As the 2020 presidential election approaches there are a host of ideas being thrown around by the many democratic candidates who are all vying for relevancy. As the Democratic Party shifts farther and farther to the left, their proposed policies become more and more radical. Their latest proposal is student loan cancellation. Elizabeth Warren’s plan seems to be getting the most attention (maybe because she is the only one that has an actual plan). She is proposing the cancellation of up to $50k of debt for 42 million Americans. This would cost American taxpayers $1.4 Trillion. Warren says the cost will be covered by a wealth tax which is a concept that polls well but its actual effectiveness (and legality) has been questioned by some experts. She is also planning on using this wealth tax to fund the other components of the proposal including making “free college truly universal” and financial incentives for schools that show increases in enrollment of students of color. From a campaign strategy standpoint, it’s a good proposal by Warren as millennials will make up 27% of the voting electorate in 2020 and many of them are strapped with student loan debt. Considering they are too old, but not old enough for their kids to benefit from free college, this is a proposal they can actually benefit from. But as is the case anytime a politician offers to give something away for free, it has been greeted with controversy.
One of the reasons that this proposal is controversial is because it is being perceived as essentially rewarding an inability (or unwillingness) to pay a debt. And it is clearly targeted at a generation known for having unique financial priorities. Millennials spend 41% of their monthly budget on discretionary expenses such as entertainment, hobbies, and leisure travel which is substantially more than boomers (38%) and Gen X’ers (35%). Conversely, according to the same survey, millennials spend less than boomers and Gen X’ers on reducing their debt. Admittedly, tuition is higher for millennials than it was for previous generations but you would think that would translate to millennials paying the most towards reducing their debt, not the least. It’s not like they are facing unprecedented unemployment. In fact, as of March there were 1 million more job openings than unemployed workers. Not to mention the fact that the beneficiaries of this proposal are college graduates and statistically make more money than non-graduates. So the jobs are out there and they are paying college graduates well. It could be that millennials are not be willing to give up the small things in order to pay off debt. According to a survey by investing app Acorn, only 16% of almost 2,000 millennials surveyed said they would be willing to give up eating out for 6 months to pay off $10k of debt. Honestly, anyone that finds themselves tens of thousands dollars in debt (of any kind) should be making the effort to avoid the high cost of eating out and trying to cook planned meals at home. According to another survey by Bankrate, the average millennial spends more on coffee each year than they do on retirement savings. This is an example of why there is so much push back on this proposal from American taxpayers. The spending habits of millennials have been well documented and have certainly affected Americans’ willingness to bail them out. Plus, of all the people deserving of a bail out, it should not be a group as advantaged as college graduates. College graduates, on average, make $900k more in their lifetime than high school graduates. As democratic presidential candidate Pete Buttigieg put it, “I have a hard time getting my head around the idea of a majority who earn less because they didn’t go to college subsidizing a minority who earn more because they did”. I think you will generally find more willingness from the American public to help demographics that are truly disadvantaged than a group that is statistically shown to make more money than the rest of the country.
There is no shortage of people in our country that need help so we should focus on those that are in the most need. I do not think that college graduates of a generation that has historically shown poor judgement in financial planning fit into that category. I think this proposal is a form of pandering and unfortunately will prove to be successful in that millennials will find it appealing. We live in a time when society needs to practice more personal responsibility and bailing advantaged people out of their loans when they are (in most cases) perfectly capable of doing it themselves is not going to help.
