So yesterday the Senate failed to pass Elizabeth Warren’s attempt to negotiate student loan debt down on the backs of a tax increase on millionaires. Democrats are chiding Republicans for voting the bill down, but it’s not clear to me why they would do that.
The proposal failed despite nearly widespread agreement among federal policymakers, financial regulators and financiers that Americans’ student debt burdens risk choking U.S. economic growth as student loan payments take ever bigger chunks of workers’ paychecks.
Unpaid student debt has doubled since 2007 to nearly $1.3 trillion, according to the Federal Reserve. Some 40 million Americans have student loan debt, according to the Education Department. The average borrower owes nearly $30,000.
Warren said Wednesday that outstanding student debt presents an “economic emergency that threatens the financial futures of Americans and the stability of our economy.”
Officials at the Federal Reserve, Treasury Department and executives at some of the nation’s biggest banks are among the financial experts who have publicly warned about the growing negative consequences of not taming Americans’ student debt bills, pointing to reduced home and automobile purchases, lower retirement savings, fewer new small businesses, and decreased future revenues for the U.S. banking system as households curtail their borrowing in favor of paying back the Education Department.
The emphasis on that last part is all mine, but illustrates the real motivations for this bill. Those motivations should make the Democrat rank and file very, very angry. There are several major problems with the bill, including:
- It doesn’t actually solve the problem of student loan debt and affordability of college.
- It is pro-banking
- It is anti-student
- It is anti-environment
- It illustrates the extent to which Elizabeth Warren is a fraud.
Let’s tackle these in order.
Making College Affordable
First, reducing debt on students already out of college has no impact on the affordability of college because they’re already out. This is merely refinancing of existing debt. So if affordability of college is of paramount importance, you should shrink, rather than grow, the pool of money available. Colleges are raising tuition at a rate well above the rate of inflation. They are doing so because of the ready availability of federal funds. That needs to be reversed.
While doing an interview on Sirius this morning, the show host suggested the government could easily refuse to make federal funds available to schools that don’t keep rates in check. They could also place limits on the kinds of things those funds could be used for. The point is there are ways to address the dramatic increase in the cost of tuition. This bill had none of that.
This is not a bill about helping students. This is a bill to help the banking industry. Look at that section in bold above. This is a bill meant to stimulate more banking revenue. How? That’s easy.
Also above, you will note, is a discussion of the things bankers would like us to do – buy cars, buy houses, start businesses, and most importantly, borrow more money. Our entire system is predicated on the assumption of debt. If students are precluded from taking out more debt until they pay off student loans, then the system is in jeopardy. Look at Warren’s statement. “Economic emergency”? “Threatens the stability of our economy”?
Quite the opposite. Requiring Americans to be financially intelligent and eliminating debt is hardly a danger to the economy. If anything, we need more ways to encourage financial responsibility. Only in Washington would someone consider living within your means to be a threat to economic stability.
Since the strongest argument for restructuring they could offer is “it will help us give you more debt”, let’s look at that. The suggestion is you take a loan for $30,000 (the figure they cite) at 3.5% interest for ten years, and reduce the interest rate such that you could then go get a $32,000 loan (average new car price) at 4.5% for five years, or a $250,000 loan (average home price) at 5.5% for 30 years.
Now do you recall what happened in 2008 when we created an artificial demand for housing because banks gave loans to people who couldn’t afford them? The entire system almost collapsed. People lost their homes, their cars, declared bankruptcy.
Yet the best thing we can do for students is lower the rate on one loan so we can again stack debt on top of debt and jeopardize the very security of the people we’re supposed to be helping? Keep in mind the argument is these student loans are such a huge burden that they impact your ability to live. So the way to help them is by letting them amass more debt. That is simply preposterous.
It Is Anti-environment
Ask anyone concerned with the impacts of global climate change what should be done to curb our impact on the natural world and they will almost always include some variation on “move our economy away from a pro-growth model.” Countless environmentalists have made the case that pursuit of growth at all costs is a major contributing factor in environmental degradation.
Even the Chinese, in their pursuit of communism, are pushing for huge growth in their economy to compete as a world power. Growth is fueled by consumption. If the goal of this policy is to get people to consume more – buy more houses, buy more cars – then we are actively attacking the environment.
If, instead, we urged people to conserve (financially, and by reusing goods), we would reduce the driver for much of our ecological destruction.
Elizabeth Warren Is A Fraud
Warren has made a name for herself among Democrats for her dogged opposition to big banking. During the economic collapse she dared to stand up against the angers of “too big to fail” – or so the story goes.
Yet her we see Warren pushing a proposal that is not geared toward addressing the problem at hand. It is a proposal designed to play political games with people already in debt at the expense of two of the Democratic Party’ greatest existential crises – out of control financial players and the damaging effects of consumption.
Does that sound like the actions of an anti-banking jihadist? Does that sound like a class warrior striking a blow for the 99%?
Elizabeth Warren has clearly demonstrated with this that she is on the side of big banks, on the side of crony capitalism, and in the pocket of the political elite.
So What Is To Be Done?
All of this, of course, begs the question of what should be done instead. To begin with, I would suggest Ari’s proposals warrant consideration. What avenues does the Department of Education have available to punish colleges who waste student funds and federal dollars? What restrictions can be placed on the disbursement of funds to schools that don’t control spending?
Three years ago, at the height of the Occupy hysteria, I suggested another proposal for student loan reform. My suggestion then, and I stand by it today, is to look at the potential future earnings by type of degree and set limits on the amount of student loans available based on that index.
If Philosophy degrees will earn you $29,000 per year, why would we allow or encourage someone to incur $100,000 in debt to get it?
By putting your loan dollars where the future earnings are, you encourage students to pursue math, engineering, technology and the sciences. You still allow pursuit of English, History, Philosophy and Art, but you prevent students from incurring mass debt in pursuit of them.
The point is there are options to consider beyond “hey, let’s give more money to banks”, which seems to cover the entire range of options under consideration by this Administration in it’s pursuit of political points.