Column: Elizabeth Warren’s college debt plan helps the middle class — and does much more

Presidential candidate Elizabeth Warren unveiled her plan to address the student debt mess Monday and promptly took brickbats because it would help higher-income families more than the poor.

“Warren’s Student-Debt Deal Would Most Benefit Stronger Earners,� declared the Wall Street Journal. At Slate, Jordan Weissman’s take was: “Elizabeth Warren’s Student Loan Forgiveness Plan Mostly Helps the Middle Class.�

Both articles were based on a Brookings Institution analysis that asked, “How progressive is Senator Elizabeth Warren’s loan forgiveness proposal?� and concluded: “Not progressive at all.�

These conclusions are true, up to a point. But they apply to one element of Warren’s proposal, a broad forgiveness of existing student debt. Warren’s proposal has three other parts that address major flaws in America’s approach to higher education, and with much more far-reaching, and positive, effects.

Warren’s proposals include making public universities free, shoring up the finances of historically black universities, and placing a tight leash on for-profit colleges, which profiteer off minority and low-income students. Warren calculates that her debt cancellation plan would involve a one-time cost to the government of $640 billion, while the other elements would cost an additional $610 billion over 10 years. She says the money could come from her proposed wealth tax on families with more than $50 million in assets.

“We got into this crisis because state governments and the federal government decided that instead of treating higher education like our public school system — free and accessible to all Americans,� Warren says, “they’d rather cut taxes for billionaires and giant corporations and offload the cost of higher education onto students and their families.�

Let’s take a closer look.

The student debt cancellation element of Warren’s proposal has received the most attention — one might say all the attention — because it addresses the aspect of college financing that’s foremost on the public’s radar. It’s what people think of as the “crisis� part; we’re inundated with assertions that recent graduates are laboring under a blanket of college debt so heavy that it will have long-lasting economic effects by killing homeownership rates and preventing debtors from starting families, among other consequences.

It’s reasonable to say that the “crisis� has been exaggerated or at least misunderstood. In a 2016 book, Sandy Baum of the Urban Institute points to scare stories about graduates with truly crushing debt but says that these cases are outliers, masking the fact that the problem is “much less severe and pervasive than the media would lead us to believe.� Only 7% of all borrowers owe more than $75,000 in education debt, Baum observes, mostly because of graduate or professional degrees; about 40% owe less than $10,000.

In truth, the overall debt load for the 18-to-29 age cohort has not soared. The median payment on student loans has remained at about 3% to 4% of income for the last 20 years. The group with the highest default rate on student loans is graduates owing less than $5,000.

Yet default rates have unmistakably been rising, especially among black students who attended a for-profit institution or never completed their education. That’s a sign that student debt is exacerbating racial disparities in our society.

Any broad-based proposal to forgive student loans is going to run into a few built-in problems. One is that it’s inevitably going to favor groups with the most debt, which means people with law, business and medical degrees, who also have the most potential for earning incomes allowing them to repay their loans with relatively minimal pain. High-income families accumulate disproportionately higher loan balances, so they’re going to receive disproportionately larger breaks.

Warren tries to adjust for those realities several ways. She phases out the loan forgiveness starting with households with income of more than $100,000, eliminating it entirely for those earning $250,000 or more. The cap of $50,000 on forgiven loans limits the break for doctors and lawyers, many of whom leave school with much higher balances. The Brookings analysis still thinks this cap is “generous,� since only about 2% of people with a four-year degree have loans that large.

Warren cites an economic analysis done for her presidential campaign by Thomas Shapiro of Brandeis University, finding that her plan would “provide at least some debt cancellation for 95% of people with student loan debt (and complete and total student debt cancellation for more than 75%).� She says it also would provide “targeted cancellation for the families that need it most, substantially increase Black and Latinx wealth, and help close the racial wealth gap.�

The question is how much debt cancellation is needed by 95% of all borrowers, or even 75%. Brookings’ Adam Looney calculates that the top 20% of households (with income of $110,000 and above) would receive 27% of Warren’s largesse while the bottom 60% (income up to $68,000) receive only 34%. “Borrowers with advanced degrees represent 27% of borrowers, but would claim 37% of the annual benefit,� he says.

What about the other elements of Warren’s proposal? Let’s start with making all public higher education free. She is correct in observing that the nation’s public universities have been systematically deprived of public funding, with the cost being shifted toward students and their families via rising tuition.

In some states, the shift has been rapid and devastating, according to the progressive think tank Demos. In Pennsylvania, the proportion of revenue covered by tuition rose to 73% from 49% between 2001 and 2016. In only one state has the ratio fallen in that period: Wyoming, where it went to 13% from 27%. (California has managed to hold the line somewhat; tuition increases at its public colleges and universities brought the ratio to 21% in 2016, up from 10% in 2001.)

Warren’s plan has been criticized for overlooking that the bulk of students at state universities come from higher-income families, so her free-college plan would again be a boon to the wealthier. But it’s also true that the rising cost even of state universities may well be keeping lower-income or minority students out of the classroom.

Warren also proposes a fund of at least $50 billion for historically black colleges and universities and minority-serving institutions. These institutions’ tradition of making higher education available for historically overlooked groups has been hampered by chronic financial problems.

Finally, Warren proposes banning for-profit colleges from receiving “any federal dollars (including military benefits and federal student loans).� This is a long-overdue reform, running directly counter to the Trump administration’s policy of indulging an educational sector rife with fraud — and punishing its student victims instead.

Warren’s higher-education plan isn’t perfect. But some of its shortcomings can be patched by tweaking some features — lowering the forgiveness cap and making the income phaseout more progressive, for example.

On the whole, however, she’s offered a range of options for rethinking and reforming America’s access to colleges and universities so that higher education fulfills its responsibility to level the career playing field for American students, whatever their race or family income, instead of perpetuating and even increasing inequality.

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