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April 25 2019

What Senator Warren Is Not Telling Us about Debt Forgiveness

by Charlotte Hays

Senator Elizabeth Warren plans, if elected to the presidency, to wipe out college loan debt for 76 percent of families burdened by these loans.

And then, as soon as these debts are finito, the Senator wants to--are you ready?--increase the loan-making capacity of one of the most famous college loan programs. Of course, she calls it "investing. Of course.

 The Free Beacon's Charles Fain Lehman explains in a definitive article that must be read by anybody who cares about this matter: :

The next step after the mass cancellation, Warren writes, is a "historic new federal investment" of another $610 billion to eliminate tuition and fees at all of America's 1,600 two- and four-year public colleges. Additionally, she will seek funding for $100 billion in new Pell Grants over ten years, to cover lower- and middle-income students can afford non-tuition expenses in public college. Warren also promises funds specifically for HBCUs, and a ban on for-profit colleges receiving federal funding.

"We need to fundamentally change the broken system that created the crisis in the first place," Warren writes.

This is not incrementally changing anything. It's wiping out debts and then doing the same thing that got people in trouble all over again.

Have you thought this through, Senator Warren?

Lehman explains that Warren hasn't really gotten to the roots of the debt problem--and why her proposals could lead to colleges raising their tuition even higher.

In making this case, he quotes one of our favorite education sages, Lindsey Burke of the Heritage Foundation:

College grads would win; so too might universities. Dr. Lindsey Burke, who directs the Center for Education Policy at the Heritage Foundation, pointed out that if Warren's debt jubilee happens repeatedly (which she thinks is likely), it will become a major hand-out to universities, who can jack up their tuitions proportionally.

"There is one big clear winner, and that's the universities," Burke told the Washington Free Beacon.

Just an interesting aside: Warren can even put forward her college loan forgiveness only because the federal government usurped the role of making college loans:

Although Warren mostly avoids acknowledging this in her Medium post, such mass loan forgiveness is possible because the federal government holds the overwhelming majority of all outstanding student debt—about 78 percent as of the end of 2018. This is thanks in large part to Obama-era changes that moved the federal government from guarantor to issuer of loans. (Warren does note that private student loan debt would also be eligible for cancellation, although she does not specify how.)  

One other thing Warren apparently doesn't consider is why so many people are willing to go into serious debt, when a more sober appraisal of their situations might encourage them to make other choices.

Lehman explains:

The current wave of student debt is a product of supply and demand. The supply comes largely from the free-spending federal government, following the insistence of president Obama that "every American will need to get more than a high school diploma." But the demand comes from the soaring value of a college degree—what's called the "college wage premium"—and the concurrent stagnation of earnings for those without a college degree.

In the past, when fewer people went to college, a high school diploma might "signal" to an employer that somebody was responsible and worthy of being hired.

Now, it's college. This is dubbed "credential creep."

And if it continues to creep, it could be devastating:

Free public college might socialize the exploding cost of credential creep, but it will also further devalue the signaling significance of a college degree, leading those with the financial means to acquire other credentials. If everyone can go to public college, the wage premium will accrue to those who can afford to a private school, or a post-baccalaureate credit.

"[Warren's plan] is going to perpetuate this notion that now the Masters degree is the new Bachelor's degree," Burke put it.

[Economist Bryan] Caplan and Burke's preferred solution to this treadmill is to get the government out of the education-funding business altogether, which would stop its artificial reductions to the price of education. In theory, this would mean that only those for whom the true price of college was worth it would attend, slowing degree inflation and stopping millions of Americans from taking on debt to pursue a degree they will never earn.

I ask again: Senator Warren, have you really thought through this?

By the way, Naomi Schaefer Riley has some interesting ideas on combating "credential creep."

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Independent Women's Forum is an educational 501(c)(3) dedicated to developing and advancing policies that aren’t just well intended, but actually enhance people’s freedom, choices, and opportunities. IWF is the sister organization of the Independent Women’s Voice.​
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