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Elizabeth Warren wants to forgive student debt. Nothing could better win millennials over to her campaign. That, of course, is the point.
Last fall, as her quest for the presidency began in earnest, the Massachusetts senator found herself lagging way behind Bernie Sanders and Joe Biden with voters between the ages of 22 and 37, winning only 4 percent of their vote. More recent soundings suggest she hasn’t made much progress; Warren wants to change that.
ARNON MISHKIN: DON'T COUNT ELIZABETH WARREN OUT
Consequently, she has proposed another breathtaking pillaging of taxpayer funds, introducing a bill along with Rep. James E. Clyburn, D-S.C., that would eliminate up to $50,000 in student loan debt for 42 million Americans. The measure, estimated to cost taxpayers $640 billion, follows through on earlier campaign promises, and would wipe out as much as $50,000 of debt for borrowers with household incomes under $100,000. The amount of forgiveness would decline at higher incomes; people with income of $250,000 or more would see no debt relief.
Warren’s plan would insert more Big Government meddling into a system already staggering under the grievous distortions that such manipulation inevitably produces. As with the housing crisis, Americans have been prodded to borrow in order to promote goals established by our elected officials, who always know best.
For many years, the government worked doggedly to encourage home ownership for every American, including many who could not afford it. In a similar vein, Beltway brainiacs decided that everyone should get a college degree, in part because our high schools had ceased graduating kids with the skills necessary to earn a living. Instead of revisiting the idea that teaching “trade” or vocational courses is verboten, the authorities determined that a college degree would lead to guaranteed earnings.
That proved to be wrong, just as owning a home turned out not to be the surefire starter investment that would lead to wealth accumulation, but rather a risky speculation that crashed to earth and caused millions to lose everything. Government-fueled borrowing inflated home prices just as it has also inflated the cost of a college degree, which has been rising at one and a half to two times the rate of inflation. With hundreds of billions of dollars of government-supplied debt propelling college tuitions higher, and with salaries for many careers relatively stagnant over the past decade, the ability of graduates to pay off their loans diminished.
If Warren turned her attention to further strengthening opportunities for young people, maybe millennials would jump aboard.
Now, student debt totals over $1.5 trillion. Many think the burden of paying off those loans is crippling the financial futures of millions of young Americans. They point to the struggling housing market as evidence that millennials are unable to move forward, concluding they are prohibited from buying a home by excess student debt.
In fact, a study by the Urban Institute found numerous reasons why home ownership by millennials is lagging other demographic groups. Those include millennials’ tendency to delay marriage and childbearing, as well as their preference for urban living, where high rents make it tough to raise the down payment for a home. In other words, it’s not all about student debt.
There are many problems with Warren’s proposal. First, it would shatter any expectation that future student borrowers would repay their loans. Why would they? The college students of the future would assume that if they borrow to finance a career writing poetry and their earnings fall short of their overly-optimistic expectations, Uncle Sam and his hardy taxpayers would bail them out.
Second, eliminating debts undermines individual responsibility and teaches a terrible lesson. As with any investment, student borrowers should take the plunge only after determining they will be able to pay back that loan. It is not difficult to research which colleges offer the best value proposition, comparing starting salaries for graduates with the cost of a degree.
Third, a great many people who played by the rules (one of Warren’s favorite themes) and scrimped to pay off their loans, would cry foul and rightly so. As one letter-writer to the New York Times wrote: “Bailouts, by definition, exclude those who lived within their means. This was a lesson of the 2008 mortgage crisis, as well as a contributing factor in the rise of the Tea Party. Is Ms. Warren really trying to repeat history?”
Next, Warren’s proposal will deliver hundreds of billions of dollars to college graduates who are likely to become high earners and who will ultimately be able to pay off their debts. Surely there are more worthy recipients for taxpayer dollars.
To be sure, there is a cohort of borrowers who graduated in the years during and immediately after the financial crisis, who started off unable to get the kind of job they hoped for; many are struggling. There is already a debt repayment program in place to help just those folks, which eventually cancels out unpaid debts. Moreover, those young people are among the greatest beneficiaries of the strengthening job market; their prospects improve by the day.
Meanwhile, newly-minted college graduates are doing just fine. The latest report from the National Association of Colleges and Employers shows hiring up by 11 percent this year, the first double-digit increase since 2011, and starting salaries up as well.
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If Warren seriously wants to help young people, she should encourage her colleagues in Congress to help the Trump administration continue to detangle the red tape spun out by President Obama’s White House. She should rally Democrats to pass the updated NAFTA treaty, the USMCA, which is projected to create hundreds of thousands of new jobs, adding to an already-tight employment market. She should encourage state legislators to welcome professional certifications and licenses from other states, encouraging mobility and freedom, as Arizona has recently done.
Overall, Elizabeth Warren and her fellow progressives should worry more about wealth accumulation and less about redistribution. If she turned her attention to further strengthening opportunities for young people, maybe millennials would jump aboard.