Student Loan Forgiveness Program:
Patching up the American Educational System?
On Tuesday July 23, 2019, Senator Elizabeth Warren (D-MA) introduced the Student Loan Debt Relief Act, a bill that is supposed to help over 45 million Americans reduce their student debt. The topic seems very popular these days, as Sen.Bernie Sanders (I-VT) had also proposed a plan to spend $1.6 trillion in order to forgive all student loans, as some professions will never pay someone enough to cover all their debt. However, there is already a plan that supposedly is helping with the issue. While George Bush’s Public Servant Loan Forgiveness from 2007 is already in place, most US citizens don’t know about it and it’s generally considered a failure. Professor Archiebold Reginald*, from the University of Southern Palo Alto, who happens to know quite a bit about the American educational system, and to whom I had the pleasure to talk with regarding student loans, specifically Warren’s bill, and its effect on the American population as well as the 2020 presidential election. Even though Warren’s “Student Loan Debt Relief Act” has had a positive feedback so far, Professor Reginald has claimed that the student loans should not be needed in the first case, and argued the bill is nothing more than a band-aid to temporarily fix the main problem: the exorbitant prices of college tuition.
Student loans are the only option for most students who cannot otherwise afford going to school. There is around $1.5 trillion of student debts in the country, the rates being higher than credit cards or auto loans, ranging from 4% to 7% interest. While it may seem normal for today’s society, Professor Reginald explained the situation has not always been the same. He made a clear statement when based on his personal experience, claiming that student loans should not be necessary, as it has only become popular in the last 20 years.
In Professor Reginald’s college time, it was not common for students to take out loans. In fact, he was lucky enough not to get into debt at all from his days at undergraduate school all the way up until his postdoctoral degree, receiving financial aid from Pell Grants, fellowships, and scholarships. He also added, “I remember that around 20 to 40 years ago it was possible to get a good education that you could repay by working a summer job. The problem is not the loans or its amounts, but the tuition that universities are asking for.” However, he did mention that a few people asked for a student loan, even though the amounts were between $10,000 and $15,000. Most of the students who did that were able to pay their debt only a few years after they graduated. The willingness and need to get a student loan reflects that society’s point of view of education has changed.
Warren believes that the country is suffering from a student debt crisis, as 40% of the borrowers are students, and that the government should invest in the future by financing some of those loans. Elizabeth Warren’s plan expects to eliminate completely student debt for 75% of the borrowers and reduce the amount to a 95%. Mainly, her goal is to be able to eliminate at least $50K of debt for those whose household income lays below $100K a year without treating that cancelled debt as taxable income. She plans as well to refinance the rates of current student loans, which will allow borrowers to discharge their loans in bankruptcy, and those borrowing money from private sources will be allowed to convert their debt as it was federal making them eligible for student loan forgiveness.
The Senator plans to create a new tax, the Ultra-Millionaire, which would affect 75K American families with more than a $50 million net worth by taxing them a 2% annually. The expected amount of money needed to clear debt for so many people is approximately $1.5 trillion, which can only come from taxpayers who have plenty of funds. When Professor Reginald was asked about the fairness of the tax, he replied: “Yes, it is fair. Those people drive a lot of advantages to society so it is reasonable to expect a larger contribution.” Most of the people say the same thing, as wealth in America is unbalanced. The equivalent of the net worth of a rich person is 900 poor people. Therefore, it can be expected that Sen. Warren will not have too much conflict with his audience about that. However, her plan has room Warren’s campaign website claims that, “For the rare taxpayer with an extremely high net worth but liquidity constraints that make it difficult to pay this additional tax, there will be an option to defer payment of the tax for up to five years, with interest (“Ultra-Millionaire Tax” 2019).” This shows flexibility and strictness at the same time, two values that may influence how people sees her. So far, she is the only one who plans to create a new tax as a source of income to pay those student loan debts.
Elizabeth Warren’s bill will have its impact on the 2020 presidential election. The Senator is known by the amount of plans that she has. Some examples include prohibiting members of Congress to buy stocks, creating a universal child care plan, or legalizing the indictment of a sitting president. Then, why is her student loan forgiveness idea so popular? The simplest answer is that almost 45 million Americans would benefit from it, and that student loans are becoming increasingly common within the student population.
One could think that Warren’s bill would have a pretty strong impact on the elections. However, Professor Reginald claimed that the influence would “probably be minimal because college students are a small part of the electorate that votes anyways.” He added, “even though it is a good thing, it will not move the needle much.” The question lays on which part of the electorate would be the most benefited, young adults who may not have too much presence or adults who took loans years ago. Unfortunately, there is no way for us to make any assumptions as the Democratic debates are just starting, and other candidates, such as Sanders, also have a plan regarding the forgiveness of student debt or even want to try and make college free.
Taking a holistic approach, the effects of the bill on students and education are yet to be determined. Professor Reginald claimed there are two reasons why people go to college: to find a spouse and maximize future income. Supposing that Sen. Warren’s bill does not affect the first motive, we will focus on the second one. Some people are worried that creating a loan forgiveness program will encourage people to take out loans already counting with having them cancelled after a few years, underestimating the process. Reginald believes that it is too soon to make that claim and that research should be conducted to investigate the topic. His best guess, though, is that people will keep trying to spend money on education until they can’t no more in order to take advantage of the social opportunities. Sadly, we are currently unable to predict whether this bill will have a direct impact on students, or what colleges have to offer.
The real problem though, is that the entire set up of the bill does not address the exponential increase in tuition over the past 20 years. The proposal will be most beneficial for those who have already accepted to pay an exorbitant amount of money for college, and had taken out a loan indeed. However, Professor Reginald argues that, “even though having money transfer from taxpayers to college funds is better than make people keep their student loans, it would be best if the state schools were better supported from the beginning.” In other words, the program is a good start to do to compensate for bad ideas but it just not solve the real problem, the expensive college tuition. While expressing his opinion on the matter, Reginald acknowledged that maybe there is a reason that forces Warren or politicians like her cannot propose any plan related to changing college budgeting. He suspects that “it may be due to the fact that a college education is the responsibility of the state it belongs, it may not be really appropriate for a presidential campaign.” Either way though, Reginald’s point is that any student forgiveness plan should be appreciated but people should keep in mind it is only a distraction.
Elizabeth Warren’s “Loan Debt Relief Act” can be seen as nothing more than a band-aid to temporarily fix one of the biggest problems the nation is facing: the exorbitant prices of college tuition. While Warren deserves merit for her work, as it shows a willingness to start helping out citizens with probably the biggest investment of their lives, only by fixing the root of the problems that student debt will not be a crisis anymore. As they say, ‘Knock it on the head, before it gets any further’
- “Ultra-Millionaire Tax.” Elizabeth Warren, elizabethwarren.com/ultra-millionaire-tax/.‘
*Professor Reginald is a made up name for the person I interviewed, as he/she wished to remain annonymous. The University does not exist either.