Elizabeth Warren: No, student loans are not like a mortgage

Over the past two years, Americans who carry student loan debt have been given a reprieve. Early in the pandemic, lawmakers agreed that a pause in debt payments was in order; this palliative measure was extended six times. The current restart date is set for the end of August, although experts already suspect politicians will want to wait until after the midterm elections.

Eventually, however, policymakers will have to figure out what to do about the $1.6 trillion in student debt. Senator Elizabeth Warren of Massachusetts was one of the most prominent voices calling for outright cancellation. Along with Senator Chuck Schumer, Warren called on the president to write off up to $50,000 in student loan debt per borrower, arguing it would help close the racial wealth gap. (Studies have shown that black borrowers are more likely to take on debt, more likely to accumulate more student debt, and more likely to default on those loans whether or not they complete a college program.)

Debt cancellation, however, is not without criticism. There are those who argue it would be a gift to the wealthy, a slap in the face to those who paid off their loans, or a retribution to those who didn’t attend college in the first place. On Tuesday, I spoke with Warren about those critics, why she thinks student debt should be forgiven, and how to prevent a debt situation like this from happening again. Our conversation has been edited for length and clarity.


Adam Harris: Over the past month, several criticisms of the broader student loan and debt forgiveness conversation have been raised. First, some argue that students take on this debt the same way people take out mortgages, and that student debt should be treated the same as other investments. Why should student debt be treated any differently than some of these other debts?

Elizabeth Warren: Education debt is unlike any other form of debt incurred by Americans. It is mainly supported by people who are not even in their twenties. It’s to get an education – and what most parents, teachers, aunts and neighbors have hammered into these kids’ heads for years is that an education is a ticket to the middle class American. These aren’t people who ran off to the mall and loaded up sneakers and expensive stereos. These are people who tried to do everything they were told was the right way to build a secure future.

Also, look at it from the perspective of people in their 40s and 50s, who went back to school to try and get a degree or maybe an extra degree like a master’s, so they have a chance better compete at work or find a job after being laid off. To treat people who go into debt to try to get an education the same as people who go into debt for any consumer good is to miss the question of how education n It’s not only a benefit, personally, for the person who gets it, but also a benefit for our whole country.

You know, I’m just going to backtrack for a minute here. When the returning GIs came back [after World War II], extremely generous benefits were granted to them so that they could follow a post-secondary education. Now there was a huge racial element, and many black soldiers and sailors were deprived of their benefits. But for those who were able to benefit, it not only propelled their families forward; subsequent data shows that it has benefited the whole economy. The boom of the 50s and 60s and even into the 70s was a direct result of having a more educated workforce.

There was a time in this country when it was possible to get a post-secondary education without going into debt. I went to a four year college and graduated for $50 per semester in tuition. It was the University of Houston. And that no longer exists, because American taxpayers are not making the initial investment in these schools. I might have a very different view of student loan debt if everyone in this country had the option of getting post-secondary technical training, two-year college, or four-year college at a price that someone could pay for a part-time waitress job, but since that’s not the reality, then the nation has to deal with the huge debt burden we’ve imposed on an entire generation.

Harris: Speaking of who holds the burden of debt, another criticism is that debt cancellation is a gift to the rich. Why wouldn’t a $50,000 debt write-off, as you proposed, be a sort of transfer of wealth to lawyers, doctors, and people who could afford to repay their loans?

Warren: Who borrows money to go to college in the first place? People whose families cannot afford to write a check to send them to school.

Yes, more student debt is held by those with higher incomes – that’s compared to a lot of people who never went to college. But these are people who did everything right. Those who argue that nullification is regressive only get this result when looking at income, not wealth. But wealth matters more when we think about student debt. Low-income students who borrow to attend college may end up with higher incomes, but they have less wealth. Low wealth is what prevents them from buying a home or opening a business or creating long-term financial stability.

In terms of wealth — let me stress this — the majority of loans are held by households with zero wealth. The median federal student loan debt of borrowers in the lowest wealth quintile is twice as high as the median federal student loan debt of borrowers in the highest wealth quintile. Only 4% of the top 10% have student loan debt, compared to nearly 20% of the bottom three wealth quintiles. So it’s not regressive.

In fact, do you know what proportion of Harvard students borrow [federal] money to go to school?

Harris: It must be less than 5%.

Warren: It’s 2 percent. What proportion of University of Delaware students borrow money to attend school? Fifty-five percent. And what proportion of Grambling State students borrow money to go to school?

Harris: I would say 80%.

Warren: Ninety percent. Now put these three next to each other and tell me how regressive student loan debt forgiveness is.

Harris: Well, that reminds me of another question: If you cancel student debt, how do you prevent this kind of massive debt from piling up again, assuming the system stays the same?

Warren: Oh yeah, we need to tie two things together: dealing with the student loan debt that’s crushing people right now, and finding a reasonable way to pay for college in the future. The second part, which the Ministry of Education is working on, is income-tested repayment plans.

Now the current version of the income-based repayment plan, frankly, has been a mess: tangled up, harder for people to get relief at the end, negative amortization. It was run in a way that looks a lot like the subprime mortgage scam. But it doesn’t have to be run that way. And the Department of Education is, as you and I speak, reworking that program so that when a person accumulates debt to go to school, they have a manageable payment when they leave. And at the end of a repayment period, any remaining amount is discharged, so there is no accumulation at the other end.

Harris: One of the last things I wanted to ask was the legal justification for Joe Biden’s debt cancellation. Some argue that the logic is flawed and suggest there could be legal challenges in the end if the Department of Education ends up canceling this debt. How do you respond to critics who say the president’s plan might not hold up in court?

Warren: I’m pretty sure the President of the United States can write off student loan debt because Barack Obama did it, Donald Trump did it, and Joe Biden did it to the tune of tens of billions of dollars . The original authorization text that created a program for the federal government to lend money for people to go to school contains very broad language regarding the ability to rewrite and renegotiate the terms of those loans.

And think about it for a minute: it makes perfect sense. When you borrow money from the bank and you go back to the bank and say, “I want to pay sooner” or “I can’t pay it all” or “My toes are on the doorstep of the bankruptcy”…the bank, your creditor, still has the power to say, “Okay, here’s what I’m willing to do: I can cut a little here; I can change the interest rate there; I can forgive the principal. The creditor has the power to cancel the debt in any debtor-creditor relationship. I mean, that’s how they’re set up. It is a statutory question. You know, I taught debtor-creditor law for 25 years, and that’s, like, the most basic thing.

The second thing is: Who exactly is going to sue? There must be an injured party. And I don’t know who thinks they’ll have standing because they don’t like a policy. This does not give you standing to sue. So I’m just – I’ve heard this before, and I don’t know why they haven’t sued already if they think they have such a good case there. They had plenty of opportunities.

About Judith J. George

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