graduate in six years don't graduate at all, but the vast majority nevertheless also accrue student debt--which most struggle to repay. Those who drop out are disproportionately likely to be from low-SES backgrounds, and financial struggles contribute to their risk of dropping out (eg. due to having to work more hours while attending college, financial distress in the family, etc).

    There isn't much good data on student debt owed by people who fail to graduate, but one recent survey found that they may have around half the average student debt of those who do graduate, close to $14k vs ca. $27k. An analysis of another dataset found that dropouts owed a median $7k in debt, but this seems to have been during an outlier year during which median student debt was ~40% lower than in the previous and following years so I'm taking that figure with a pinch of salt. Regardless, it's evident that dropouts struggle to repay even their smaller loans, for whatever reasons: around half are in default, and many others fail to make any real progress on paying down the principal even when they manage pay the interest.

    For these reasons, I believe the popular characterization of student debt holders is misleading, and some of the criticism of Warren's proposal that stems from the misleading framing misses the mark both from a policy perspective (debt forgiveness is much more generous to the less-well-off than is commonly believed) as well as from a purely political perspective (debt forgiveness may hold a broader appeal than commonly believed, with potential for buy-in from several socioeconomic strata). I also think it's a shame the US public debate on student debt consistently neglects those who accrue student debt without graduating, because acknowledging their existence immediately offers a promising approach to mitigating the student debt crisis and related socioeconomic problems: direct funding towards resources and interventions that decrease likelihood of dropping out, eg. improved highschool education that reduces the need for costly and discouraging remedial college classes, better support systems at colleges/unis (some evidence to suggest this is eminently feasible & effective), etc.

    I think that, from a policy perspective, Warren's proposal is flawed, but I believe it merits a more nuanced debate than I've seen so far. From a political perspective, I believe it's very interesting, and I get the feeling Warren has understood the core of European (and esp. Scandinavian) approaches to welfare in a way that even Sanders hasn't: strong and broad middle-class buy-in.
    “Humanity's greatest advances are not in its discoveries, but in how those discoveries are applied to reduce inequity.”
    — Bill Gates

  2. #2
    Pretty wonky stuff, but at least she has outlined a plan with rationale and data.

    IMO our critical blind-spot relates to Education in general. Beginning with the child/student in Day Care, pre-K and kindergarten...the problems (inequities) build into Elementary and High School. K-12 public education is linked to residential zip codes and property taxes, with variations in 50 states, including percentage of federal dollars used.

    Example: PA uses state/local taxes to fund roughly 75% of K-12 public education (including administration costs and retirement pensions). We're a Commonwealth with something like 1,500 different municipalities and 500 school districts....and each wants 'control' over curriculum standards and teacher salaries, etc. There's a real disparity in the quality of education based on where you live; families with enough money can "buy" the best public education for their kids by living in the best neighborhoods. It's a royal mess.

    While I think it's great to recognize the college debt crisis and propose fixes, I just don't think it will work unless/until we focus on the K-12 crisis first.

  3. #3
    I think you bring up a good blind spot. To be honest I think your second point is the bigger issue: the default rates are large and growing. What other sign do we need that these debts aren't worth it?

    That said I'm confident nationalizing the debt away is the right answer, any more than it would have been to bail out homeowners. And without diving into the financial crisis, our other candidate's propensity to propose more subsidized education suggests they are really missing the issue.

  4. #4
    Quote Originally Posted by Dreadnaught View Post
    I think you bring up a good blind spot. To be honest I think your second point is the bigger issue: the default rates are large and growing. What other sign do we need that these debts aren't worth it?

    That said I'm confident nationalizing the debt away is the right answer, any more than it would have been to bail out homeowners. And without diving into the financial crisis, our other candidate's propensity to propose more subsidized education suggests they are really missing the issue.
    Assume you meant NOT confident?

    Affordability and escalating costs are huge problems. Coupled with fewer grants and needs-based subsidies, some sort of loan is required (for most people) to attend college. Even those with academic or athletic scholarships might need to borrow money for student fees and housing -- which can cost as much as tuition. And while community/commuter colleges have lower tuition and lower or fewer fees, the student still has to cover costs of transportation, parking, housing, etc. It adds up.

    I don't think we can ignore the financial crisis. It's part of the bigger picture that our American lifestyle requires debt; credit cards, car loans, home mortgages, home equity loans, business loans, Pay Day loans, etc. Default lets the bank seize some assets, while filing bankruptcy shields others. Wealthy people can actually use debt default and bankruptcy protections to grow their net worth, shelter income from taxes, and become billionaires. *cough*

    But what's the remedy for an educational loan default? Should it be treated the same as medical bankruptcy? That's another large and growing category, also related to (un)affordability and escalating costs. We've monetized practically everything to make profits for the private "investor", but haven't treated public education (or medical care) as an "investment" in our nation's future.

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