Politicians love to pander to voters with enticing freebies. Democratic presidential wannabe Elizabeth Warren has elevated pandering to a high art. She has schemes aimed at giveaways to targeted voter groups without much concern for who will pay.
The woman has “a plan for everything,” but none of them seem to make much real sense. Her multi-billion-dollar plan to cancel some $640 billion of student debt is a case in point, amounting to little more than a thinly disguised attempt to buy the votes of younger, higher earning, college-educated voters who are increasingly seen by Democrats as crucial to winning.
Seventy percent of student borrowers pay back their loans as required and on time, and though today’s students are not used to delayed gratification the tales of college graduates living in dire poverty because of the burden of repaying student debt are overblown. Being forced to forego buying one’s coveted BMW for a few years is annoying, but isn’t the same as having to beg for food.
It is undoubtedly true that college majors in, say, transgender literature in Albania, may find few job offers in their field of expertise, but that is something they might have thought of in choosing their majors in the first place. Employers are looking for the usable rather than exoteric expertise when hiring time rolls around so it’s hardly surprising that students who focus on developing usable skills get better jobs on graduation. These are not well-hidden, secretive facts.
While only about 26 percent of college graduate debt holders earn advanced degrees or graduate from law or medical schools, they hold roughly 48 percent of the total outstanding debt. Post-graduate, law or medical degrees take longer to achieve and it is understandable that they borrow more to complete their studies, but this leads one to two conclusions. The first is that if post-graduate education is a desirable investment that will lead to greater economic rewards down the road, these graduates will end up earning more over their lifetime of work than those who owe less because they either never went to college, dropped out or went to work after earning an undergraduate degree. Second, under Sen. Warren’s debt forgiveness scheme, the students with the highest potential lifetime earnings will be the main beneficiaries of debt forgiveness.
Analysts for the Martin Center in North Carolina illustrated this in a recent paper by looking at the impact on three young people in their 20s earning $35,000 a year. One attended a private college and has a debt of $50,000, the second attended a community college and owes $10,000, while the third went to work after graduating high school and owes nothing. The chief beneficiary of Ms. Warren’s proposal, the private school graduate, would, of course, be the first who could rush right out to buy that BMW and coincidentally falls into the group of young people most likely to vote in next year’s Democratic primaries.
Ms. Warren prides herself on the “fairness” of her various schemes to transfer wealth from the wealthy to “working” Americans, but this plan would subsidize increasing the wealth gap she so dislikes. Her loan forgiveness scheme, if implemented, would benefit those who will count among America’s wealthiest at the expense of the rest who attend local or public colleges working as they go, or who enter the labor force without a degree.
Ms. Warren claims her plan would cap loan forgiveness at $50,000 for graduates with an annual household income of $100,000 or more. None of the three graduates above would be hurt by that limit even if student No. 1 comes from a family of millionaires as it’s the graduate’s household income she uses and few will be earning that much right after graduating. The return on their educational investment will come later.
Regardless, the real problem with schemes like Ms. Warren’s is that they keep policy-makers from actually debating and adopting reforms that will alleviate the problems faced not by all debtors, but by those who for unforeseen reasons beyond their control cannot handle their payments.
In addition to the help already available, other reforms have been proposed that would help without simply allowing those who freely chose to borrow funds to invest in their futures walk away from their obligations and some of those already exist for those for whom their debt represents a genuine hardship as opposed to an unwanted and annoying obligation.
For example, the Employer Participation in Repayment Act has languished in Congress for six years despite broad bipartisan and White House support. It would allow companies to provide tax-free assistance to employees to help them pay off their student loans. Democratic Sen. Mark Warner, a Senate co-sponsor of the bill, says “even in a place as dysfunctional as Washington, this one should be a no brainer.”
Currently employers can provide up to $5,250 a year to employees for tuition assistance under Section 127 of the Internal Revenue Code. The Treasury Department has the authority by regulation to apply this same treatment to an employee’s student debt. If Congress doesn’t act, the Treasury Department should.
• David A. Keene is an editor at large for The Washington Times.
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