Opinion | Finance

Warren finds another way to spend other people's money, boost her campaign

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Sen. Elizabeth Warren (D-Mass.) has trotted out yet another way to spend other people's money: paying off the majority of Americans' student loans and making public colleges free. 

What a terrific idea! It is surprising that we hadn't thought of it before. Possibly the cost, estimated at $1.25 trillion, has been holding us back. How short-sighted.

The Massachusetts senator is anything but short-sighted; in fact, her vision is so sharp she can see herself behind the Resolute desk in the Oval Office, even though she's dropping in the polls, and her campaign for president is floundering.

In particular, Warren can see herself attracting millennial and Gen Z voters who mysteriously have not warmed to her thus far, but who will surely be won over by her proposal to have Uncle Sam expunge their college loans. (Except maybe those who have worked hard to pay back their debts.)

In the distance, Warren can also see African Americans coming aboard her campaign. She especially pitched her newest redistribution plan to African Americans and Hispanic Americans, promising it would "substantially increase wealth for black and Latinx families and reduce both the black-white and Latinx-white wealth gaps...".  

Warren has energetically tilted her message to black voters recently; according to a recent Politico piece, she is making headway with that group, which just coincidentally delivers 40 percent of Democratic primary voters and a majority in the important early primary state of South Carolina.

She has emphasized policies to reduce disparate home-ownership rates between blacks and whites and was among the first to call for reparations, which polls well only with African Americans

None of this is to say that race is not an appropriate focus, or that racial disparities should not attract the attention of policymakers.

However, Warren's political ambitions have led her to embrace one issue at least that smacks of hypocrisy. That is her generous approach to Historically Black Colleges and Universities (HBCUs.) She wants to establish a fund for HBCUs with a minimum of $50 billion, but with the possibility of the secretary of Education upping that amount if needed. 

She explains that we need to funnel more taxpayer money into these schools because black students have had to rely on student loans more than whites and that, thanks to higher debts and discrimination in the workplace, "black students who finished a bachelor's degree on average owed more than their original student loan balance after 12 years."

The problem is that the HBCUs load up students with debt and have failed to put kids on the path to success. A recent investigation by the Wall Street Journal found that "HBCU alumni have a median federal-debt load of about $29,000 at graduation - 32% above graduates of other public and nonprofit four-year schools."

Though in the past couple of years the schools have improved their outcomes, low graduation rates are still the norm. Some 80 percent of students enrolling in HBCUs do not graduate with a degree within six years.

The WSJ also discovered that most HBCU grads failed to repay "even $1 of their original loan balance in the first few years out of school." Moreover, "America's 82 four-year HBCUs make up 5% of four-year institutions, but more than 50% of the 100 schools with the lowest three-year student-loan repayment rates."

There may be valid reasons for the underperformance of these institutions. However, Warren's proposal to give HBCU's tens of billions of dollars despite their poor results contrasts starkly to her vendetta toward for-profit schools, which have many of the same troubling outcomes.

She views the former as schools deserving of taxpayer bounty, while targeting the latter as a massive scam perpetrated by billionaires at the expense of poor, struggling students.

Warren proposes to "ban for-profit colleges from receiving any federal dollars (including military benefits and federal student loans), so they can no longer use taxpayer dollars to enrich themselves while targeting lower-income students, servicemembers, and students of color and leaving them saddled with debt."

Warren is not alone in her effort to minimize the problems at HBCUs while simultaneously targeting for-profit institutions. Responding to growing alarm about student-loan defaults, President Obama, in 2014, rewrote the rules on how default rates were calculated in order to protect HBCU's from toughened penalties.  

Newly-established regulations were meant to deny federal funding to for-profit institutions but caught up several HBCUs, which shared default rates above 30 percent. The Obama team stepped in just in time, redefining the terms, allowing all the HBCUs to keep their government money.

At the time, proprietary schools had about 2 million students, many of whom were older, military vets and minorities. For non-traditional students, for-profit schools fill a need, supplying job skills on a flexible schedule.

It is true that some lied about their programs, overpromising and underperforming, ensnaring students with unpayable debts. But their greater sin for the likes of Warren and Obama is that they dared to produce a profit.

To be sure, student loans are a burden to millions of Americans, as Warren says. Also, there is little question that student debt has disrupted the typical path of young people graduating, setting up households and buying homes over the past decade, which is slowing the economy.

But before we shovel hundreds of billions more of taxpayer money into the mix, we should examine why college costs tripled between 1973 and 2013, whether young people would be better off with greater access to vocational training, why up to half the students heading off to college can't manage the curriculum and require remedial courses and whether our colleges are providing a value proposition to students.

Most of all, we should figure out why our colleges aren't providing the kind of education that allows kids to repay their loans.

Such investigations won't win votes, but it might actually bend the arc of student indebtedness.

Liz Peek is a former partner of major bracket Wall Street firm Wertheim & Company. For 15 years, she has been a columnist for The Fiscal Times, Fox News, the New York Sun and numerous other organizations.

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