Assessing Sen. Warren's Higher Education Plan

May, 2019

Washington -- Give Elizabeth Warren credit. She is the only presidential candidate in either party who is addressing the nation's student loan crisis realistically. I have differences with the details of her approach, but that must not overshadow her leadership. Warren deserves praise for three huge policy initiatives:

• She proposes help for millions of borrowers currently in inextricable student loan trouble (often not of their own making), in a way that would also help the nation's economy. Debt relief, through a means-tested approach, needs immediate action. In 2016, candidates Bernie Sanders and Hillary Clinton wrongly neglected the distress of borrowers in favor of vague promises for future generations. Warren's loan cancellation plan for current borrowers, conversely, has now demanded even the attention of those who for years touted student loans as "good debt." The Urban Institute, for example, has begun seriously to analyze cancellation effects and has had to withdraw mistakes in its earlier papers. Economists are now looking more seriously about the positive, life-changing effects of current debt cancellation, as explained in a new paper from the National Bureau of Economic Research.

• She proposes restoration of bankruptcy protections for both federal and private student loan borrowers. Warren is a co-sponsor of Senator Dick Durbin's new restoration bill, the case for which has been spelled out well by Mark Huelsman of Demos. This is not a partisan issue; the companion bill in the House is led by Republican John Katko. Arguments against providing student loan borrowers the same bankruptcy rights as other borrowers have collapsed with the failure of programs that were said to preclude the need for student loan bankruptcy.

• She addresses demographic disparities in student loan burdens. The student loan crisis falls disproportionately on minorities and women. Warren's plan exposes this by showing the distribution of cancellation relief, a heretofore much-neglected topic. Also, by proposing that cancellation be paid for by an annual 2% wealth tax on those with net worth of over $50 million, Warren highlights the huge disparities between the few who are in the stratospheric reaches of wealth compared to millions of borrowers who are not, and knocks back arguments that her overall plan is regressive.

I must also note that Elizabeth Warren is without peer among the presidential candidates for her efforts to oversee the U.S. Department of Education more vigorously. Part of the student loan crisis is a result of ineptitude and corruption at the department. Warren is the founder of the Consumer Financial Protection Bureau.

That said, I have some differences with the Warren plan as announced last month, which suffers from two inequities, individual and institutional.

Previously, I suggested that a means-tested, refundable federal tax credit would be more equitable for all students who went to college in the high-tuition era of the last two decades. It would avoid such problems as unfairness between those in similar economic circumstances who struggled mightily to pay off their loans and those who did not; between those who chose lower priced community colleges or less selective schools and those who did not; and between those who worked to try to pay for college over many years and those who did not. The tax credit could be called the "Tuition Premium Tax Credit," the benefits of which could be used to pay off student debt, or simply used by recipients to recover economically from the high price of college, however it affected them wherever they attended. Such a tax credit would also help remedy generational inequities. The boomer generation benefitted enormously from the long, low tuition era that made paying for college relatively easy. The 2017 tax cut piled more wealth on the boomer generation; it could be trimmed back with savings applied to generational and income-class equity.

I would also limit Warren's free college plan to two-year community colleges (actually first proposed by President Harry Truman). For public four-year colleges, a return to the Carnegie Commission's funding model would strike a reasonable balance between who pays and who should pay, so as not to make the free college aspect of the Warren plan regressive, as some have alleged. The Carnegie model also recognized the importance of private, non-profit institutions, a national resource that could be threatened under Warren's plan.

As to Warren's plan to increase Pell Grants, I'd put the funds instead toward a matching program, like SEOG, that would be more efficient and draw in much-needed state and institutional effort to help students avoid excessive debt. Historically, Pell Grants have not been effective in reducing borrowing. Requiring match would also eliminate many unscrupulous for-profit institutions from federal programs, a workable alternative to Warren's plan simply to make all for-profit institutions ineligible, although that aspect of her plan is also attractive. For-profit higher education is nothing less than a national scandal and one of the primary causes of the student loan crisis.

Finally, as to Warren's wealth tax, it is a good talking point to illustrate how inequitable our society has become in terms of wealth maldistribution, but as a practical matter there is a good case to be made that an effort to relieve student loan debt for those who most need it would go a long way toward paying for itself. Getting millions of borrowers back fully into the economy makes good economic sense.

I don't have a favorite 2020 presidential candidate, but Elizabeth Warren's higher education plan is a formidable offering. The cancellation proposal is getting much favorable attention in polls, even from those without loans. Other candidates should be taking note.