No doubt everyone has heard about the ginormous ($1.25 trillion) promise that Massachusetts Senator and Democratic Presidential hopeful Elizabeth Warren made around post-secondary education last week.  But I suspect more people heard/saw the heat and noise about the promise rather than the promise itself.  So, herewith, a quick rundown and analysis:

So, the first thing to note is that technically the package contained several policies.  The two major ones are about making tuition free in public schools, and a massive student debt jubilee.  It’s worth going through these two promises separately, because they have somewhat different distributional consequences.

The exact wording of the first proposal is to eliminate the cost of tuition and fees at every public two-year and four-year college in America (the “public” criteria is important – all these American free tuition plans assume most rich students in private colleges will remain rich students in private colleges thus, in theory, making free tuition proposals in the US less regressive than they would be up here).It’s not entirely clear if she means just for undergraduate programs or not; I suspect she does, but the wording is ambiguous.

This proposal depends on a 50-50 cost share with the states, which is ludicrous.  Firstly, it shares all the problems of the similarly-worded Clinton 2016 proposal (warning: link is deeply embarrassing) and for that matter pretty much every federal NDP proposal for how to get our federal government to eliminate tuition; namely, it implies enormously different transfers to different states/provinces, with current laggards getting the most money.  Will Doyle of Vanderbilt University estimates Vermont will get over three times as much per student out of this as Wyoming, which I’m guessing might not be politically tenable.  And second of all, if you’re explicitly blaming state cutbacks for the rising cost of tuition (as Warren does in her backgrounder), why would you think they’d suddenly all fall in line to increase their own spending?  I can’t imagine this is a serious proposal, and Warren presumably knows that too: this is a marker saying she’d like to spend more on education rather than something she expects to implement.  And third of all, as Kevin Carey points out, it makes tuition free but doesn’t necessarily make it good and nor does it really do much about reining in costs, which matters enormously for long-term program sustainability.

The more interesting part of the proposal is a debt jubilee – that is, the mass cancellation of existing student debt.  Specifically, she proposes to forgive up to $50,000 in student debt for every person with household income under $100,000 (the American tax system works on household income rather than individual income as ours does), with benefits phasing out gradually over the next $150,000 so that no one with household income over $250,000 benefits.  This apparently will provide relief to 95% of all former borrowers who still have debt and wipe out debt entirely for three-quarters of them.

The whole HE community in the US basically lost their minds last week trying to figure out who exactly were the “winners” in this plan, because the answer to that question is murky.  This is because:

i)                    it’s not clear if we should think about recipients based on their current (post-PSE) income or their initial family income (pre-PSE) income (some people who started poor might now be quite wealthy: on which basis should we judge the strength of their claim to forgiveness?

ii)                   it’s not clear if we should judge the plan based on the incidence or the amount of debt forgiven (low-income borrowers in repayment outnumber high-income ones, but on average the high-income ones have a lot more debt, having often gone to quite expensive grad schools)

Basically, a lot of people, many of them not well off or at least not originally well-off, are going to be helped by this; that said, an awful lot of money (somewhere in the neighbourhood of 35%) is going to go to people currently in the top income quartile.  Progressive?  Regressive?  It’s hard to say.

In cases like this, I always think it’s helpful to put the progressive/regressive question aside and focus on whether a program is likely to achieve its stated ends (apart from getting people to vote for the candidate who proposed it).  And here things get murkier still, because the need for a debt jubilee is, as the left-wing analyst Matt Bruenig said, “under theorized”.  Warren suggests the point of this is essentially three-fold: first, to “kick-start the economy” by relieving young people of debt and thus allowing them to engage in riskier behaviour (e.g. starting their own businesses) and buy more stuff (which could in fact mean taking on new and different forms of debt); second, to reduce inter-racial differences in wealth accumulation; and third – this one is more text than subject – act as a form of reparations for young people who have been saddled with a lot of debt at the same time as they have gone through a terrible decade on the labour market.

So, the first of these three is probably the weakest of the arguments.  Yes, certain individuals will be better off and able to spend more, but since this is being financed through a tax hike elsewhere, it’s not actually “new money” in the economy the way it would be if the government itself borrowed the money or created it from thin air the way the Modern Monetary Theory fanatics would have us believe; claims of greater economic growth depend on money in the hands of poor people being more effective, stimulus-wise. That may well be true, but then why not give money to actual poor people – say those not lucky enough to go to college at all?  The wealth gap argument is probably true in the sense that Blacks are slightly more likely to have debt than the rest of the population but given that well over 70% of all money in this program would still be going to whites it’s a hell of a wasteful way to do so. 

And as for reparations to millennials, well…see it actually does get a little tricky here.  As I pointed out back here, outcomes for millennials in the US have been a lot worse than they have been in Canada, and they certainly have been subject to a not particularly healthy run-up in student debt.  So, one could make a decent case that to make things right between generations, you need some kind of massive transfer from one generation to another.  The problem, then, is one of horizontal equity: why give the relief to some members of the generation and not others?  Because if you frame this as reparations, it’s not clear why you’d give money to those who have not repaid their loans over those who did, or why you’d give more money to those who chose to work less and borrow more over those who worked more and borrowed less.

(Matt Bruenig’s critique of the reparations view along with a counter-proposal is here; it’s a helpful way to think through the equity issues even if it is sometimes hard to tell how tongue-in-cheek he is actually being.)

There is other stuff in Warren’s proposals too, including more money for Pell grants and a package to improve funding for Historically Black Colleges and Universities, both of which I think are probably better proposals than the two main ones.  And overall it is of a piece with the rest of Warren’s platform which advocates a major revamp of the American welfare state with – how can I put this gently? – a less-than-laserlike focus on the longer-term implications for federalism and the incentives for institutions.  Apparently, it seems that the lesson the Democratic left has drawn from decades of the Republican right imposing ruinously expensive tax cuts without a thought of how to pay for it and never paying a political price is: “lol nothing matters”.  The need to think about how to achieve certain goals in an efficient way is itself evidence of louche neoliberalism.

Which is fine when you are campaigning, I suppose.  Works differently when you’re actually in government.