Senator Elizabeth Warren’s (D-MA) latest populist ploy, a bill to allow students and recent graduates to refinance their federal loans at a lower rate, failed to obtain enough support in the Senate yesterday to invoke cloture or, in other words, end debate and move to a floor vote. The cloture motion, which requires a 60-vote-threshold, failed by a vote of 56-38 in the face of Republican opposition, despite a few GOP defectors.
While Democrats have already begun to decry this as the latest Republican war on part of the traditional liberal base, the Warren bill’s failure is actually better news for students than its passage would have been. Here’s why.
First and foremost, it is important to note is that Warren’s bill was little more than a shallow foxhole for embattled Democrats to dig into ahead of what is shaping up to be a wave year for Republicans. While the student loan crisis is indeed authentic, with over $1 trillion in student debt and climbing, the Warren bill’s purported boon to student borrowers was not.
Warren’s bill, publicly endorsed by President Obama, who is pursuing his own executive action on loans, was highly touted as major relief for the nation’s indebted students. The Boston Globe’s editorial board recently ran a piece entitled, “Elizabeth Warren’s student loan bill is worth talking about.” Yet conveniently, and quite non-fortuitously, they failed to mention exactly how much it was “worth” in the article.
Supporters of the Warren proposal have argued that the bill could have saved the average indebted graduate somewhere in the neighborhood of $2,000 to $3,000. Sounds great at first, but this is kind of like when Congress says they’ve saved $100 billion dollars from the deficit: sounds like a lot, isn’t actually much in the grand scheme of things, doesn’t impact the bottom line, and it’s spread out over the next decade. The average student debt load is rapidly approaching $30,000 before the added interest, from which the entire savings yield of the Warren plan would’ve come. And, of course, the savings are spread out over nine years.
So what would have been the real impact on students and graduates in repayment? Luckily a recent memo from the Congressional Research Service (CRS) takes a more quantitative approach to the bill than the Globe’s editorial team. What the CRS revealed is that the average borrower with outstanding loans between $30,000 and $50,000 would save only about $31 per month, or about $1 per day. Defeating this bill, therefore, is not so much a war on students as it is an all out assault on iTunes and venti lattes.
Adding insult to injury, the Warren bill also included a version of the infamous “Buffett Tax,” increasing taxes on those with annual incomes above $1 million, in order to offset the decreased profit to the federal government from the loans. This wouldn’t have been bad news for billionaires, as studies have repeatedly shown that statutory tax rates tend to have little-to-no effect on the effective rate paid by the super-rich. Instead, this policy would have only exacerbated the situation facing young professionals.
Aggressive tax policy only serves to stall private investments and spending. Policies like the Buffett Tax signal to business owners that now is not the time to expand and hire, meaning fewer jobs available for graduates. Indebted young people don’t need spare change from the wealthy. They need jobs where they can acquire skills, experience, and, eventually, enough wealth of their own.
In this regard, Warren’s bill would have harmed the very people it was supposedly trying to help, though we all know it was nothing more than a messaging bill for vulnerable Democrats.
That all being said, there is still the problem of student debt. It is massive, growing, and needs to be addressed. President Obama, with his phone and pen, the same one he has used to rewrite the part of the Constitution pertaining to the separation of powers, has put into motion a plan that would peg graduates’ loan repayments to a percentage of their income. It also promises loan forgiveness after 20 years, which is slashed to 10 years if students end up working for the government. Aside from the fact that this structure penalizes graduates earning higher wages and those that choose to be entrepreneurs instead of joining the government leviathan, it is still a bad idea because it also totally misses the point.
You don’t fix the problem of debt by making debt easier to get into. Instead, perhaps, we ought to explore the cost of higher education more broadly. And we can again start with Senator and former professor Warren and inquire as to why she took a $350,000 salary to teach but a single class a year.