Kamala Harris fails spectacularly in Pell Grant reform roll-out

Senator Kamala Harris released her plan for a student loan debt forgiveness program for Pell grant recipients. She posted a tweet announcing her oddly specific plan and its requirements. The reaction to her plan didn’t go well. The responses came fast and furious.

While potential voters are hungry for specifics from candidates in their plans, as a general rule, Kamala’s specifications for those qualifying for loan forgiveness are so specific that not many people will qualify at all. The major stumbling block for people interested in the program rests with one requirement – recipients must successfully open businesses in underserved communities and operate those businesses for three years. Her plan is meant to close the opportunity gap for black Americans. Wait. Isn’t that racist? Isn’t she running to be president of all Americans? As it is now, the majority of Pell grants go to black students.

Her supporters say the Pell grant plan is but a part of a much bigger plan.

Harris’ plan may have the potential to help more people than the dozen or so her critics contend it will. Pell grants (a type of federal student aid for undergraduates that are given out solely on financial need and do not need to be paid back) are the largest source of federally funded grants: Seven million Pell grants were distributed during the 2017 to 2018 school year. The maximum Pell grant award for the 2018 to 2019 school year was $6,095; recipients of Pell grants can also receive federal student loans that need to be repaid. According to data from the 2015 to 2016 school year, 72 percent of black students received Pell grants, compared to only 34 percent of white students.

In addition, according to data from the Small Business Administration, about half of small businesses survive five years or longer. Even if just a small fraction of Pell grant recipients go on to pursue entrepreneurship, these statistics indicate that Harris’ plan could have the potential to help thousands of economically vulnerable entrepreneurs get student loan debt forgiveness.

The bigger plan aims to focus on entrepreneurialism. Her intention is to allow participants in the debt forgiveness program to defer their student loan payments interest-free for up to three years. This gives them time to build their business. The program also allows up to $20,000 in federal student loans forgiveness, as Pell grant receipients can also take out other student loans. Pell grants, by the way, do not have to be paid back. The survival rate of new small businesses is about 50%.

Pell grants are the largest source of federally-funded grants. What I am taking away from her plan is that this is an incentive for those burdened with student debt to strike out and make their own opportunities. I’m not quite sure why she drags Pell grants into the equation, as they don’t have to be paid back and I assume most aren’t. Pell grants are given solely on financial need. Only those who fail to complete the academic period for which the Pell Grant was awarded have to pay the grant back. Kamala’s plan allows those new business owners who survive the first years to get student loan forgiveness.

The catch for most new entrepreneurs is the difficulty of securing funding if the person has outstanding debts. A greater percentage of black students have student loan debt than white or Hispanic students – 40 percent of black Americans between 25 and 55 years old have student debt, as opposed to 30 percent of whites and Latinos. Frankly, I’m surprised those numbers are not higher – to hear the Democrat candidates talk, you would think that every graduating student is drowning in student debt. The grand total reported is 45 million Americans owe a total of $1.56 trillion in student loans.

There are other provisions in the senator’s plan – she wants to bring back the State Small Business Credit Initiative, reform Opportunity Zones programs, and expand the entrepreneurship centers at HBCUs. She wants to allow students to re-finance financial debt at lower rates. She supports “free” community college and helping students receive a four year college education while graduating debt-free. She veers from some of the other Democrat candidates in that she doesn’t support forgiving any existing student debt. So, this plan doesn’t address the overall problem of the $1.56 trillon outstanding debt that already exists.

In contrast, for example, Elizabeth Warren wants to cancel 95% of student loan debt and increase the Pell grant program with $100 billion. She wants to make all public colleges tuition-free. And, she is in favor of forming a $50 billion fund for HBCUs. Thanks, new wealth tax proposal for the ultra-rich.

All said, these new entitlement programs proposed by Democrat candidates to pander to various segments of the voting population do nothing for those students who took out loans to go to school and then followed the rules and paid them back. Why is the next generation entitled to breaks that the rest of us didn’t have when it comes to establishing personal responsibility and future debt obligations? Socialism is great as long as we don’t run out of other people’s money, to paraphrase the late Margaret Thatcher. The money always runs out.

Maybe someone will ask Harris to drill down a bit on her plan during this week’s round of debates. This lame roll-out produced more questions than answers.