Posted on 06/25/2019 7:09:45 PM PDT by Heartlander
The 2020 Democratic Primary of Extravagant Promises is off and running. On the hot topic of student loans and college affordability, Senators Elizabeth Warren and Bernie Sanders are offering bold, competing plans. Both Senators would eliminate tuition at every public two-year and four-year college in America. But their plans differ in how they’d treat the $1.6 trillion in student debt now held by some 45 million Americans. Let’s start there.
Announced in late April, Senator Warren would cancel up to $50,000 in student loan debt for anyone with household income under $100,000. Provides some of this relief to those with household income in the $100,000-$250,000 range. The higher your income within this range, the less your debt relief. No relief if you’re over $250,000.
Warren provided an economic analysis arguing that about 95% of people with student loan debt would receive some relief. About 75% would have their entire debt load eliminated. Warren would pay for her plan by an Ultra-Millionaire Tax — a 2% annual tax on the 75,000 families with $50 million or more in wealth.
Sen. Sanders upped the ante Monday. Here’s what we know so far. Sanders would cancel all student loan debt for anyone holding such debt. No eligibility limits on income. He’d pay for it with a new tax on Wall Street speculation. In addition to making two- and four-year public college free, Sanders would provide subsidies to lower the cost of college for low-income students attending private colleges that historically serve underrepresented communities.
It’s obvious that many people would benefit from either of these debt forgiveness plans. But there are numerous unintended consequences. Here’s a big one: Large-scale debt forgiveness plans primarily help high earners, since high debt loads tend to be associated with high earning.
Here’s data published by the Urban Institute:
Households with the highest earnings tend to have the most education debt. The well-off used student loans to get where they are. Forgive the debt and you’re giving these folks a massive bailout. As college financial expert Mark Kantrowitz says, “Most borrowers are capable of repaying their student loans.”
How would Sen. Warren’s plan play out? The Urban Institute estimates that Warren’s plan would “disproportionately benefit middle- and upper-middle-income Americans.”
It’s hard to argue that those earning above-median incomes of $65,000-$109,000 are in need of a $26,490 (or so) bailout at taxpayers’ expense. Sanders plan would be even more generous to the wealthy. Remember: These individuals choose to take on college debt. That debt had the intended effect: It helped them raise their earning power. They’re now happily in the middle to upper-middle class. They can afford to pay their loans.
In a dream world where political leaders could work together on areas of agreement, maybe we could focus on those who struggle the most to repay their student loans. It’s a weird fact that borrowers with the smallest debts are most likely to default. They’re often college drop-outs with limited earning power.
We already have income-based repayment plans, which are designed to help lower income debt-holders avoid default. But getting on these plans, and staying on them, is complicated. Those who most need the help are least likely to get it.
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What if we made paying student loans more like paying taxes? Take a percentage of a borrower’s above-poverty earnings out of each paycheck. The more you earn, the more Uncle Sam removes, setting you on a path to repay the debt in full, principal and interest, within, say, 10-20 years. If your income is below the poverty line, we don’t take anything out for student debt. And the interest doesn’t accrue until your earnings go above poverty. Want to pay off your debt faster? Just ask that an additional amount be removed towards paying down the principal, as with a home loan.
There’s an implicit loan forgiveness here for those who struggle near the poverty line. But it’s a targeted forgiveness. It helps those in dire straits. It’s unlikely to create a perverse incentive.
The extra earnings that come from a college degree remain high, despite rising costs. But for roughly the bottom 25% of college graduates — and almost all college drop-outs — the payoff is poor. It’s risky for marginal students to attend four-year colleges.
That’s a concern with the “let’s make college free” part of Warren’s and Sanders’ plans. One, it encourages over-consumption: Students taking a free four-year experience when they’d be better served with a different vocational route. Two, it promotes a credential arms race. In 2008, Presidential candidate John Edwards proposed one year of free college for “qualified students.” Now we’re talking about free two- and four-year college. How long until we’re talking about free graduate school?
And three, free college can lead to lower academic performance, as students have less invested in their own success. More students in college, perhaps doing less well in the process, would mean higher costs for society as a whole.
Dr. Alex Chediak (Ph.D., U.C. Berkeley) is a professor and the author of Thriving at College (Tyndale House, 2011), a roadmap for how students can best navigate the challenges of their college years. His latest book is Beating the College Debt Trap. Learn more about him at www.alexchediak.com or follow him on Twitter (@chediak).
So people who worked their way through school and didn’t take loans get nothing, nor do people who paid off their loans. And what about people just starting college. Will their loans get paid off too? It seems only fair. In which case, everyone will take out loans (free money) for college.
They want to forgive trillions in debt but don’t want to spend 20 billion or so for the border wall. Make the students pay the debt off by public service. Less talk,more block! Make them work building the wall.
Yes and no. Their taxes are based on investment income. Many use tax free bonds. Many sell the loser stocks at year end to offset the winners.
Now on a billion - yes they pay taxes. On “mere” millions of principle - it’s easier to limit tax liabilities.
“Their taxes are based on investment income.”
Their taxes are also based on income as wealthy people often work. The work ethic is how most of them became wealthy. Tax accountants work the numbers to reduce their taxes but even so they still ending up paying lots of taxes compared to people like us. The top 1% pay 37% of the taxes.
The very very rich 0.1% also pay a lot in taxes.
https://files.taxfoundation.org/20190131112443/York_1_31_19.png
“Tax university funds”
Exactly. Let’s see, Harvard’s endowment is $38.3 billion. At 2% per year, that comes to ~$766 million per year from Harvard alone. At 2% per year from Yale’s endowment ($29.4 billion), Princeton’s endowment ($25.9 billion), and Stanford’s endowment ($26.5 billion) an additional ~$1.64 billion/year. So from just these four ‘not-for-profit’ liberal institutions there would be >$2.4 billion/year for the Democrats grand plan.
The trillion or so “forgiven” will just be added to the government’s existing $22 Trillion owed.
Young people will have to pay off this debt in the future (either with taxes or via more inflation).
If students think this will be “free” to them - that is entirely false and is ludicrous - and this reality SHOULD be the first point emphasized, in stories like this...
Gosh, there are so many problems with these plans I wouldn’t know where to begin. I would make the comment about Sander’s plan to tax speculators. Speculators are a vital part of the free market place in that they provide liquidity and they do it at high risk. You produce oil. You are working close to your margins and you need to limit the risk in order to stay in business. A speculator agrees that he will buy the product you are pumping in two months at x price. The price is lower than you would like, but you sign the contract anyway because it ensures that if the price drops even lower you will still make money. In two months, say, the price has dropped even lower than the agreed price. You still sell at the agreed price and the speculator takes a bath. He has no storage facility so he has to resell your oil at the new, lower price. But in the meantime, because of speculators, the entire oil industry continued to pump oil instead of limiting production. Does Bernie plan to compensate the speculator for keeping the oil market “liquid?”
This is modified reparations.
So let me understand this. I paid for my kids college, two BS and one MS. Now the Democraps want to ax me to pay for someone else’s kid “gender studies” degree??? Hell NO!!!
Tax only the wealthy, huh?
When the Income Tax began in 1913 the rate was 1% on those making more than $3,000 net personal income, i.e. $30 in income tax.
$3,000 in 1913 was the equivalent of $76,599.
“Congress enacted an income tax in October 1913 as part of the Revenue Act of 1913, levying a 1% tax on net personal incomes above $3,000, with a 6% surtax on incomes above $500,000.”
https://en.wikipedia.org/wiki/History_of_taxation_in_the_United_States#16th_Amendment
Back 40 years ago, tuition room and board at even a top end private school ran about 10-15% per annum of a top end civil service professional - not political level - salary. Now it is running up against 40%. That is a large multiple of inflation and says a lot about what has happened to the middle class.
This isn't socialism - with professors and administrators earning socialist salaries - this is crony capitalism where people are making out like bandits not doing much while hoarding the public trough.
I wonder if those of us who paid off student loans will get reimbursed?
Pish-Posh.
If you're a politician who can wave a magic wand and make student loan disappear, surely, you can make it so the forgiveness doesn't have to be included as income.
It's possible that Sanders hasn't thought about this little obstacle yet, but it might be fun to bring up with any young millennial if they demand you pay for their loans.
What does that even mean. What if they stop speculating?
Well, in any case they aren’t getting it past the Senate or POTUS Trump.
WRT mentioning it, the purpose is to reinforce how much of a short-sighted idiot Sanders (and others who propose the same thing) is.
That education plan is utopian.
Here, if they aren’t studying toxic masculinity,gender studies, feminist history and trends in metric poetry-——they won’t study anything.
One expert said hundreds of colleges and universities have removed history ,language and math requirements. Technically, one could get a degree without reading a word of the Constitution,Declaration,Bill of Rights,Federalist Papers or the histories of wars and conflicts.
No wonder a survey result showed over 40% of young people cannot properly place in sequence which came first: World War II or the American Civil War.
Our schools fail to properly evaluate socialism, communism and free republics and capitalism. No classes attack the Left.
To them socialism is warm and fuzzy and gives free stuff to them (money,college,health care to start).
The meanies who look like Rush and Karl Rove are capitalists who horde wealth and let poor people die on the sidewalks outside hospitals due to lack of money.
So well educated./s
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