Why Elizabeth Warren's Free College Plan is So Important

Elizabeth Warren's free college and debt relief plan is a major intervention in the national discussion about the future of higher ed.  (Image credit Zero Hedge). Her plan has one big kink, which I'll get to later. The Democrats' current job is to fix public college financing without recapitulating the Republicans' private-good framework that has justified disinvestment. That's what Warren's plan does.

The instant criticisms raised important issues, but also create the danger that party leaders will wound Warren's plan without killing it.  The "new normal" wins if critics can get the Democratic base to feel ambivalence about a big fix--opposed to student debt but not proudly for Warren's debt relief.  The new normal has lowered voter expectations about everything--"forget a good job, I just want a job, or two."  The Dem temptation is to run against student debt and still be the guilty austerity party of alleged appeal to donors and undecideds.  Unfortunately, this austerity tradition has given the Democrats a justified reputation for inadequate solutions and ineffective moral posturing.  This reputation has cost them most state governments and 2.5/3 branches of the federal government. Public college underfunding is just one result.

Enter Warren, whose plan actually does the Democratic party a giant favor. It

• rejects the 30-year-old Democratic tradition of nudges and cheapness.
• scales Democratic policy to the size of the opposing Republican policy. Trump cut taxes on business and the wealthy by more than a trillion dollars over ten years.  Warren reinvests in public colleges by more a trillion dollars over ten years.
• rebates expenses to the middle- and working-classes rather than to the rich.  It's a small-d democratic stimulus program.
• starts rebuilding at the gigantic scale at which higher ed is being built in East Asia and elsewhere.  This cuts through the false sense of superiority that burdens Anglophone policy.
• defines the principle of public reinvestment as a universal, egalitarian benefit:

We got into this crisis because state governments and the federal government decided that instead of treating higher education like our public school system — free and accessible to all Americans — they’d rather cut taxes for billionaires and giant corporations and offload the cost of higher education onto students and their families.

Warren grounds wealth-creation in social labor.  She has figured out how to make this point to a mass television audience:

 But now that you've got that great fortune, spend just a minute to remember how you got it.  You built that great business or your ancestors did using workers that all of us helped pay to educate.  You got your goods to market using roads and bridges that all of us helped pay to build.  You are protected in your factories with firefighters and police officers that all of us helped to pay.

Public-good funding is an expression of the reality of common effort, both past and present. And, she

• starts the negotiation with the "whole ask" --ask for everything, not a "realistic" 10%--to move the "pragmatic center" to the left. This is in contrast to the Clinton-Obama practice of triangulating between the two 40-yard lines.  Even conservative Democrats who hate Warren's "socialism" should love the strategy of moving the debate out of right field.

I won't detail Warren's plan, which has been widely discussed (Michael Hiltzik's analysis is particularly good). Suffice to say, relief has salary caps, so is not a debt jubilee.  It cancels 40% of the total amount of debt, according to David Leonhardt, which I assume comes from excluding debts like $300,000 for medical training for an orthopedic surgeon who makes $900,000 a year.  It does provide for total student debt cancellation for 75% and some cancellation for 95% of student borrowers.  It also gives the most help to the lowest-income borrowers (I define "most help" differently from Brookings, below), to those most likely to default, and to those disadvantaged by a racialized "debt geography"--which has become a bit like Ruth Wilson Gilmore's "carceral geography."  (See this month's excellent "Student Loan Debt in the Bay Area," or "Student Loan Borrowing Across NYC Neighborhoods" (2017).

Each major plank (debt relief, debt-free future, de-subsidizing for-profit colleges, public endowment for Black and Minority-Serving Institutions) rests on an important principle the MSM ignores:

• the student debt boom is an unjust burden on recent college cohorts.  A corollary is that the growth in student debt has reflected a politically-motivated wealth transfer from young to old, poorer to richer, less white to whiter. It can and should be reversed through the political process.
• to prevent future debt, the metric of tuition must be replaced with the metric of total cost of attendance.  All policy and administrative defenses of high public university tuition have praised the way financial aid covers tuition costs for low income students.  I felt I needed to refute this claim in detail in The Great Mistake (Stage 5) because it was so widely believed.  Sara Goldrick-Rab and others have for years fought the same war of position against this view.  Warren may just have swept it away.
• federal education funds are for education, not for banks and investors.  For-profit colleges extract most of the funds they receive of the educational system.
• It is unjust that the colleges and universities that serve large numbers of students of color are poorer and less stable than others.  This too is a political problem that can be fixed with politics.  Closing this gap is a key aspect of decolonizing the university.

Warren has come up with a policy that combines an economic stimulus with more rational human capital formation with increased social justice. You'd think Democrats would be thrilled. Many are not.   Most critics are saying one of the most progressive presidential candidates in U.S. history is not progressive on student debt.

To deal with these criticisms, it's worth keeping a few things in mind

1. Warren's plan is progressive, in that the most help goes to the group having the hardest time paying off its student loans.  This contradicts the widely-recycled claim made by Adam Looney at Brookings. He called her plan "regressive, expensive, and full of uncertainties," justifying the first of these charges with the calculation that the top 40 percent of earners by income get 66 percent of the forgiveness, and the bottom 20 percent get only 4 percent. But that's because lower-income graduates often came from lower income families, and went to cheaper (and also poorer and less effective) colleges for which they had to borrow less.  The skew in raw totals of loan forgiveness reflects the inequities of the current system.

In addition, Looney uses these raw totals to define "most help." I would define "most help" in relative terms as progressive tax systems do--as relative to debt as a share of income, which affects who is most likely to default on their loan.  Since the average loan in default is about half the average loan balance (p 28) (yes, smaller balances are more likely to be in default), the smaller raw total of forgiveness for lower-income borrowers masks the very large help offered by the 100% forgiveness they receive.

2. Student debt is not like a loan for a house or stock purchase that reflects a rational investment in a future return.  The Washington Post instantly produced an editorial rehearsing the private-good argument that a college degree earns a $1 million wage premium over a lifetime, so you can (and must) pay it back.  This consumer-loan analogy is incorrect. At least half of the total value of a college degree is either "external" to the person (because public), and/or non-pecuniary, or both.   Post-style arguments reduce the non-private benefits to "dark matter," in Walter McMahon's term, and cause them to be underfunded by the public.

Another big problem with the private-good argument involves the different costs people pay to get the same private pecuniary wage benefit from a college degree.  Graduate A went to a white suburban high school, had an SAT tutor and expensive extracurriculars, goes to a good college, needs no loans, and works for decades for her $1 million wage increment. Graduate B went to an underfunded, de facto segregated city school, worked 20 hours a week through high school, amazingly goes to the same college (and works 20 hours a week there), takes out $23,800 in loans, and then works for decades for the same $1 million wage increment. Their everyday lives and their financial futures are quite different: Graduate B buys a house 14 years after Graduate A, etc. etc.   There's no ethical justification for this difference.  But it is the standard market outcome.

The point is this: you either socialize the costs of a complicated individual-collective benefit like education, or you make the allocation unjust and inefficient.  There are difficulties with non-market allocations that need to be worked through, but this is the correct baseline for higher education, not allocation by (unevenly subsidized) ability to pay.

3. Poorer graduates do need debt relief.  Another group of Democrats is saying Warren doesn't need such a big plan. Several journalists cited an Urban Institute paper by Sandy Baum and Victoria Lee that suggests low-income people don't owe too much money. Their second figure does link debt to income, and undermines the point that low-income people have little debt burden:

Even when you average debt across an income category, you actually see low, middle, and upper-middle income people having similar debt totals.  This doesn't really change until you get into the top 10 percent.  The bottom half of the population, roughly speaking, has average student debt equal to a year of household income. This is after they've collected their wage premium for going to college.   These are the people who are most likely to default,  often after many years of struggling to pay. Warren's plan directly addresses this issue.

4. Student debt increases racial injustice.  For example, a 2018 study by the American Association of University Women found that the group with the highest bachelor's degree loan balance was Black women (slides are here).

Link higher debt to wage disparities and its no surprise that Black women default at twice the average.   There's no better way to start helping universities increase race- and gender equality than eliminating student debt.

Sen. Brian Schatz (D-HI) and other Democrats have already proposed debt-free college legislation, and Warren's plan will increase interest in these plans.  A lot of changes will be made, and in anticipation we should note the big kink: Warren's plan affects tuition while doing nothing about the other main source of public college revenues, state funding.

Kevin Carey nails a giant perversity: cheap states like Vermont will get more money per student to backfill high tuition, while states with better public funding and lower tuition will get less.  So Warren's plan rewards the states most likely to have screwed their students by shifting costs from tax funding to tuition.  Carey has an interesting fix for this.

The wider issue is that Warren's plan addresses neither general underfunding among public colleges, nor the very bad inequalities of funding across research flagships, regional colleges, and community colleges.   The prospect of a federal bailout is likely to suppress state effort even further.  The Warren plan could ease graduate financial hardship by making university hardship worse.  This is public universities's deepest fear about tuition reduction.  If Warren et al. don't address the revenue shortfall, especially in regional and community colleges, the sector will fight debt-free tooth and nail.

Overall, Warren's plan is a breakthrough for public colleges and for Democrats. I hope universities will work on improving rather than blocking it.