Elizabeth Warren's $1.25 trillion education plan aims to end the cycle of student debt—here's how

Democratic 2020 U.S. presidential candidate and U.S. Senator Elizabeth Warren (D-MA) speaks to supporters in Memphis, Tennessee, U.S. March 17, 2019.
REUTERS/Karen Pulfer Focht

On Monday, Democratic presidential candidate Elizabeth Warren released an ambitious $1.25 trillion education proposal that would address rising college costs and the student debt crisis.

"Higher education opened a million doors for me," the senator wrote in a Medium post introducing the plan. "It's how the daughter of a janitor in a small town in Oklahoma got to become a teacher, a law school professor, a U.S. Senator, and eventually, a candidate for President of the United States. Today, it's virtually impossible for a young person to find that kind of opportunity."

Her proposal has two key measures, eliminating student debt and providing free college options for all Americans. The policy moves beyond college affordability with the goal of eliminating the cycle of student debt.

Here's how it would work:

Tuition-free college

Warren's proposal goes beyond debt forgiveness, addressing the entire system of college affordability with the aim of eliminating the need for Americans to take on student debt in the future.

"We need to fundamentally change the broken system that created the crisis in the first place," she wrote.

To accomplish this systemic overhaul, Warren proposes eliminating tuition and fees at all two-year and four-year public universities through a federal partnership with states to "split the costs of tuition and fees and ensure that states maintain their current levels of funding on need-based financial aid and academic instruction."

Should this policy be enacted, students would be able to attend in-state programs without paying tuition and fees, similar to the American K-12 education system.

Free community college has become an increasingly popular policy among progressive politicians. In 2015, President Barack Obama proposed a national policy that would make two years of community college free for all eligible students.

"No hardworking student should be stuck in the red," said Obama during his final State of the Union address in 2017. "We've actually got to cut the cost of college. Providing two years of community college at no cost for every responsible student is one of the best ways to do that."

Today, at least 17 states offer tuition-free community college for residents.

Warren's proposal also emphasizes the benefits — beyond reducing future student debt — that free public university would have on future and current college students.

"We expect everyone but the wealthy to take on mountains of debt if they want to get a post-secondary education. This is closing off opportunities for generations of Americans and widening this country's racial wealth gap," Warren wrote. "The cost of college deters people from attending college."

She also argues that eliminating tuition and fees at public institutions would help increase graduation rates, especially among low-income students. According to the National Center for Education Statistics, just 40 percent of first-time full-time students earn a bachelor's degree in four years, and only 59 percent earn their bachelor's in six years.

With more than half of students struggling to graduate in four years, most students are forced to take — and pay for — extra years of college.

Forgiveness for existing debt

Notably, Warren's plan includes eliminating some student debt for 95% of borrowers and eliminating all student debt for 75% of borrowers.

She proposes cancelling up to $50,000 in student loan debt for every borrower with a household income of less than $100,000. Most student loan borrowers fit in this group — the most recent Survey of Household Economics and Decision-making (SHED) from the Federal Reserve Board indicates that Americans with education debt owe between $20,000 and $25,000 on average.

Under Warren's plan, for every $3 a person earns over $100,000, the amount of debt cancelled would decrease by $1. "For example," Warren writes, "a person with household income of $130,000 gets $40,000 in cancellation, while a person with household income of $160,000 gets $30,000 in cancellation." Borrowers earning over $250,000 would not qualify for forgiveness.

Debt cancelled would not be taxed as income. Private and federal loans would qualify for cancellation, which would take place automatically using data already available to the federal government.

Additional funding for debt-free graduation

"To allow students to graduate debt-free — especially students from lower-income families — we must expand the funding available to cover non-tuition expenses," argues Warren in her policy proposal.

In order to cover these kinds of costs, Warren proposes expanding Pell Grant funding by $100 billion over the next 10 years. Pell Grant funds can be used for tuition and fees, room and board, transportation, books, supplies and more. To qualify, students with a high school diploma or GED must submit the Free Application for Federal Student Aid (FAFSA).

Pell Grants are awarded based on a student's financial need, as determined by the FAFSA. During the 2019-2020 school year, the maximum Pell Grant award was $6,195.

The cost of college deters people from attending college.
Elizabeth Warren

Over the past several years, funding for Pell Grants has not kept pace with student needs. A dramatic expansion of the program would increase these funds for low-income students.

Warren's proposal repeatedly highlights wealth gaps between white, black and Latinx students. To address these inequalities, she proposes creating a $50 billion fund for Historically Black Colleges and Universities (HBCUs) and Minority-Serving Institutions (MSIs) that would be overseen by the Secretary of Education and be used to improve enrollment and graduation rates at these schools.

Exactly how these funds will be used to increase enrollment and graduation rates is unclear, but financial support for these schools could give students minority students additional aid.

The plan to pay for it

Warren estimates the proposed policy would cost approximately $1.25 trillion over 10 years and proposes that costs be covered with revenue from her proposed Ultra-Millionaire Wealth Tax, which would tax the estimated 0.1% of Americans with over $50 million in assets.

During a CNN Town Hall on Monday, Warren said that with the proposed tax in place on the 75,000 largest fortunes in America, "we can do universal child care for every baby, zero to five, universal pre-K, universal college, and knock back the student loan burden for 95% of our students and still have nearly a trillion dollars left over."

Critics have suggested this kind of tax would be difficult to implement, in part because income is more easily tracked by the IRS than assets.

"Student loan debt is crushing millions of families," wrote Warren on Twitter. "That's why I'm calling for something truly transformational."

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