While the government continues to lend over $ 100 billion annually to students (about 40% to graduate students), defaults, as well as debt relief programs for low-income borrowers, mean that, according to the Wall Street Journal, the government risks losing $ 435 billion in existing loans. This is almost as much as the $ 535 billion private lenders lost on subprime mortgages during the 2008 financial crisis.
American Enterprise Institute study shows that after consolidating all forms of student aid, tuition fees that low- and middle-income students pay at public universities average less than $ 2,500 per year – just over 25 years ago. As student aid has grown, universities have raised tuition fees to capture much of the aid: Federal Reserve Bank of New York study says tuition increases by 60 cents for every dollar in student aid.
College tuition inflation is more than three times the increase in the consumer price index. But because the university, while theoretically expensive, is, given the myriad of student grants, in fact inexpensive, the nation is overproducing college graduates. A 2018 study found that 43% of graduates’ first jobs do not require a college degree, and two-thirds of graduates take such jobs five years later.
Warren, who appears to have learned about economics from Rumpelstiltskin (Let’s turn the straw to gold!), Says canceling student debt would be “the biggest stimulus we could add to the economy.” Jason Furman, who teaches economics at Harvard and was chairman of President Barack Obama’s Council of Economic Advisers, thinks the stimulus effect would be negligible. Because most of the debt is held by people who move up the social mobility ladder, a result of Warren-Schumer would be that the wealthy increase their savings. This “Brahmin rescue” might be at odds with progressive theories, but not with progressive practices.