Democrats are necessarily pushing a lot of overdue social and economic policy proposal. After-all, the wealthy, the powerful, and corporations have been getting all the spoils of our expanding economy. Student loans are at the forefront of these programs. The burden they put on the economy is palpable.
I was all in with Elizabeth Warren's student loans forgiveness proposal from its inception. The meet of her proposals is as follows.
- It cancels $50,000 in student loan debt for every person with household income under $100,000.
- It provides substantial debt cancellation for every person with household income between $100,000 and $250,000. The $50,000 cancellation amount phases out by $1 for every $3 in income above $100,000, so, for example, a person with household income of $130,000 gets $40,000 in cancellation, while a person with household income of $160,000 gets $30,000 in cancellation.
- It offers no debt cancellation to people with household income above $250,000 (the top 5%).
- For most Americans, cancellation will take place automatically using data already available to the federal government about income and outstanding student loan debt.
- Private student loan debt is also eligible for cancellation, and the federal government will work with borrowers and the holders of this debt to provide relief.
- Canceled debt will not be taxed as income.
An economic analysis from leading experts on student loan debt finds that my plan would provide at least some debt cancellation for 95% of people with student loan debt (and complete and total student debt cancellation for more than 75%), provide targeted cancellation for the families that need it most, substantially increase Black and Latinx wealth, and help close the racial wealth gap.
But then I got a call from the professor. Dr. John Theis, a professor at one of our colleges here in Texas and one of my political and history mentors, called me up.
"Egberto," John said. "Do you support student loan forgiveness?"
I detected in his tonality that he knew my answer and I detected what his, was.
"I support it Doc," I replied. "Don't you?"
"No I don't," Theis replied. "It is a bad idea."
Are student loans a moral hazard?
He started to explain about moral hazard. But the underpinning thread was fairness. I asked him to write an article explaining why he does not support student loans forgiveness.
Dr. John Theis in a few hours published the article, "Why Forgiving Student Loans is a Bad Idea for Democrats" that made me rethink my support for the student loans forgiveness policy.
Dr. Theis wrote the following.
It is unfair to prevent students from poor families from getting an education because they cannot afford tuition. Forgiving student loans, however, simply makes a bad problem worse. I have been in higher education for virtually my entire adult life. First as an undergraduate, then after a couple years working as a graduate student, and finally for the last 25 years as a professor. I have taught at flagship state universities, a small liberal arts college, and now at a community college. I want everyone to go to college and get a college degree. I sincerely believe that college graduates have exponentially more options than individuals who never graduate. However, forgiving student loans is a case where the cure is worse than the disease. My reflections here are based on my experiences in higher education. I am not tarring all students.
Theis points out four major reasons for opposing the plan as written.
- "As a professor, I pay attention to what students say. Not only in class but also outside of class. I listen and it has been very instructive. I have heard students talk about the new car they are going to get when their student loans come through. I see students buying the newest phone or moving into a nice apartment with student loan proceeds and often without roommates. Many students use student loans to study abroad. Essentially, many students are subsidizing their lifestyle by borrowing."
- "Forgiving student loans penalize the students and parents who make better choices. ... I didn’t buy a new car for 15 years buying only used cars I could pay for with cash. My daughters did not have “nice” apartments and didn’t get new cars to go to college in. I didn’t let them upgrade their phones every time a new model came out. They were not always happy about it but when they both graduated with no debt and began working, the money they earned was theirs to keep. They have both said how much they appreciated not having student loans as many of their friends are now paying for their spending in college with big student loan payments."
- Overpriced private schools that skews the cost of college.
- Moral Hazard.
This won't go over well with many Progressives because it sounds on the surface like a Republican narrative of pulling one selves up by the bootstraps and being fiscally responsible. Of course we know that fiscal responsibility in this country has only come under Democratic Administrations. One cannot pull themselves up from their bootstraps if they have none.
It is imperative that Democrats do not allow the Right Wing to use an otherwise well-meaning policy as a Scarlet Letter. I can envision the GOP finding that one university student who bought a vehicle with student loan money and making a caricature out of him. That is why our policy proposals must be thoroughly vetted.
All is not loss. Theis proposed a couple of solutions .
A simple way to make the system work and encourage college is to provide every college graduate with a graduation gift. $30,000 from to federal government to you when you graduate. This could be provided to all college graduates in the United States and that money could be applied to student loans first with the balance being sent as a check. Another possible solution would be to eliminate all interest and penalties The government could assume all the debts and then repayment would be interest-free.
Helping the repayment of student loans in a fair manner is not easy. Worse, it is not easy to explain. We better get to wordsmith 'ing' as we ensure the policy is virtually bullet free to fraud.