Improvements to Senator Warren’s Tuition and Student Loan Policy Proposals
A few additions to Senator Warrens’s proposals will greatly increase the relief for borrowers and benefit the entire economy.
The Current Costs of Higher Education in America
The chart below shows the unreasonably high cost of education in America when compared to other advanced economies.
Why is college tuition so expensive in America? The chart above only includes tuition at public institutions. It would be significantly worse if private institutions were included.
In the 1980s, I attended the flagship public university in my state. My tuition was about $750.00 per semester, therefore, $1,500.00 per year. According to collegesimply.com, this same school has an annual tuition of $10,780.00 for in-state students. What the hell happened that led to a 700% increase in tuition within the last 30 years? According to the Census Bureau, the average cost of a house at the end of 1989 was $154,300.00. See this publication from the Census Bureau. If housing prices had risen at a rate similar to college tuition, the average cost of a new home would be $1,080,100.00 today. The average price of a new home is currently $393,700.00. These price increases in education are completely off the scale. There is no reason for these exorbitant tuition costs and this problem has to be fixed.
Senator Warren’s Solution
There needs to be drastic action taken with regard to the tuition and student loan crisis. Elizabeth Warren’s solution is a good first step. Elizabeth Warren’s free tuition and student debt cancellation plan can be found at this link. The rest of this story will focus on additional steps that need to be taken regarding tuition for higher education and student loans.
As Senator Warren has mentioned, tuition at two-year community colleges should be free. Tuition for public four-year institutions should be free. I would add that this free tuition should only be for those that can maintain a liberal minimum grade point average.
Free tuition for college is not a radical idea. Those ‘liberal communists’ in the state of Tennessee have offered free tuition for two-year community colleges and technical schools since 2014. See this article in Politico. Seventeen states currently have some form of a tuition waiver for two-year and or four-year institutions. New York allows free tuition at public universities for students whose families who have incomes up to $125,000.00 per year. See this website for more information on the New York program. With the help of the federal government, we can provide free tuition for public colleges in all 50 states!
The Crippling Effects of Student Debt
So how well are the students that have been subjected to these excessive tuition rates handling these costs? Not good. Student debt has doubled in just the past ten years. See the graph below:
Currently, the accumulated student loan debt of all borrowers is $1,545,000,000,000.00. The national debt of our government is $22,028,000,000,000.00. See FRED for more on this data. Therefore, the total student loan debt is 7.01% as great as the entire national debt! This is crazy and it has to be fixed.
This article from Nerdwallet has a lot of very interesting data regarding student loans. I would encourage everyone to read it. The two most interesting points are as follows:
Of the 18,600,000 student loan borrowers, only 7,300,000 borrowers are currently repaying their loans. 3,400,000 are in deferment, 2,700,000 are in forbearance, and 5,200,000 are in default. That is, only 39.24% of borrowers are currently paying on their loans, while 27.96% of borrowers are in default!
The other interesting fact on Nerdwallet is that total private student loan debt is only $119,310,000,000.00. The government paid $700,000,000,000.00 to bail out the banks during the financial crisis part of the Great Recession. If the government can pay this much to save wealthy banks, the government can pay these banks 1/7 of that amount to remove the burden from student loan borrowers. These private loans need to be nationalized. These loans are the worst of the student loans. There are no methods of relief available for these loans. There is another step that needs to be taken before the government takes over these loans.
A Few Necessary Additions to Senator Warren’s Plan
The next step is that student loans not covered by Elizabeth Warren’s plan should be allowed as dischargeable debts under the Bankruptcy Code. Before 1994, these debts were dischargeable in bankruptcy. Student loans made after the enactment of Elizabeth Warrens solution should not be dischargeable under the Bankruptcy Code. These loans will be covered by the income-based provisions mentioned below.
Next, private student loans, which will be significantly lower due to the temporary bankruptcy change, should be bought out by the federal government. By law, all future student loans should only be through the federal government.
Student loans should be revised so that they are only payable by a borrower at a maximum rate of 10% of the borrower’s income to the extent that the income is greater than two times the poverty level. During times when the borrower is unemployed or has income less than two times the poverty rate, no payment would be due on said loans. Thirty years after the graduation date for the borrower, any unpaid amount on the student loan should be forgiven. Student loan payments should be collected by the IRS through the tax returns of the self-employed and as a payroll deduction for W-2 employees. This proposed system is a combination of the student loan repayment systems already in use in Australia and the U.K. For more on the student loan policies in these countries, see this article.
As Senator Warren mentions, there should be no ‘discharge of indebtedness income’ for this forgiveness of student loan debt. This would require an amendment to §108 of the Internal Revenue Code. This is a very important provision since without it, borrowers could incur significant tax liability just for having their debt relieved. Unless this provision is added, the student loan debt would just be replaced by tax debt.
States have already shown their willingness to provide tuition relief. These are not just the blue states, but also some of the deep red states. With the assistance of the federal government, we could completely eliminate tuition and fees for all public universities. Free tuition will greatly reduce the need for student loans. Yet, loans will still need to be made in order to cover some costs of living while in school, private schools, and post-graduate education.
Student loans would be repaid by automatic deduction based on each borrowers ability to repay the loans. This would allow employees to take lower paying positions. Also, this would allow employers to pay new employees less. Less cost pressure on employers means less inflationary pressure on consumer goods and services.
Currently, there is student loan relief for some public sector and non-profit employees. The problem is that it doesn’t work 99% of the time. See this article for more on the failures of the ‘Public Service Loan Forgiveness Program.’ With this automatic income-based repayment, employees would be able to take these lower-paying public interest jobs. Such jobs bring great benefit to society. Currently, any borrower that takes such a job runs the risk of being defrauded.
One can choose income-based repayment plans now, but the paperwork requirements are over-burdensome. A simple payroll deduction based on income for which each borrower is automatically enrolled is much more efficient. This method is better for the borrower and the lender.
Regardless of how much each borrower is able to repay, their remaining student debt should be eliminated thirty years after graduation. Students go to school to get an education, not to be life-long indentured servants of a predatory capitalistic system. Our society chooses to educate these students so that they can contribute to our nation. Let’s free these graduates so that we can all reap the full benefits these people can bring to our economy.