TRAILING IN the polls, Sen. Elizabeth Warren (D-Mass.) is running ahead of the Democratic presidential pack in terms of policy specifics. We hope other candidates will emulate her willingness to lay out an agenda. Alas, her latest big idea — to eliminate vast quantities of student debt and make public universities tuition-free — is not a sound idea.
The nation’s households owe almost $1.5 trillion in student loans, according to the Federal Reserve Bank of New York. This represents a burden on many families, which, under Ms. Warren’s plan, would disappear completely for 75 percent of them, and at least partially for 95 percent. That’s because she would forgive debts up to $50,000 — just over twice the average federal student loan balance, $23,000. And she would do so for borrowers with a household income under $100,000 — some 80 percent of the population. Even borrowers earning up to $250,000 would be eligible for some relief, which would total $640 billion overall. Free college would add $600 billion or so more, for a total price tag over 10 years of $1.25 trillion.
No one can accuse Ms. Warren of thinking small. What she really needs is a better sense of proportion. Her premise seems to be that student debt is all burden and no benefit, but this is not true: It represents an investment in skill acquisition that pays substantial long-term benefits. President Barack Obama’s Council of Economic Advisers estimated this lifetime “earnings premium” at about $1 million over a worker with only a high school education. It’s not unfair to expect people to pay back their loans out of that income. What might be unfair is debt relief to the exclusion of other priorities with wider benefits, including to people who did not go to college at all. Ms. Warren proposes a wealth tax to cover the cost, the proceeds of which would then not be available for alternative, possibly more progressive uses. In any case, default rates are actually falling slightly, according to the latest Education Department figures; 84.7 percent of borrowers were current on their obligations as of the end of 2017, according to the New York Fed.
As for tuition-free college, why should children of families in the upper reaches of the income distribution scale receive an income-enhancing state-university education for nothing, when their parents are perfectly capable of helping defray the cost?
Other Democrats have, quite properly, raised feasibility concerns about Ms. Warren’s plan. “I have to be straight with you and tell you the truth,” Sen. Amy Klobuchar (D-Minn.) told a group of New Hampshire students recently, in explaining why she wouldn’t match Ms. Warren’s offer. For us, though, policy priority is the essential concern. Student-loan defaults are concentrated among students who attended for-profit institutions, or who accumulated low loan balances but then dropped out and were stuck paying the money back out of lower-than-anticipated earnings. Such issues are hardest for students and families of color, as Ms. Warren correctly emphasized. This calls for a targeted approach that relieves the worst financial stress of those least able to handle it, not a sweeping bailout for the middle class and above.