What Elizabeth Warren’s Plan to Cancel Student Debt Would Mean for You

With the possible exception of the actual millennial in the race, Elizabeth Warren may be the Democratic presidential candidate most attuned to that generation’s pain. Long before she was blogging about Game of Thrones, and even before the 2008 financial crisis made her a national figure, she was a regular guest on Dr. Phil, doling out advice to middle-class folks who just couldn't seem to make ends meet—in particular, people struggling with debt. Back then, in the mid-aughts, it was a relatively controversial idea that some Americans were being forced into economic misery; people tended to assume anyone who had to declare bankruptcy had dug their own financial grave. Warren disagreed, and said as much to her television audience, the readers of her two books of money advice, and even to Joe Biden, in what is now an extremely relevant tiff during a Senate committee hearing.

Given that she has been trying to erase the stigma against debt for over a decade, it's perhaps no surprise that Warren became the first presidential candidate to propose massive student debt cancellation on Monday. Although Bernie Sanders is credited with popularizing the idea of free college, and most of Warren's competitors in the 2020 race have some vague thoughts about it, her plan for fixing the higher education crisis is notable for how specific it is. Here is a quick look at how people in various scenarios would fare if it became law:

People whose household income is less than $250,000

Warren’s plan would cancel $50,000 worth of debt for everyone in a household making less than $100,000 a year, and provide a prorated amount of relief for anyone whose household makes between $100k and $250k. Warren said the federal government, which provides the vast majority of the student loans, would effectively cancel the debt on its books, and in so doing, would provide relief to more than 40 million Americans. (The path to forgiveness seems less clear for the approximately 8 percent of people with privately held loans, but Warren said her plan would provide for elimination of those as well.) In what would amount to about $2.75 trillion worth of wealth redistribution over a decade, Warren would fund her plan by way of her previously released wealth tax. After that one-time debt erasure, she would use future tax revenue to make public colleges tuition-free.

People attending public colleges and their families

For years, the cost of a public university education has risen while wages have stayed flat. Between the 2008-2009 school year and now, the price of tuition has gone up about 3.1 percent each year when adjusted for inflation. "Free tuition [at public schools] would fundamentally change what college means to millions of families," said Caitlin Zaloom, the author of the upcoming book Indebted: How Families Make College Work at Any Cost. "Students could walk into their classes knowing that they will not be weighed down by the very education that also promises to open up their futures. And their parents will be able to feel more secure too. Not only will they be able to put more money toward their own retirements, but parents would also know that their children would be able to use their educations as they intend, in service to their own desires and not in service to their lenders."

Students of color and those at historically black colleges

Aside from being economically radical, Warren’s idea is notable for its racial justice component. Public colleges would be subject to an annual audit to ensure that students of color make up a set portion of every class enrolled (completion rates would be audited, too), and a $50 billion fund would be created to help historically black colleges spend more per student. An independent analysis by four Brandeis University professors has already found that Warren’s plan would meaningfully work to reduce the racial wealth gap—it would mean median wealth for all Black households would go up by about $6,741, and for all Latino households, it would go up about $3,280. (This would go a long way considering that the average Black family has been on track to have zero wealth by the end of this century, according to the progressive think tank Institute for Policy Studies.)

People who prioritized paying off their debt already

More than 75 percent of borrowers would be completely debt-free if this plan took hold, and more than 95 percent of borrowers would qualify to have some of their debt relieved, but those who have already paid off their debt won't benefit as directly. A quick scroll through the subreddit /r/personalfinance or one of those first-person, perennially viral “How I Paid Off My Debt” articles will show there are a ton of people who have sacrificed enormously to pay off their debts already (or at least claim to have), and as a result, don't have any money in savings or set aside to purchase a house. According to 2015 data from the Federal Reserve, for every 10 percent increase in student debt loans, a person’s chance of homeownership drops 1 to 2 percentage points. Meanwhile, some data crunching by NerdWallet showed that the average member of the class of 2018 won’t be able to retire until they’re 72 years old, in part due to borrowers’ frequent inability to save for retirement while also paying down debt. It's possible that Warren's plan will push other candidates to the left on higher education, so in theory one of the them might come up with a plan to help those people get a refund, but the plan itself won't give them any money.

Married couples who file taxes together, make more than $250,000 and have tens or hundreds of thousands of dollars in debt

While $250k may seem like an enormous annual income—and is in most places—couples who live in places like San Francisco may be spending half of their earnings on rent. The burden is even higher on those with kids. In fact, Warren wrote an entire book called the Two-Income Trap about how the societal shift toward both people in a committed relationship working full-time jobs actually causes families to waste money in a lot of cases. The idea of financial cliffs is not new, but her theory is that the second partner's earnings are often subsumed by the necessity of paying for childcare and increased transportation expenses. Warren also posited that higher earnings overall make the cost of housing go up for everyone. The argument that married women would be better off staying at home (at least from a financial perspective) put Warren at odds with a lot of progressive feminists back when her book came out, but the broad strokes of what she wrote seem to have been borne out by her debt-relief proposal: If it became law, some debt-ridden people in two-income families would in theory stand to benefit from making less money or even quitting their jobs in order to qualify for debt relief.

People borrowing to go to private schools—and those who might be better off declaring bankruptcy

At the behest of lenders like Sallie Mae, Congress started chipping away at bankruptcy protections for student loan borrowers in the 1970s, and by the late 90s, there were none left at all, meaning most people can't declare bankruptcy to wipe out their student loans. Warren supports restoring these protections, but some activists criticized her for not including that as an element of her plan when she announced it on Medium.

“[The proposal] won't fix the predatory underpinnings of the lending program, and for people whose loans have been massively inflated by penalties, fees, and so forth, this probably won't make much of a dent," said Alan Collinge, an American higher education reform activist who believes that declaring bankruptcy would be a better option for some people mired in extreme debt. Warren taught bankruptcy law for years at Harvard, he noted, and understands the importance the country's founders put on bankruptcy rights when they called for it in the Constitution (ahead of the government's power to raise an army and declare war). “That she is completely ignoring this obvious fix [of bankruptcy protection] and instead rolling out this complicated and clunky cancellation plan is baffling," Collinge said.

Correction: This story previously failed to note that though bankruptcy protection for student loans wasn't a listed element of her plan as announced on Medium, Warren supports that policy. We regret the error.

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