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Elizabeth Warren unveils 'broad cancellation plan' for student debt

The $1.5 trillion student debt crisis has an increasing number of former officials and prominent businesspeople calling for a solution to the crisis.

And 2020 presidential candidate Elizabeth Warren joined that chorus on Monday when she unveiled a “broad cancellation plan” for student debt.

“Higher education opened a million doors for me,” Warren wrote in a Medium post. “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.”

The Massachusetts senator’s plan involves forgiving up to $50,000 in student debt for 42 million Americans before reforming the higher education system “that created the crisis in the first place.”

Democratic Presidential candidate Elizabeth Warren speaks during a gathering of the National Action Network April 5, 2019 in New York. (Photo: DON EMMERT/AFP/Getty Images)

While it comes with a one-time cost to the federal government of $640 billion, Warren argued that the plan would simultaneously boost the economy and close the wealth gap.

“Student debt has become a crisis that can no longer be ignored,” former Student Loan Ombudsman and Assistant Director of the Consumer Financial Protection Bureau Seth Frotman — who resigned in August 2018 protesting the agency’s handling of the crisis — said in a statement of support. “Across every community, every city, and every state, millions of Americans are struggling to bear the weight of their loans as this collective debt tears at the fabric of our society. … Senator Warren's proposal recognizes the scale of this crisis and rises to meet it."

Warren isn’t the only presidential candidate proposing a massive loan forgiveness program — Florida’s Miramar City Mayor Wayne Messam is also pitching a similar but more radical plan — but she is the most prominent 2020 candidate to propose a debt cancellation plan.

How it would work

Currently there are $1.5 trillion worth of student loans out there, roughly 11.5% of which are more than 90 days delinquent or in default. The average student loan borrower holds about $28,650 in debt, according to Student Loan Hero.

Collection agencies are increasingly turning towards wage garnishments —obtaining a court order to make employers set aside portions of debtor’s paycheck — to get their money back.

Warren aims to cancel $50,000 in student loan debt for every person who has a household income of below $100,000.

In this May 15, 2016 file photo, students embrace as they arrive for the Rutgers graduation ceremonies in Piscataway, N.J. (AP Photo/Mel Evans)

For those who earn between $100,000 and $250,00, she promises a “substantial debt cancellation,” and that $50,000 amount “phases out by $1 for every $3 in income above $100,000.” In other words, a person who has an income of $130,000 would get $40,000 of debt cancelled, while a person earning $160,000 would get $30,000 off.

Those earning more than $250,000 would not qualify for the program.

Warren wrote that cancellations would provide a whole host of other public benefits apart from relieving borrowers of their burden, such as reducing the wealth gap between races and boost economic growth by “providing a stimulus to millions of American families, improving credit scores, increasing home-buying rates, increasing college completion rates, and producing greater business formation.”

She also promised a whole host of other reforms like improving the Public Service Loan Forgiveness program, punishing student loan companies and servicers, offering more grants to low-income families, and keeping the cost of education low (and eventually free).

President Barack Obama, followed by Elizabeth Warren, head the Consumer Financial Protection Bureau, walks to the Rose Garden of the White House in Washington, Monday, July 18, 2011, where he announced the nomination of former Ohio Attorney General Richard Cordray to serve as the first director of the Consumer Financial Protection Bureau (CFPB). (Photo credit: AP/Pablo Martinez Monsivais)

‘It’s time to make different choices’

Warren proposed a tax on the ultra wealthy to pay for the plan.

The cost would be covered by her “Ultra-Millionaire Tax,” she explained, which is an annual 2% tax on American households’ net worth that’s more than $50 million in wealth and an additional 1% tax those who have on $1 billion.

The tax plan would affect “the 75,000 wealthiest families in America and raises $2.75 trillion in revenue over ten years.”

She added: “Some people will say we can’t afford this plan. That’s nonsense. … For decades, we’ve allowed the wealthy to pay less while burying tens of millions of working Americans in education debt. It’s time to make different choices.”

Aarthi is a writer for Yahoo Finance. Follow her on Twitter @aarthiswami.

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