Posted on 06/25/2019 7:09:45 PM PDT by Heartlander
The 2020 Democratic Primary of Extravagant Promises is off and running. On the hot topic of student loans and college affordability, Senators Elizabeth Warren and Bernie Sanders are offering bold, competing plans. Both Senators would eliminate tuition at every public two-year and four-year college in America. But their plans differ in how they’d treat the $1.6 trillion in student debt now held by some 45 million Americans. Let’s start there.
Announced in late April, Senator Warren would cancel up to $50,000 in student loan debt for anyone with household income under $100,000. Provides some of this relief to those with household income in the $100,000-$250,000 range. The higher your income within this range, the less your debt relief. No relief if you’re over $250,000.
Warren provided an economic analysis arguing that about 95% of people with student loan debt would receive some relief. About 75% would have their entire debt load eliminated. Warren would pay for her plan by an Ultra-Millionaire Tax — a 2% annual tax on the 75,000 families with $50 million or more in wealth.
Sen. Sanders upped the ante Monday. Here’s what we know so far. Sanders would cancel all student loan debt for anyone holding such debt. No eligibility limits on income. He’d pay for it with a new tax on Wall Street speculation. In addition to making two- and four-year public college free, Sanders would provide subsidies to lower the cost of college for low-income students attending private colleges that historically serve underrepresented communities.
It’s obvious that many people would benefit from either of these debt forgiveness plans. But there are numerous unintended consequences. Here’s a big one: Large-scale debt forgiveness plans primarily help high earners, since high debt loads tend to be associated with high earning.
Here’s data published by the Urban Institute:
Households with the highest earnings tend to have the most education debt. The well-off used student loans to get where they are. Forgive the debt and you’re giving these folks a massive bailout. As college financial expert Mark Kantrowitz says, “Most borrowers are capable of repaying their student loans.”
How would Sen. Warren’s plan play out? The Urban Institute estimates that Warren’s plan would “disproportionately benefit middle- and upper-middle-income Americans.”
It’s hard to argue that those earning above-median incomes of $65,000-$109,000 are in need of a $26,490 (or so) bailout at taxpayers’ expense. Sanders plan would be even more generous to the wealthy. Remember: These individuals choose to take on college debt. That debt had the intended effect: It helped them raise their earning power. They’re now happily in the middle to upper-middle class. They can afford to pay their loans.
In a dream world where political leaders could work together on areas of agreement, maybe we could focus on those who struggle the most to repay their student loans. It’s a weird fact that borrowers with the smallest debts are most likely to default. They’re often college drop-outs with limited earning power.
We already have income-based repayment plans, which are designed to help lower income debt-holders avoid default. But getting on these plans, and staying on them, is complicated. Those who most need the help are least likely to get it.
Help us champion truth, freedom, limited government and human dignity. Support The Stream »
What if we made paying student loans more like paying taxes? Take a percentage of a borrower’s above-poverty earnings out of each paycheck. The more you earn, the more Uncle Sam removes, setting you on a path to repay the debt in full, principal and interest, within, say, 10-20 years. If your income is below the poverty line, we don’t take anything out for student debt. And the interest doesn’t accrue until your earnings go above poverty. Want to pay off your debt faster? Just ask that an additional amount be removed towards paying down the principal, as with a home loan.
There’s an implicit loan forgiveness here for those who struggle near the poverty line. But it’s a targeted forgiveness. It helps those in dire straits. It’s unlikely to create a perverse incentive.
The extra earnings that come from a college degree remain high, despite rising costs. But for roughly the bottom 25% of college graduates — and almost all college drop-outs — the payoff is poor. It’s risky for marginal students to attend four-year colleges.
That’s a concern with the “let’s make college free” part of Warren’s and Sanders’ plans. One, it encourages over-consumption: Students taking a free four-year experience when they’d be better served with a different vocational route. Two, it promotes a credential arms race. In 2008, Presidential candidate John Edwards proposed one year of free college for “qualified students.” Now we’re talking about free two- and four-year college. How long until we’re talking about free graduate school?
And three, free college can lead to lower academic performance, as students have less invested in their own success. More students in college, perhaps doing less well in the process, would mean higher costs for society as a whole.
Dr. Alex Chediak (Ph.D., U.C. Berkeley) is a professor and the author of Thriving at College (Tyndale House, 2011), a roadmap for how students can best navigate the challenges of their college years. His latest book is Beating the College Debt Trap. Learn more about him at www.alexchediak.com or follow him on Twitter (@chediak).
Old system: run out of money in college, phone home, mom and dad send more money. Mom and dad go broke.
New system: College students get free education. Mom and dad pay huge new taxes including for people they never met (new college student illegals who arrived last week, Belushi character party guy types who fear seven years of college is going down the drain).
Mom and dad go broke. Sounds familiar.
I have a better idea: make the universities pay for the crappy degrees. Tax university funds
For White kids too?
Bernie must be slipping...
Yeah, I’ll be awaiting my refund check. It’s probably in the same mail truck as my obama phone.
Wait. So I get mine back retroactive from 40+ Years back with interest, right?
(Commie scum )
The normal crap that liberals love to do, not only hand out free federal dollars, but tax those who generate the core of our economy. Only bright spot is that it’d hit public employee funds the hardest, the darkest part is that public employee retirement funds would just seize our property to pay promised benefits.
Senile Sanders wants the students’ neighbors to pay the tuition.
One thing that neither of these economic “superstars” is mentioning (because they probably don’t have Clue #1 about it) is that cancellation of indebtedness without going through bankruptcy is taxable income. So someone who gets $100,000 of student loan debt cancelled is now going to have an additional $100,000 of income - all in one year. That’ll push up the marginal tax rate on ALL of their other income, for both federal and state income tax purposes. Note that if they cannot pay their current payments (of maybe 0.5% - 0.75% of the loan per month), they sure aren’t going to be able to come up with 30% of the entire balance in one shot. They will then be in the unenviable position of underpaying their income tax, and being subject to underpayment penalties and interest. All of the penalties and interest will continue to accumulate...just like interest on a student loan.
Oh, and their credit will be utterly ruined - first by the debt cancellation and, second, by having a huge tax debt owed to the IRS and their state. Further, tax authorities will not hesitate to garnish wages - and that looks just wonderful to employers, credit reporting agencies and banks.
So, once again, a Socialist idea that sounds wonderful (for some people) on the surface will actually result the contrary result - it’ll ruin all of these people, just faster than they’re being ruined now.
The best thing that the government can do regarding higher education is to start getting out of it now, with the goal of being completely out by 10-15 years from now. After all, it is government grants and loan guarantees that has allowed the universities to collude with each other for the last 45 or so years in jacking up tuition and fees at roughly twice the annual inflation rate. Oh, and the second best thing that the government can do is to prosecute the university boards of directors, officers and deans for the single most massive criminal conspiracy to defraud the American public in all of history. Send them to jail; heck, dig up the dead ones who started the whole multi-trillion dollar rip-off and send their rotting carcasses to jail, too.
I live in a state (Georgia) that has subsidized public college based on your high school GPA. The higher your GPA, the more $$ you get towards tuition.
The unintended consequence is that it is next to impossible to get into GT and UGA because so many more kids CAN go to college. It’s not a terrible unintended consequence IF admissions are based on merits. That is a big IF. I know three kids who just graduated that had the max APs, a perfect GPA, and 35-36 on ACT (or 1550 plus on SAT) who got waitlisted at GT.
It’s actually a pretty fair model. Work hard in HS and pay less for college.
What in the world do the feds have to do with it? The public colleges are run by the states. Let them create their own Petri dishes.
NO debt for grad school should be forgiven, nor should grad school be free.
But we all know this is just BS pandering to get votes.
So if you paid it off, you’re a SUCKER!
DANGER! DANGER! She is going after wealth now, not just income. Once you open the door to a tax wealth while you're still alive, you've all but sealed your and your children's fate to be a slave to the gov't forever.
It’s even worse than that. A lot of these big loans aren’t all federal student loans, but federal loans to parents or loans from banks or private lenders. Bernie wants everyone to give money to these parents, banks, and loan companies.
I saw some LIEberal bozo on the news last night bragging that he has not yet payed off his 20 year old student loan!
While I agree with you about a wealth tax, what better way to get the elites to oppose taxes.
My mom was a CPA, and she always made the point that the wealthy are mostly low tax payers. Their income comes from investments, which are taxed differently, and you can manipulate sales to minimize tax liability.
High cash flow earners pay taxes, not the wealthy.
Also - she and my step dad (attorney) were vehemently opposed to wealth taxes because they are unconstitutional.
https://en.m.wikipedia.org/wiki/Wealth_tax#United_States
So, yet again, this is a BS pipe dream to pander for votes
In Warren’s plan, each of the households would have to average over $1 billion for their taxes to add up to 1.6 billion.
Michelle O always complained about her student loan. You know, the loan that sent her to Princeton where she wrote that brilliant, not, rambling about how hard life was for a minority person such as her. Just to prove her point, it was from here that she vaulted into a failed law career, and then into that no show job to support her low energy husband and the rest of her family. She really couldn’t find anything to make her happy with her country until Zero won the Presidency. Now we can make her proud again by paying off her student debt. Poor baby.
Clunk!!! That was the sound of the states dropping subsidies from their state universities since the Federales will pay the whole list price. Why just have local taxpayers subsidize them when you have 49 other states to do it too?
“wealthy are mostly low tax payers”
Probably what she meant is that their tax rate was lower. The wealthy still pay lots in taxes.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.