As the world continues to grapple with the devastating effects of Covid, it’s easy to lose sight of the other issues affecting us at home. It’s increasingly difficult to keep up with every issue in the age of social media. Everyone with a phone and Twitter account seems to have an opinion that they just have to share at any given moment. The banner at the bottom of the screen of every cable news program always seems to be screaming “breaking news” and changes faster than the ticker at the NY Stock Exchange. It’s no wonder facts get lost when there are more screaming pundits on a debate segment than characters on the selection screen for Mortal Kombat.
For education, we can all agree. Everyone deserves a chance to have an education. What we can’t agree on is how and who pays for it. Every politician, business, organization and average joe has a solution but how likely are they? Why does my TV keep yelling at me to tell me that some divine savior will come down and forgive my student loans? As much as I want to believe that some devine omniscient being will come down from their castle made from my recycled textbooks that I’ll never be able to sell back and handle my student loans, there is only one path right now that actually works. Paying them off myself. (Or yourself???)
The most popular solution floating around is Senator Elizabeth Warren’s co-sponsored bill, “The Student Loan Debt Relief Act.” Senator Warren co-sponsored the “Student Loan Debt Relief Act with House Majority Whip, James Clyburn in July of 2019. It was at the heart of her campaign pitch during the run up to the 2020 election. Her plan called for the forgiveness of $50,000 in student loan debt for individuals making less than $100,000 annually, tax free. For those making between $100,001-250,000, she proposed the same $50,000 of forgiveness minus $1 for every $3 dollars in income above the $100,000 threshold. It also stressed the importance of creating a process for helping students with private loans convert them to federal loans through refinancing and an expansion of the Public Service Student Loan Forgiveness (PSLF) program. The cherry on top, associates and undergraduate programs at community colleges and public universities would be completely free.
While her forgiveness plan is a blessing for those students making under $100,000, Americans who live in major cities could potentially be left holding the check. A first year dentist living in NYC could potentially earn between $130,000 and $150,000 their first few years out of dental school. However, the average cost of dental school comes in at about $150,000 on top of the costs of an undergraduate degree. This is a huge problem because the dentist would only be eligible for forgiveness of about $33,000 total if they managed to make $151,000; $20,000 at $190,000, $10,000 at $220,000. Many of the highest paying jobs, in highly populated areas require additional education beyond the standard 4 years of undergraduate studies which results in substantially higher debt amounts upon graduation. Coupled with the exponentially higher cost of living, the debt becomes a crushing burden.
To accomplish all of this, Senator Warren proposed an executive one year freeze on all collections, garnishments, forfeitures and seizures related to student loan debt. For those students with remaining debt over $50,000 in student loan forgiveness, the remaining balance was to be paid using an income driven repayment model. Interest would be capped and fall in line with general banking interest rates. Using her proposed 10/10 repayment model, the student’s balance would never be more than 10% interest and never exceed the original loan amount + 10%.
For someone like me, who graduated with $30,000 in student loan debt, under Senator Warren’s plan(excluding the forgiveness part), if I were to be unable to repay my student loans for a few years because of a slumping economy, prolonged illness or pandemic, my total accrued interest would never amount to more than $3,000 and my student debt would be capped at $33,000. Optimistically, paying off $30,000 in student loans at 6% interest at a rate of $333 a month, it would take about 10 years and cost about $36,000. However, most students won’t be able to pay off their student loans in 10 years. Former President Barack Obama was unable to pay off his student loans until just before he became a Senator. Senator Ted Cruz admitted that it took him over 20 years to fully pay off his student loans. Jon Hamm was unable to pay off his student loans until he started making Don Draper money 15 years after he graduated. Paying off my student loans in the average time of 16 years, my $30,000 student loan, in the current system, will cost me close to $60,000.
Senator Warren’s expansion of the PSLF also comes at a major cost. For teachers, higher paying jobs at a private or charter school would be ineligible for forgiveness. The same could be said for doctors, lawyers, dentists and veterinarians. While there are some public sector jobs available, a majority of them are private sector. PSLF does little to curb the limitless power to set standards for graduate programs and adds zero additional oversight to rein them in. Of the few positions that could benefit from an expansion of PSLF, physicians would get most of the benefits. There are more public hospitals and 501(c)(3) positions available to them. An expansion would also mean they could earn credit towards the program for time spent in residency or fellowships before they actually begin to work full time.
The student loan industry lobbied hard against the proposed legislation when Senator Warren promised to include additional oversight and regulation on the industry. In media and policy proposals, Senator Warren has repeatedly gone after the entire student loan service industry. Her attacks centered around the predatory practices of the industry and suspect account practices that have led more students to apply for forbearance instead of income driven repayment plans. For many of these companies, projected revenues would fall by up to 85% because of lost revenue from interest, service, and maintenance fees from caps in student loan balances. Public perception of the industry itself is already at an all time low. In 2020 alone, the heads of many of these lenders have testified multiple times before both the House and Senate. They have all been hit with numerous civil and mass tort lawsuits and continue to get unflattering coverage across news, comedy and documentaries.
For many students, Senator Warren’s proposal is viewed as a glimmer of hope and the first step towards beating their student loans. However, there was massive pushback in the Senate as well as on Wall Street. To offset much of the bill’s costs, she had pledged to bridge the income gap between the lower and middle classes with the upper class by instituting a wealth tax on families and individuals with a net worth over $50 million. Support for the bill was along party lines and brushed off as a mere partisan pipedream. Some of the Senator’s Republican colleagues argued that her plan would in essence force the Department of Education to turn into a hybrid mix between a bank and glorified adult daycare while pulling the department away from its prime directive of assisting Americans with their education.
Senator Warren’s bill, as drafted now, would cost roughly 1.25 trillion dollars over the next 10 years alone. Her proposed “Ultra-Millionaire” tax would in theory cover most of the price tag. However, as recent news has shown, most of the ultra wealthy are able to write off losses and use various loopholes to avoid paying little to no taxes at all. “The Student Loan Debt Relief Act” contains absolutely zero language that would close off loopholes and does little to the tax code as written. Any changes to the tax code would incite a drafting war of words while the bill is in the debate process or perhaps may even eventually require a constitutional amendment to pass.
Ultimately, there are a lot of positives for Senator Warren’s bill, but too many issues that still need to be addressed. Her bill would require a drastic change to the US tax code, monetary policy, changes to a majority of higher education institutions as well as survive the imminent onslaught of legal challenges that it would face in the courts. Even if it managed to survive the court challenges from fellow politicians and the student loan industry itself, it could potentially require changes to the Constitution itself which would trigger another series of partisan court battles. With her loss in the Democratic Primary and stiff resistance in the Senate, the bill is dead. However, other members of her party, Former Vice President Joe Biden included, have taken the framework of her bill and adopted it into their own platforms as well. There is still hope that Senator Warren’s bill becomes the first step to a broader conversation about the student loan crisis and one step closer to a solution.