Americans owe a total of $1.6 trillion in student loan debt, with $1.4 trillion of that in federal student loans. But Massachusetts Senator and Democratic presidential candidate Elizabeth Warren is promising to wipe out most of that with one stroke of a pen if elected to the White House. This week, Warren released a plan to issue an executive order on her first day in office as president, directing the Department of Education to begin to "compromise and modify" all student debt up to $50,000 for 95% of borrowers.
Warren's plan, undoubtedly designed to appeal to younger voters, appears to have a few holes. Neal McCluskey, author and education expert with the Cato Institute, says Warren wouldn't actually eliminate all of that debt, but rather transfer it to others to pay off. "Millions of people took on federal student debt, which uses taxpayer money from the federal budget, with the expectation that that money is going to be repaid," he says. "So if there is blanket forgiveness, that money has to come from someone else...that means taxpayers will have to foot the bill."
Indeed, Warren's student debt forgiveness plan is estimated to cost $1.25 trillion over the next decade. She claims it would be paid for with a new "Ultra-Millionaire Tax," a 2% annual tax on those with $50 million or more in wealth.
McCluskey also argues the plan would give students a free ride at the expense of taxpayers. "It's unfair to people who went to lower-priced schools so they wouldn't take on debt, or to people who have already paid off their debt because they were being responsible," he tells KTRH.
Besides cost and fairness, perhaps the biggest issue with Warren's plan is its legality. "That she would do this almost entirely through executive order makes it far worse," says McCluskey. "The clear reading of any of the higher education laws that deal with student loans is that there is no authority for blanket forgiveness."