Sen. Elizabeth Warren (D-Mass.) is the face of the ascendant wing of a Democratic Party characterized by a more aggressive and populist progressivism. She has been the Senate’s leader on student loan debt, which is the primary driver of Millennial financial insecurity.
The conventional wisdom is that the 2014 election cycle promises to be an uphill battle for the Democratic Party, for quite a few reasons. One of which is that younger voters, who helped put President Obama in the White House for two terms and are a core constituency of the Democratic Party, are indicating a willingness to stay at home in November.
The Democrats are in need of a good wedge issue to get them to the polls, and Warren thinks she’s found it. She wants to allow holders of student loan debt to refinance at lower rates, even though that option is theoretically available in the private lending market. The ostensible policy rationale is that we will use our newfound discretionary income to buy houses and cars, long seen as engines for economic growth, as highlighted by Senator Kirstin Gillibrand (D-N.Y.):
This high amount of student debt is dragging down our economy, stopping graduates from buying homes and cars…
Last year, Warren introduced legislation that would have tied student loan rates to the rates charged to banks at its discount window. This was a populist gimmick and generally viewed as preposterous. The new bill is not quite preposterous and less gimmicky, but is still a misguided attempt at meaningful reform.
Student loan debt does have an impact on homeownership:
From 2009 to 2012, the homeownership rate fell twice as much for 30-year-olds who had a history of student loans than it did for those without such debt, they said. The finding upended traditional thinking, which held that student debt signaled higher earnings and higher chances of owning a home.
But it turns out government policies, long heralded by Warren, meant to protect consumers from “predatory lenders” are also contributing causes to housing market weakness:
Federal rules… grant mortgage lenders broad legal protections as long as they do not approve loans for prospective buyers whose total monthly debt exceeds 43 percent of their monthly gross income. The overarching goal is to protect borrowers against lender abuses. But the rules could also make it difficult for some buyers with student loans to obtain a mortgage.
A combination of crushing student loan debt and government policies has softened the automobile and housing markets, but so have Millennials’ choices as consumers. The headline of a recent Nielsen study told us what we already know: that “Millennials Prefer Cities to Suburbs, Subways to Driveways.” It seems that our choices, while perhaps guided by the student debt-policy nexus, could be the primary purpose behind the sluggish performance of the housing and automobile sectors to attract Millennial consumers.
If the purpose of the bill is to get us to buy houses and cars to create manufacturing and construction jobs, it probably won’t work because of our preferences as consumers. But one suspects that the real purpose of the bill is to motivate the Democratic base, which doesn’t make Sen. Warren any different than the Republicans convening a Benghazi committee.