Imagine being a progressive young Democrat — perhaps maybe even tilting towards the Democratic Socialist crowd. Now imagine running for the party’s presidential nomination with a plan that rewards the top income earners with billions of federal dollars in loan forgiveness and pays for it with an increase in middle class taxes.
Look, if you’re the longshot, you take chances. After all, you have nothing to lose since you probably are not going to win anyway. And, a few weeks ago, that’s exactly what Democratic presidential hopeful, and mayor of Florida’s Miramar City, Wayne Messam did — he took a chance. His path to the presidency? Cancel all student loan debt outright.
And, while Messam isn’t alone in grandstanding for the Millennial vote by addressing student loan debt, he is almost alone as a presidential candidate in proposing to just write it all off. The other declared candidates — front-runners and longs shots alike — support various plans to allow existing student debt be refinanced, or to have its interest rate reduced, but none favors outright cancellation like Messam except Elizabeth Warren — and even her plan has some caveats.
The other candidates know there are plenty of good reasons not to just cancel all outstanding student loan debt.
And, while Messam’s plan to cancel debt is long on hyperbole and short on details, it does say its goal is to cancel the $1.5 trillion in outstanding student debt — that’s all outstanding student debt. Let’s dig just a bit into what that really means.
The anecdotal images we’re usually given are those of struggling graduates from low income families trying to make ends meet after college. The story typically says something like they majored in elementary education and now are earning only $45,000 per year as teachers while carrying maybe as much as $50,000 in student debt (the national average debt for education majors is about $32,000). Okay, but what about the recent graduates from Medical schools?
Remember, his plan is to cancel all student debt. The average starting salaries for recently minted doctors is about $200,000. The average medical school graduate likewise carries a debt load at graduation of about $200,000. Messam says let’s just write off everyone’s debt and pay for it by repealing the Trump tax cuts that save the average taxpayer about $1,600 per year.
Don’t misunderstand — it is fine that doctors earn what they earn. It’s even fine that, misguided as it is, writing off student debt should include medical school graduates too. But, cancelling the debt of the top 1 percent of income earners at the expense of a middle class tax cut is hardly a progressive idea.
Elizabeth Warren at least has tried to put some numbers to this idea. Her proposal is to cancel all the student debt of folks earning less than $100,000 per year and then reduce the write-offs by a buck for every three that someone earns over that amount. In addition, going forward, her plan is to provide free college for everyone with the costs split 50/50 between the states and the Federal government. But still, how will this massive farce be paid for?
Warren says her 2 percent wealth tax will cover the tab — but, in reality, she should have paid attention in math class. By her own estimate, her plan will wipe out 75 percent of all student debt. Quickly calculating, that comes to about $1.1 trillion dollars. Additionally, total college costs per year comes to about $70 billion (and that will increase since more will attend if they know it’s free). My back of the envelope math makes the grand total about $1.2 trillion after a few expenses for administration.
However, her 2 percent wealth tax will only raise that amount — $1.2 trillion — over the next ten years in total! I understand lightbulb snatching and paying for the write-offs now and covering them in the future with the tax revenue, but that still doesn’t work. After the first year, there never will be enough to pay for the ongoing free college expenses. And… the lightbulb snatching also has a cost — interest on the government debt for the next ten years incurred to pay for the write-offs right now.
Also, there is another problem with this whole debt cancellation idea. Without a workable plan in place for future students to pay for their higher education, cancelling all prior student debt seems patently unfair — even for the education majors! Previous student borrowers get their debt cancelled, but future students still will have to borrow — unless the plan is really to forgive everyone’s student debt forever and then what’s the plan to pay for that?
And what about the conscientious graduate that just paid off their loan? Will they get a refund? If the answer is “no” then the plan basically rewards students for not paying their bills and punishes those that do. If the answer is “yes,” then how far back do you go for refunds and where do I file for mine?
Pursuing this folly of an idea is not just the poorly thought out plan of a small town mayor and a deranged senator dreaming of the presidency. Democratic freshman congresswoman AOC has also called for student debt forgiveness paid for by reversing the Trump tax cuts. As an aside, if refunds will be given to those that already paid off their student loans, I’ll look for my paperwork — I paid mine off before AOC was born.
With many of the current presidential contenders proclaiming allegiance to Democratic Socialism, or at least progressivism, wiping out existing educational debt is really the antithesis of their beliefs and the polling leaders in the Democratic race know it. Debt cancellation disproportionally helps students that attended higher priced institutions, those that attended professional schools such as lawyers and doctors, and those that will earn the highest incomes. It also punishes those that paid their loans, and this whole mess comes with a bill that nobody can pay.
But… when you are a longshot, you take chances.
Kevin Cochrane teaches economics and business at Colorado Mesa University in Grand Junction and is a visiting professor of economics at the University of International Relations in Beijing, China. He is a regular contributor to several national publications including the Washington Times, Washington Examiner, and American Thinker. He previously was the economic correspondent for both CBS and NBC TV affiliates in Southern California. For 27 years he formerly was a senior banking executive with a major NYSE listed bank holding company and the CEO of a national multi-bank operating company. To read more of his reports — Click Here Now.
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