Elizabeth Warren Wants to Transfer $640 Billion in Student Loan Debt to Taxpayers

July 28, 2019 Topic: Economics Blog Brand: The Buzz Tags: TaxesStudent Loan DebtCollegeElizabeth Warren

Elizabeth Warren Wants to Transfer $640 Billion in Student Loan Debt to Taxpayers

A really bad idea. 

On Tuesday, Sen. Elizabeth Warren released more details to her proposal to transfer approximately $640 billion in student debt to taxpayers. With total student debt at about $1.6 trillion, and annual college tuition and fee increases outpacing inflation for decades, many Americans might welcome policies that seemingly make college more affordable, including student loan “forgiveness.”

The program would benefit many responsible students repaying their loans as scheduled. However, it would also reward students who used college as a consumption good (playtime) as opposed to an investment opportunity (acquiring skills), and those who borrowed for degrees they didn’t need, or degrees that delivered big earnings, like doctors and engineers.  

Consequently, the transfer of student debt from those who took it on voluntarily to hard working taxpayers may not resonate well with those Americans who had to make difficult decisions regarding college affordability. Those who might understandably feel resentful are:

  1. Students who chose an affordable higher education route, as opposed to debt financing, by working while in school, attending community college for two years, living off campus, commuting from home, or other means.
  2. Students who sacrificed to repay their student loans.
  3. Parents who sacrificed to pay their children’s college expenses.
  4. Students who chose more lucrative majors, over their desired field, for the sole purpose of repaying student loans.
  5. Those who wanted to attend college but chose not to, believing it too costly.

The broader message sent to all Americans is also not a good one, but one that discourages responsible personal finance. Why should you pinch pennies, minimize debt, and pay your bills when those who don’t get bailed out?

Policy should be geared toward encouraging and rewarding responsible behavior. This does the opposite. 

Russell Rhine is a Policy Analyst at Cato’s Center for Educational Freedom. Russ’s broad economic background stems from nearly twenty years in academia and three years as a Congressional Joint Economic Committee, Senior Economist.

This first appeared on the Cato website here

Image: Reuters.