Warren’s student loan plan wouldn’t solve the problem

Charles Fain Lehman of the Washington Free Beacon pans U.S. Sen. Elizabeth Warren’s plan for free college and student loan forgiveness.

Warren’s plan, debuted in a Medium post, would cost taxpayers an estimated $1.25 trillion. Warren’s proposes to pay using her “ultra-millionaire tax,” which levies an annual tax of 2 percent on assets in excess of $50 million and three percent on those in excess of $3 billion. …

… 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. …

… There are good reasons to be concerned about our collective student debt burden. Americans owe $1.5 trillion in student loans, the largest single source of debt after mortgages. This debt not only imposes a substantial fiscal cost, but its effects suppress family formation, home ownership, and fertility, playing a key role in the delayed adulthood of millions of millennial Americans.

At the same time, student-loan debtors are an odd group to target for government largesse. Because a college degree commands a substantial wage premium, the cost of a student loan is usually worth the investment over a person’s life time (assuming they graduate, which many do not). Warren’s experts estimate that among households with student debt, 72 percent of those with a BA and 47 percent of those with an MA would see their debt fully cancelled.

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.