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Elizabeth Warren’s new plan for debt-free college, explained

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Sen. Elizabeth Warren used to be known for arguing that the government shouldn't make money on student loans. Now she's arguing that students shouldn't have to take out loans in the first place.

"While not every college needs to graduate every student debt-free, every kid needs a debt-free option—a strong public university where it’s possible to get a great education without taking on loads of debt," she said today in a speech at the Shanker Institute.

Debt-free college is more progressive than simply making tuition free, as Sen. Bernie Sanders has proposed.

That's because for the poorest students, tuition is often covered by grants, but they still have to pay living expenses.

The debt-free idea is spreading: Hillary Clinton's campaign has hinted a few times that it has a debt-free higher education plan of its own.

This is a big shift. The Obama administration's policies have generally accepted some student debt as a necessary evil, or even a positive good; research has found that students with small amounts of debt are more likely to graduate college. Instead, they've tried to make it easier for students to pay their loans back, not take on the loans in the first place.

Supporters of debt-free college argue that there's nothing new or radical about their proposals. In the 1970s and early '80s, students could work their way through college at a public university. Encouraging states to spend more on higher education and lower tuition prices, they argue, is just a return to an earlier status quo.

But it's also true that in the long term, people who take on student loans and get degrees fare better than people who never graduate college. The big question for debt-free college isn't just whether it will make college graduates' lives easier — it's whether it can help more people, particularly from low-income backgrounds, to graduate college in the first place.

Student debt has skyrocketed in the past few years

student debt

A protest about student loan debt in 2012. (David McNew/Getty Images)

More students borrow to go to college than ever before, and they take on more debt each year. About 70 percent of students earning bachelor's degree in 2013 had loans; on average, they owed more than $30,000 at graduation, according to the Institute for College Access and Success.

And as colleges have increased their prices, the buying power of federal financial aid has fallen. The biggest possible Pell Grant, which goes mostly to low-income students, used to cover about half of the price of a four-year college education. Now it covers only slightly more than a quarter.

This hasn't affected everyone equally. The burden of debt falls more heavily on minority students and students of color: 84 percent of low-income students at public universities borrow to attend college, compared with just 46 percent of their peers who aren't getting Pell Grants. About 80 percent of black students borrow to attend a public university, compared with 63 percent of white students.

That debt can impact their financial life for a generation. College graduates with debt are less likely to have saved for retirement and less likely to buy houses than their peers who didn't take on loans.

Why free tuition doesn't mean a debt-free higher education

Bernie Sanders

(Bill Clark/CQ-Roll Call Group/Getty)

One of the reasons student debt has increased is that students, not states, are paying more of the cost of public higher education. So getting state governments to pay more of the cost, and making tuition cheaper or even free, has emerged as one solution.

In the State of the Union address, President Obama called for two years of free community college. Sen. Bernie Sanders upped the ante as he started his presidential campaign, saying that tuition at public colleges should be free to students for four years.

But as ambitious as making tuition free is, getting rid of student debt is even harder.

Sanders's proposal for free tuition at public universities wouldn't eliminate student debt. There's a difference between "free tuition" and "debt-free."

To understand why, just look at Sweden. College is free in Sweden. But students there graduate with a surprisingly high amount of debt — around $19,000. That's because tuition isn't always the biggest cost of going to college.

Particularly at colleges where tuition is cheap, rent, housing, food, child care, and transportation end up being the biggest expenses. The poorest students at public colleges typically have the entire cost of their tuition covered by grants, according to the College Board. But they still have to pay their living expenses. And the more students from low- and middle-income families borrow, the more likely they are to drop out.

How debt-free college might work

The congressional Democrats, including Warren, calling for debt-free college haven't released the specifics of their plans yet. But outside groups have proposed their own ideas.

The most specific plan for debt-free college so far comes from Demos, a progressive think tank. It defines a "debt-free" degree as a degree students could pay for by working 10 hours per week at minimum wage while enrolled in college. That means students' cost of attendance not covered by grants and scholarships, including books, tuition, and living expenses, couldn't exceed about $2,500 per year.

Demos calls for the federal government to help states shoulder the cost of higher education. States that commit to offering a debt-free degree for low- and middle-income students — families making up to about $60,000 per year — would have 60 percent of the cost covered by the federal government. States could get bonus matching funds by increasing spending per student over current levels.

Demos estimates the plan would cost about $29 billion per year and affect 60 percent of students at public universities.

Young Invincibles, an advocacy group representing Americans under 35, has suggested seven strategies that together could reduce debt. The biggest is tying the maximum Pell Grant to the average in-state tuition cost — nearly doubling the need-based federal aid at a cost of $21 billion.

Why debt-free college is a major shift

If Clinton really does propose debt-free college, it will be a shift from the past six years of higher education policy.

The free community college proposal aside, Obama's policies mostly haven't focused first and foremost on preventing students from needing to take out loans. Instead, the administration has tried to make sure that students can afford their payments after graduation. They've tried to get colleges to disclose more information about what students can expect to make after graduation. They've made it possible for students with low incomes to pay less on their student loans each month. And they've urged colleges to focus on their graduation rates, because graduating college is the best predictor of students being able to make their loan payments.

In other words, they've accepted some debt for a four-year college degree as a fact of life. They've focused on making sure students can manage that debt without too much trouble.

That's been the dominant consensus even among liberal-leaning groups. The Center for American Progress has called for making college much more affordable, for example, but its proposals wouldn't eliminate student debt entirely.

The big question: who benefits the most?

The big, overarching goal of higher education policy is more college graduates. Some kind of postsecondary education is now a virtual economic necessity. The US has fallen behind the rest of the world in college graduation rates. And college-going is tightly tied to socioeconomic status: students from wealthier families are much more likely to attend and graduate than students from the bottom of the income ladder.

So the question around debt-free college isn't just whether it will make students' lives easier in college and after graduation. It's whether spending billions of dollars to make debt unnecessary is the best way to help low-income students earn a college degree.

Students drop out of college for a complicated web of reasons. But one factor is often summed up as "life gets in the way" — troubles with work, transportation, child care, and other issues, often economic, make it harder for students to go to class and complete their degrees. A 2011 study from the Harvard Graduate School of Education found that balancing work and school was the biggest challenge for students who dropped out. That suggests making college affordable to a student with a part-time, minimum-wage job could make a difference, at least for students who aren't also supporting their families.

On the other hand, the evidence also suggests that for most people, student debt from public colleges is a manageable burden. About 9 percent of students who took out loans to attend four-year public colleges defaulted on those loans in the first three years of paying them back, below the national average for all loans.

Four-year colleges also skew wealthier than society as a whole. Low-income students have lower college attendance rates than wealthier students, and only about a third of them are at public universities. (The rest are mostly at for-profit colleges and community colleges.) And while 60 percent of students at public colleges come from families making $60,000 per year or less, only 22 percent come from families making less than $30,000 per year.

Will debt-free college become reality?

Any attempt to force states to spend more on higher education, let alone enough to make college debt-free, would require not just a Democratic president but a Democratic majority in Congress. So it's not likely to become law anytime soon.

There's also little precedent for this. While the 2009 stimulus bill included a requirement that states maintain their spending on higher education, the proposals from Demos, Young Invincibles, and others are an unprecedented federal-state partnership. The best analogy is Obamacare's Medicaid expansion — which many red states never signed on for, even with much more generous terms for a state and federal match.

So it might be best to see Warren's proposals — and, eventually, Clinton's — more as symbolic flag-planting. Halting the trend of rising student debt, for progressives, is no longer enough. The agenda is increasingly about reversing it.


Correction: The estimated price tag for Demos's plan is $29 billion.

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