A new study out of Bard will no doubt produce a hissy fit among orthodox economists…assuming they don’t succeed in ignoring it instead
In The Macroeconomic Effects of Student Debt Cancellation, Scott Fullwiler, Stephanie Kelton, Catherine Ruetschlin, and Marshall Steinbaum present a detailed examination of the costs of cancelling all student debt, public and private. Their main findings:
A program to cancel student debt executed in 2017 results in an increase in real GDP, a decrease in the average unemployment rate, and little to no inflationary pressure over the 10-year horizon of our simulations, while interest rates increase only modestly. Our results show that the positive feedback effects of student debt cancellation could add on average between $86 billion and $108 billion per year to the economy. Associated with this new economic activity, job creation rises and the unemployment rate declines….
It is important to note that the macroeconomic models used in this report cannot capture all of the positive socioeconomic effects associated with cancelling student loan debt. New research from academics and experts has demonstrated the relationships between student debt and business formation, college completion, household formation, and credit scores. These correlations suggest that student debt cancellation could generate substantial stimulus effects in addition to those that emerge from our simulations, while improving the financial positions of households.
The study examines two possible routes for wiping out student debt, via having either the Administration or the Federal Reserve cancel the debt, and it also considers the operational issues in depth. They also use two different macroeconomic models to estimate the impact.
Because the idea of cancelling debt is such a third-rail issue, it is not hard to imagine that if this study does get the attention it warrants, it will elicit a great deal of pushback. It is going to be interesting to see how much if any is intellectually honest and analytically sound.
Some may point out that while cancelling student debt will free up past borrowers, it leaves unsolved the problem of out of control higher educational cost inflation. That has resulted in large measure from access to borrowing allowing students to mortgage future income, which in fact may fall short of what debt-pushing college administrators cheerily said they ought to be able to earn. Even borrowers who do land good jobs can miss payments as a result of illness, job loss, or reductions in pay that then result in them being hit with penalty interest rates. And that’s before you factor in that some borrowers, particularly borrowers from private lenders, may not finish their course of study and thus are saddled with debt, yet don’t get earnings-enhancing credentials.
The evidence is overwhelming that the rapid rise in higher education costs hasn’t produced better schooling. Even in public university systems, schools have been found to spend as little as 10% on teaching. Higher expenditures have gone substantially into adminisphere bloat (both numbers and pay levels) and building programs.
The Democrats are sure to do everything they can to avoid treating this analysis seriously. If they acknowledge that burgeoning student debt is such a serious problem that radical-sounding solutions are better options than a gangrenous status quo, that then raises the next set of uncomfortable questions: what to do going forward? Someone who just graduated will get a big break, but what about the kids who are in school now and on track to graduate with big debts? Conservatives and neoliberals both are sure to say we can’t have mass debt writeoffs every 15 years, that Something Must Be Done about the underlying problem.
That is a conversation, to employ Dems’ own turn of phrase, that the party will do everything to avoid. The higher educational complex is a Democrat stronghold. Op-eds from academics far more often back pet Democratic party positions than those of Republicans or the bona fide left. Reliable support from scholars serves to augment the efforts of Democratic think tanks. In keeping, we’ve noted that Elizabeth Warren, who was the top bankruptcy law professor in the US, has advocated only rearrange-the-deck-chairs-on-the-Titanic level remedies for the student debt penury, and has never pumped for an obvious solution of having student debt be dischargeable in bankruptcy, as it was before 2005. The only way to explain her silence is that she does not want to cross swords with university officials and call out military-industrial-complex-levels of waste in higher education.
I hope you’ll circulate this report widely. We’ve embedded it at the end of the post. From its executive summary:
rpr_2_6• The policy of debt cancellation could boost real GDP by an average of $86 billion to $108 billion per year. Over the 10-year forecast, the policy generates between $861 billion and $1,083 billion in real GDP (2016 dollars).
• Eliminating student debt reduces the average unemployment rate by 0.22 to 0.36 percentage points over the 10-year forecast.
• Peak job creation in the rst few years following the elimina- tion of student loan debt adds roughly 1.2 million to 1.5 million new jobs per year.
• The inflationary effects of cancelling the debt are macro-economically insigni cant. In the Fair model simulations, additional inflation peaks at about 0.3 percentage points and turns negative in later years. In the Moody’s model, the effect is even smaller, with the pickup in inflation peaking at a trivial 0.09 percentage points.
• Nominal interest rates rise modestly. In the early years, the Federal Reserve raises target rates 0.3 to 0.5 percentage points; in later years, the increase falls to just 0.2 percentage points. The effect on nominal longer-term interest rates peaks at 0.25 to 0.5 percentage points and declines thereafter, settling at 0.21 to 0.35 percentage points.
• The net budgetary effect for the federal government is modest, with a likely increase in the deficit-to-GDP ratio of 0.65 to 0.75 percentage points per year. Depending on the federal government’s budget position overall, the deficit ratio could rise more modestly, ranging between 0.59 and 0.61 percentage points. However, given that the costs of funding the Department of Education’s student loans have already been incurred (discussed in detail in Section 2), the more relevant estimates for the impacts on the government’s budget position relative to current levels are an annual increase in the deficit ratio of between 0.29 and 0.37 percentage points. (This is explained in further detail in Appendix B.)
• State budget deficits as a percentage of GDP improve by about 0.11 percentage points during the entire simulation period.
• Research suggests many other positive spillover effects that are not accounted for in these simulations, including increases in small business formation, degree attainment, and household formation, as well as improved access to credit and reduced household vulnerability to business cycle downturns. Thus, our results provide a conservative estimate of the macro effects of student debt liberation.
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Well that put a smile on my face. Of course just getting back to the pre-1998 situation, when student loans could be discharged in bankruptcy, would be a major political victory; that’s one of Bill Clinton’s legacy actions, much like the repeal of Glass-Steagall. . . The lesson being, a neoliberal Democrat used to be able to get away with things that if a Republican had tried, there’d have been lynch mobs in the streets.
Hijacking this comment to post the video that goes along with this. Jane Sanders interviewing Stephanie Kelton at the Sanders Institute.
https://youtu.be/GIo-5d4xBlQ
I have always found it difficult to understand how America could cripple itself by making student debt non-dischargeable. Boris and Natashia could not come up with a better scheme to damage the country. Indebted ex-students do not have the money to buy new cars so that puts a spanner in future car production. Indebted ex-students do not have the money to buy a house so there goes construction as well as all the other industries that help supply the contents for a household. Indebted ex-students do not have the money to start families so that is a limit to your best and brightest having future kids. You get the idea.
No doubt when college administrative types realized that the students were on the hook forever, that meant that as far as wages and perks were concerned the sky was the limit. Anybody seen how much those that run these places earn? Incredible. This one measure means that a lot of the talent that America could use down the track can now never even try because of the cost and those that do are financially burdened for years if not decades so the question is why?
I am probably going to get shot down in flames here but the only thing to my mind that makes any sense is if you view the whole situation through the lens of class. I’ll try to explain by using three young kids as an example. The first has the talent to really contribute to society but cannot afford higher education so he is out of he picture. The second is a student that completes higher education but has a boat load of debt thus crippling his future activities and holding them back.
The third is a student from a wealthy family so his parents pay all costs outright so that kid leaves higher education debt-free. Let’s look more closely at the advantages here for the third student. He can afford to be a free intern for a year for a big firm as his parents pick up his tab as it gets him ahead in a prestigious firm. They can go on overseas holidays and make contacts with the right people based on where they go. Before the late 90s he would have had to compete against students on a basis of meritocracy and those families do not like competition. After Clinton, the deck tilted their way again.
In effect, most future leading positions in American societies in finance, industry, etc will be mostly recruited from the kids of wealthy families because of this stacked deck because like all parents, they want to take care of their kids futures and putting the kibosh on kids competing with their own. Will that mean that the future leaders of America will come from the best people available? No. It will come only from one segment of the population and I do not think that it would be going too far to point out the deterioration of leadership over the past few decades may be a result. Just my take but there it is.
neo feudalism- it’s a [self-organizing] feature not a bug!
And here this is: Great take.
You hit on my single biggest pet establishment democrat politician peeve: talking the U.S. up like it’s an egalitarian utopia. I’m sure you witnessed the democrat’s con-vention? Yeah … all the shiny happy 10%’ers worshipping at the feet of their glass-ceiling breaking egalitarian idol made me a little nauseous.
Continuing this line of thought, one must add the traditional role of the underclass being used as cannon fodder in the Empires wars of expansion. The use of highly skilled mercenaries and drones change the dynamic somewhat in the modern era, but the fundamentals are the same. Where once competing nations enslaved neighboring populations in work gangs and such, today the abusive economic system itself locks workers into desperate conditions.
Corporate colonization is what is underway. In America, the masses play along the best they can because the pain level for the losers, the fodder, has not reached a breaking point. The working poor still look up to the debased leadership class you mentioned. As long as enough accommodations can be made, the current system will grind along.
It would be interesting if people being crushed by student debt just stopped paying. That would be a radical political position. It would take some tipping point event for that to happen. That leaves only slow death.
Which means the escalating costs of higher education serve a two-fold purpose for them. One, it keeps out the lower class students, or cripples them with so much debt that they cannot translate their education into intergenerational wealth and opportunity, thus giving the kids whose parents will just foot the bill a leg up. And two, because the costs are being driven largely by administrative bloat, it creates a plethora of c-suite paper-pushing positions for those bougie kids to fall into, with all their six-figure salaries and illusions of meritocratic accomplishment.
Completely right. These are all barriers to entry constructed by the super wealthy to keep out the capable, diligent and innovative lower classes–aka 99% of the population.
High cost of education at all levels…high cost of housing and healthcare…regulation and risk shifting over the last fifty years.
…and all driven by debt and federal monies.
Not to worry. Your airplane’s still flying across Slim’s friendly skies.
This comment by Rev Kev conforms completely with my own take. I’ve often called Clinton Unit I the greatest Republican of all time.
It is theft of our future, not to mention the past.
It will take a lot more than marches to create a fair & meritocratic society.
Whose got the Bill, that ends the loan guarantees that the whole finance industry sees as a sure bet and where therefore where to lay it on thick is?
There are edifices that have been installed that give some of the people
all the status & money and they are fixed so it has to come out of our pockets
because they are used to it, feel entitled to it.
Laws make so and they’ll say yeah you say “Debt forgiveness is a good idea, but what about the Creditors, think about them.”
All I can offer is forming a Government in Exile & taking the Bill of Rights & the Constitution, and building up a Parliament & doing all that and seeing if we can get through.
Looks pretty bad and forever otherwise.
See what you can do Scott, Stephanie, Catharine, & Marshall. You’ve done a lot right here as it is.
I’ve been writing plans for marching with as much security for the marchers
as I can think of.
I’ve put a National Education System first.
I’m hoping for defense to hold the borders & keep NYC from getting nuked.
Unfortunately, I cannot circulate this really important post because the missing letters make it almost unreadable, even to one like me who is used to the high level of typos in NC posts. I know Yves does not like to receive complaints about typos, but in this case, I hope she will reconsider and edit the piece because of its importance.
I suggest you re-read the post. The “typos you are complaining about are not “NC typos”, they come from the executive summary itself. And I have to say I don’t see how they are anywhere near as serious as you depict them to be.
It is now 7:10 AM, I have been up all night, and keeping these hours is terrible for my health. I am working beyond my physical limits already, as reflected in chronic exhaustion, the lack of a personal life, and being behind on medical maintenance due to lack of time. Complains like these are not constructive and amount to demands to do more than I can do when I am already maxed out time-wise. I don’t mean to seem churlish, but I have yet to find a reader who has complained about typos offer to pay for a copy editor to work for us from 11:00 PM to 7:00 AM.
Yves, here’s a demand for you. If your current workload is jeopardizing your health and happiness, please do less. Less of your work is much better than none.
Seconded.
Also seconded. I’d offer to do it, but I’m not functional during those hours. I wonder at what Yves accomplishes.
Maybe this could be a goal of the next fundraiser – but there may be more pressing needs.
Please don’t run yourself into the ground, Yves. You’re sick too often as it is.
I can’t do less. The economics of the site don’t permit it. We are barely getting by as it is.
Then maybe it is time to build in at least a half-day per week off for your own personal health. I am sure that everybody here is on your side and would go along with a lighter load rather than you risk your health.
I don’t think you understand what I wrote. Please re-read. Either I have to provide copy or I have to hire someone to produce copy for us to have enough ad revenues. I can’t afford to spend any more on outside writers than I am already spending.
But please know that we are worried about you. I do not know how much you need to cut back and how much that reduces revenues, but seriously, without you we would be up a creek.
Maybe cutting back on weekends; I don’t know what trade-offs we need but we need YOU and we care about your quality of life. I would send more if I could and will when I can.
Yves I’m doubling my next contribution, thank you for all you do. This website is the only site that keeps me sane!
Young people can’t save for retirement because of student loans, costing them decades of investment gains. The latest plan to address this is forced private retirement accounts, jointly proposed by a New School professor and the Blackrock CEO, and rolled out this week at Center for American Progress:
http://teresaghilarducci.org/blog/333-the-retirement-savings-plan-by-tony-james-and-teresa-ghilarducci
This strikes me as another neoliberal plan for turning a social problem into an opportunity for extraction, similar to forcing people to do business with private insurance companies. It also strikes me as a plan to replace Social Security, or at least to prevent Social Security expansion.
Blackrock’s Tony James, one of the plan’s proposers, even recognizes young people are “struggling with years of stagnant incomes in real terms and have student loans to pay off.” He should also mention high housing costs that are caused by and benefit the likes of Blackrock.
Rather than address reasons why people can’t save, we’re going to force them to save, into accounts managed by an extractive private finance industry. And all the educational complex funded on the backs of students can come up with is forced saving. Blood from the rock they helped bleed dry.
Perhaps we could forgive student loans by converting loan repayments to retirement savings, perhaps evenly distributed among all people in the age cohort. That would at least provide some benefit to individuals and society, while countering “personal responsibility” and “moral hazard” arguments. Repaying the federal government doesn’t really help anyone, other than those benefiting from this injurious scheme for funding education of our youth.
Yves, please take care of yourself first. Publishing NC on time is not as important as you are. We will all understand.
Please see my comment above. I can’t “do less” if the site is to survive economically.
Hi Carla, could you please make the corrections to the post and send them to Yves. Otherwise, AYFKM !?
+ 1
Crowdsourcing. The problem is that it’s somewhat trim-critical, as Yves pointed out.
Still, I assume it’s easier to swap in a corrected copy than to do the corrections.
Or, if it’s in a quote, there’s always (sic).
“TIME”- critical. Sheesh, talk about typos.
Alternatively, Carla could circulate the study with her own summary.
That is an excellent suggestion, for a large piece of copy like an extract from a PDF.
For onesies and twosies, may I suggest that readers perhaps note them in comments? Perhaps starting with the key word “Typo.” Then in the normal course of events one of us will notice the comment and fix the typo. I used to do exactly the same thing with Atrios
1315 years ago, when I was starting out.We already do the same thing for “linko’s” with URL accidents in links, and it works fine.
I would try to exercise a little discretion, and make sure that you call out typos for the most important pieces of the piece, like the headline, lead, or key parts of the argument. We also don’t wan’t [ZOMG*] to spend all our time picking nits, as opposed to creating content.
* My own typo, a weird mutant variaint of the Greengrocer’s Apostrophe. Spotted here for the first time?!
This is an interesting and welcome study. I hope it gains some traction but Yves is right, it will likely be ignored and pass out of the news cycle (sorry to be so cynical-that is about all I’m left with these days). Meanwhile, the problem will grow and more people will be crushed by the financial pressures associated with the structure of this ill-conceived system. I keep asking myself, “Why would you set up such an onerous system?” I know the answer thanks to Mr. Strether: “Because markets.” It seems to me the markets could be arranged with more prudence than this but virtue is the farthest thing from the architects of the market these days. I just repeat Michael Hudson’s phrase when thinking about the futility of paying off my student loan debt: “Debts that can’t be paid won’t be paid.” The government can have my Social Security and tax return. I try to foster a kind of Stoic indifference and live a simple life–it’s the only stay against the madness of the markets and American life that I have found to be effective. Sorry for the long post. Take care.
Capitalism is great until someone gets hurt. And a lot of people are hurting in this USA– permanently wincing in anticipation of the next blow.
I began to look to “war-tax resistors” back in the 2000’s, both for inspiration and enlightenment. Theirs mostly is a way of passive resistance or non-compliance. I had my own reasons to seek non-participation, not necessarily war, though these have influenced my thinking.
It would be interesting to see a “student-debt resistance” of similar lines grow as a movement, if it hasn’t begun already, born from the truism you stated: “Debts that can’t be paid, won’t be paid.”
As another said, “the revolution won’t be televised.” The powers that be could never afford to let that happen.
Such a movement has a big head start, since there are already a lot of people not paying because they can’t.
Studentloanjustice.org is a site that comes to mind.
The question is, how do we convert the student loan debtor’s pain into pain for the makers of law?
Basically, how do we bust Delaware Joe’s kneecaps? (In a metaphorical sense)
I really don’t know the answer to the question you pose. The study Yves posted is certainly a start. I think one way is to drive home the point that it makes good economic sense. This seems to be the only thing that resonates in D.C. and Wall Street. Of course, if they wipe out the debt through forgiveness someone will lose (the banks, U.S. government which has guaranteed the loans, etc.). I suppose the forgiveness of the debt and the economic benefit to follow would have to far exceed the losses incurred from wiping out the debt. For those who are far more savvy on economic matters please feel free to correct me if I am awash in generalization here. Let’s hope what the study shows gets some traction.
Yeah, unfortunately most of us have our parents as co-signers so default isn’t an option.
I remember questioning why Bernie didn’t include student debt forgiveness in his campaign platform. It makes more political sense because, while I support his universal higher education platform, it has two selling point problems.
First, people immediately ask where them money is going to come from? From them, they logically reason. Whereas, with debt cancelation, they reason that nobody but vultures will be stuck with the bill. Yup. Wall Street. It dovetails nicely with Bernie’s larger message.
Second, the economic benefits of universal higher ed make sense in the long term. Sure. But it’s easier to sell debt cancelation in the short term as economic stimulus. Consider your most important demographics: baby-boomers and millennials. Most baby boomers will be dead before the real impacts of universal higher ed could be felt by the economy. They want to see economic benefits now. And most millennials are through college now and would be the greatest beneficiaries of debt cancellation.
Politically, it’s a gold mine for progressives IMHO.
In fairness, Bernie was already under attack for advocating free college education and single payer. Remember how Krugman and others were screaming he’d wreck the economy with his recklessness? Never mind that we are already collectively incurring these health care and education costs, as in these are not new expenditures but rather changing how they get paid for, and putting the government in control (particularly of medicine) is the best shot at wringing out the excesses.
Ah, yes. Krugman (said like ’Newman’ on Seinfeld). Shame on me for forgetting THAT performance. After about his 3rd hit piece on Bernie during the primary, I’ve never read him again.
Is it me, or has his headline making seen a marked drop off?
I also find it interesting that Bernie’s platform was given such short shrift because of the so called “cost” of single payer and free education, but yet it is ok to pass a tax cut that is a windfall for the top 10%, and raises the debt by over 1.7 trillion the next 10 years. But that’s ok. The rich are getting richer. Welcome to the second Gilded Age.
How much student debt is owned by the federal government? If Investopedia is to be believed, it is north of $1 trillion. Or maybe this is just a consequence of it being guaranteed by the government, I can’t tell.
I’m not so sure about that, strategically speaking. It might be informative to look at this graph and realize that the majority of people do not have college degrees and see the openings this provides for the opposition in painting this as a handout for educated urbanites who vote Democrat (regardless of whether it would be that way in practice).
I think Alexander Zaitchik’s short book “The Gilded Rage,” which is a chronicle of him going around listening to Trump voters in the primary, was insightful, and it gave me a bit more appreciation for Bernie’s careful balance in messaging.
@rusti: The US government lends out about 90% of all student loan dollars today, but they only hold about 85% of the total student debt because the private sector handled a higher percentage of it in the past, and many of those old private loans are still out there.
And I agree with your assessment about this not being the “gold mine” that progressives might hope. Not only would it be “painted this as a handout for educated urbanites who vote Democrat”, but it would also be painted as a big handout for students who “went to a pricey private school for a useless degree in gender theory while borrowing the max to subsidize a fancy lifestyle that featured daily lattes at the coffee shop” while being of little benefit to those who “did community college for two years and then two more years at state school (for a useful degree) while living at home and working two part-time jobs to keep their borrowing to a minimum”.
The biggest beneficiaries would be those who borrowed (often foolishly) the most. The moral hazard argument practically writes itself.
I don’t see student debt relief going anywhere unless it fairly addresses those who didn’t go to college (often because they couldn’t afford it and were unwilling to risk the debt) and those who worked really hard to keep their debt to a minimum. And unless steps are taken to control tuition rates (or at least the lending), we’d just have to do it all over again in four years after yet another group of students (with even more per-student debt than those preceding them) graduates.
First, it “fairly addresses those who didn’t go to college” because those who didn’t go to college don’t have any skin in the game. Why would I expect my neighbor who didn’t get loans to own his possessions to think it’s unfair for me to discharge the debts I owe on mine in bankruptcy? The same argument goes for those who worked hard to keep debt down.
Second, it’s obvious universal higher ed would part of the package because … duh.
Finally, the moral hazard argument:
Oh, you mean like Wall Street.
You say “tomato.” They say “taking what risks the market will bear.”
“Why would I expect my neighbor who didn’t get loans to own his possessions to think it’s unfair for me to discharge the debts I owe on mine in bankruptcy?”
Well, normally your neighbors wouldn’t, because the bank will foreclose on your house and repossess your car as part of the bankruptcy process. You don’t get to keep all the possession you bought with debt when you go into bankruptcy. But if the federal government “changed the game” and paid off everybody’s auto loans (without even a ding to your credit score), you’d hear a lot of complaining from your neighbors who paid for their cars in cash. Or didn’t buy one at all because they couldn’t afford it. You’d have effectively gotten a free car. Or at least one at great discount.
And the same would apply to students who borrowed lots and paid little for college. Debt forgiveness would essentially mean a free education, while others paid through the nose with their own money to avoid being a debt slave. If past students were also repaid for the monies they spent on housing, tuition, fees, and textbooks would it be closer to fair, but alas, nobody seems to be arguing for that.
I don’t get your argument about Wall Street over-borrowing and then being bailed out, though. The bailouts were a travesty that distorted the hell out of the American economy. Why would we want more?
So, your argument essentially boils down to the idea won’t work b/c some people who choose not to go, and some who can afford to pay, will get butt-hurt because people who took out loans had them forgiven.
Personally, I’m generally happy to hear that someone who is actively seeking to better themselves has met an economic windfall — especially one that just so happens to better my economic lot as well.
What a sad world we must live in if what you’re saying is true.
Went bk in 90’s and rolled over secured debt, mortgage and vehicle, payed off unsecured chap 13
Know things have changed (BD) but have the secured so called middle class been ripped off like the students?
I proposed this on facebook a year ago and I had several people (some with debt) say how unfair it was. One guy said otherwise he would have gone to grad school. Another went to her state school and would have gone somewhere else. Unfortunately people do see it as unfair. I’m all for it though.
Apologies. The Wall Street argument …
My point being, when a student (as you say ‘often foolishly’) takes a boat load of money from a government lender, you calling it a moral hazard. When Wall Street does it, the banksters call it “taking the risks the market will bear.”
You don’t see the irony?
I come from working class roots. Took on a ton of student loan debt. Have a JD an MS. Make way more than my parents did when I was growing up due to that fact. Pay the bare minimum and only have to for 25 years. Never missed a payment. Could I be better investing the moeny I throw at the government every month better than it is? Mr. Market couldn’t disagree. Now could Mr. Market?
I’d say I took a pretty big risk. Mr. Market should reward me by allowing me to choose how to allocate the benefits of my big brain.
Beside. Nobody has brought MMT to this discussion yet. The government could write the debt off with only economic upside as the article discusses.
Credit where it’s due: Jill Stein DID call for a student debt Jubilee, as well as making public colleges free. It was a prominent feature of her campaign. Too bad these economists didn’t weigh in then. We could have used the support.
Years ago, my Republican father told me that California’s then-stellar economy was at least partly because of their excellent, FREE public universities. He did a significant amount of business there. That was before Reagan, of course, so really a long time ago.
I think this misses the whole point. The purpose of the law that disallowed the discharge of student debt through bankruptcy was to defang students as political entities. The people involved recalled or reflected upon the student unrest that occurred during the Viet Nam War and found that unacceptable in a well-order society. So, the students were shackled with crushing debts, while the teacher’s unions were attacked across a broad front. Both groups either voted Democratic or became Democratic voters, so guess who the real culprits are? I do not imagine that they would reverse course now. When was the last time you saw a major student protest or rally?
I heard this explanation for the quiescent students just the other day, in a political discussion at Oregon State.
Let’s not forget that the Viet Nam War belonged to the Democrats, who were widely reviled by the student movement at the time. That might be one reason Joe Biden (not a Republican) promoted his student-debt atrocity.
I seem to remember reading a similar argument in regard to the advent of the 30-year mortage to break union leverage. I’ve tried to track it down subsequently to no avail. Anyone have a source?
https://moneyish.com/ish/why-young-veterinarians-have-higher-rates-of-serious-psychological-distress/
They should have gotten loans from their families. Or taken a job as in-house vet at their family foundation.
The situation at vet schools is more than a little scary. Vet school students often end up with debt loads that are comparable to what med school students incur, but then they only earn half as much once they graduate. I’m amazed that anybody is willing to go to vet school at all, given the terrible economics we see today.
Elizabeth Warren has been disappointing. This should have been an easy call for her to make: making student debt dischargeable in bankruptcy. That would have been a “market” based solution to the spiraling cost of education. If she was unwilling to cross swords with Harvard, then how can she cross swords with the donor class. So far, she has been all bark but no bite on the student loan issue.
The late, great Edububble blog used to take her to task on this very issue. On a regular basis.
I was DONE with Elizabeth Warren after witnessing her cowardice during the ’16 election.
Part of the problem is the insistence that a college degree is required to have a decent US economic life.
This encourages students to pile on debt.
This “must have college” is fostered by American business, colleges, the media and probably the financial industry (as they pitch their government guaranteed student loan portfolios).
It is interesting to look at historical data for the % of American people who have a college degree or higher.
In 2016 33.2% of males and 33.7% of females had college degrees (or more).
see https://www.statista.com/statistics/184272/educational-attainment-of-college-diploma-or-higher-by-gender/
“This graph shows the percentage of the United States’ population who have completed four years of college or more from 1940 to 2016, by gender. In 2016, around 33.7 percent of women graduated college or obtained a higher educational degree. Compared to 1940, more than 8 times more women have attended college and nearly 6 times more men have in 2016.”
The USA economy did very well during much of this 1940-2016 span with far lower levels of college degree holding workers.
Why are we not observing a more equal economy with this large investment, both personal and public, in college education?
Maybe the problem is multi dimensional in that the USA has exported a lot of manufacturing jobs (and know-how), has encouraged a parasitic financial industry, has sponsored a bloated medical sector, has decreased investments in fundamental research and has funded a bloated military sector?
And more college degrees won’t fix these problems.
I also suspect college debt forgiveness will only encourage college to become even MORE expensive because new borrowers (and colleges) will anticipate a future debt forgiveness program for borrowed funds.
Which is why a return to the status quo ante of dischargeable in bankruptcy is the better idea. Returning to a legal/financial regime that prevailed in the past would be an easier sell, would seem more rational to most voters and observers, and would do the needed job with fewer side problems, like ramping up adminisphere bloat.
State universities should be better overseen by state legislatures. The admin elite should face 10-20% salary and benefit reductions in most states, and the savings should be funneled into teaching staff increases and tuition cuts.
Restoring dischargeability in bankruptcy is indeed an excellent idea. Much better than a debt forgiveness that would encourage college and university administrators to ramp up tuition rates all the faster.
What would control tuition rates even better, though, is the imposition of some lending standards. If the US Department of Education would say “NO” to loans that are unlikely to be repaid, they’d be doing students an enormous favor for two distinct reasons:
[1] Lending somebody more money than they can reasonably repay doesn’t help them. It hurts them. This should have been obvious from the aftermath of the housing bubble, but today we say “But education!!” and throw the rules on responsible lending out the window.
[2] If a university (or college, or better yet, academic department) were charging more than students could reasonably repay, their loan limits would be reduced in size, and they’d be forced to engage in some long-overdue cost-control efforts. The rest of world has to be mindful of costs. Why shouldn’t our higher-education system? “Because education?”
“Lending standards” can be a code word for racial discrimination. Just sayin’….
Yes. I’m aware of that. The use of lending standards as a tool for racial discrimination has an ugly history in this country. But we’ve let the pendulum swing too far. The US Government, in it’s zeal to be utterly “fair” to everybody, has issued far too many loans in situations where the answer “NO” would have been more appropriate.
How else do you think we ended up the this situation described below?
https://www.insidehighered.com/news/2017/10/17/half-black-student-loan-borrowers-default-new-federal-data-show
Is there an alternate term to “lending standards” that doesn’t carry the racial overtones? I ask the question in all seriousness, as the US Department of Education is ruining the financial futures of literally millions of student borrowers with their lending practices today, with poorer minority students bearing the worst of the pain. Whatever it’s called, there is a clear and present need to stop issuing loans when repayment is unlikely.
As for today’s practices, I believe the terms “irresponsible lending” or even “predatory lending” would apply.
This from Mitch Daniels in the Washington Post *gasp* makes some interesting points on the cost of higher education.
“This game has been skinless far too long.”
“Various approaches are being examined as Congress advances a long-overdue rewrite of the Higher Education Act. As a condition of participating in the federal student aid programs, universities could be required to either guarantee a percentage of the dollars loaned to their students, or be penalized a specified amount based on default rates. Or be charged a yearly premium for an insurance fund that would, at least partially, protect taxpayers against what has turned into the latest massive driver of national debt. With more than $1.4 trillion in student debt, and nonpayment rates climbing past 45 percent, the multibillion-dollar write-offs we have seen already are just the leading edge of what is coming. ” I won’t spoil the first couple of paragraphs, which are terrific.
https://www.washingtonpost.com/opinions/health-care-isnt-our-only-ludicrously-expensive-industry/2018/02/06/6ce64d28-0629-11e8-b48c-b07fea957bd5_story.html?utm_term=.2618a12c5fdf
Wait, you mean all the people who saved money in 529s, all the students who chose to go to cheaper state schools in order to avoid larger debts, and all the students who chose to work longer hours in order to reduce their debt will not get the full benefits of this proposed program? WTF! I’m sorry, but if student X whose parents chose not to save in a 529 and instead took X on vacations in Mexico every Spring Break gets debt relief what does student Y whose parents did save in 529s and did not take those vacations? Why the heck am I saving for my kid’s college education if my neighbor, who just bought his kid a brand new SUV to commute to high school, is not saving and will rely on loans that will be later discharged?
Missing from this discussion is the fact that when you save for college you sacrifice current spending for future spending. While many students who have large debts could not have saved, many of their parents could have saved but chose not to. I will not support a program like this that does not take into account past decisions. I know plenty of people in the same financial position as me who do not save for their children’s education. Their children will take on larger loans. My hope is that my children will get out of college with a small amount of loans. In the meantime, the money I am socking away could be going to retirement or better cars or that patio I have always wanted so as to cover the dirt in my backyard. But instead I am following the advice of financial planners. Should I disregard that advice now? It would literally turn me into a Republican. This program needs to be means tested and the means have to be tested going back many years, otherwise, everyone should benefit. That will certainly raise the costs.
Ah yes, the politics of resentment. The thought that someone may not merit the rights they get drives many people crazy. But mark my words: the politics of resentment is how the wealthy keep us fighting over the scraps so we don’t notice how they are stealing from us. So, just keep thinking that it is awful if you save and your neighbor doesn’t. It makes our master very happy that you buy into their resentment narrative. Keep up the good work.
kronos’ unfortunate problem is that s/he is in the minority when it comes to being able to pay for one’s kid’s college. I’m guessing kronos is a homeowner whose property values have gone through the roof, since if s/he can save for the kids college then I’ll assume that the GFC bailouts of QE and the ACA (if perchance said commenter is employed in health care in any way that was a major gift to that class of person, if a homeowner his/her property has quadrupled in value, and if kronos were to refi recently at super low rates, bundling his/her own burdensome debts into a low interest, say 15 year with cash out? I think the term is “ka-ching”) were enough to keep him/her employed unlike many of us who got zero subsidy, just lowered wages and rising rents,(thanks obama). But the reality is that kronos should realize that in the mark to model economy, it’s his/her ass that’s on the scale getting weighed for supper by the goldmans of the world (barring the possibiity that the poor soul works in that bastion of valdamort among the securitizers of garnished social security payments). Shorter kronos…I got mine. tegnosts unfortunate problem is that no way in hell will they discharge loan debt much less make it dischargable in bankruptcy. JTM knows the solution.
Oh, you saved. You scrimped. You “took advantage of the 529.” I’m sorry this is another version of the housing bailout sans collateral. Imagine the family who saved 20% down, bought in a neighborhood they weren’t happy about then were underwater for a decade. Seriosly you need to rethink rethink you comment. I left school in Idaho in 2007 making less money than I did before college pounding nails in MI in 2003. Don’t get on here and lecture us about unfair. My life and my friends lives have been shaped by the ill gotten gains of financiers, bankers, brokers, builders and home buyers( of various time periods). Do not cry to us that $100k just isn’t enough. I’ve gone heavily into debt only to watch the industry I started in decimate Headcount and comp. If you want to cry about you greatly increased in value, tax deductible 529( which you could use yourself) go cry to Breitbart.
Kronos wrote:
As a graduate, who recently finished paying their student loans, I completely agree here.
The fact that students have to take out massive amounts of debts is absurd but we are where we are–just as you had to make sacrifices to fund your 529 plan, I had to make sacrifices to pay my student loans: i.e. having to move back in with family and work some pretty crappy jobs.
I don’t know if I would turn me into a Republican but I would be done with the Democratic Party–I’d probably more likely become independent than Republican–but the Democrats support a student loan “get out of jail free card” plan at their own peril.
I paid mine off a long time ago, but that doesn’t change the desperate situation of many present borrowers, nor the economic effects of forgiving their debts.
Why not include reparations for those who were abused by the system, but “succeeded” in paying the debt they should never have had to incur in the first place?
Think of it as a “reset.”* The whole country needs a reset, and that includes, basically, rolling back the neoliberal era.
* Well, what it really needs is a new operating system, but we can’t even do the install until we get the current system to stop crashing every thirty seconds.
Yes. A total reimbursement of all tuition, fees, and textbooks paid by students would be much fairer. That way everybody who had been ripped off by the EIC (educational-industrial complex) would benefit. It would include people who still owe money, those who worked extra hard to pay it off sooner, and those who worked extra jobs (or had parents who drained their retirement accounts) to avoid the debt in the first place. There would be much less criticism of such an approach.
Hmmm… The Levy Economics Institute should run two more studies:
“The Macroeconomic Effects of Auto Loan Debt Cancellation”
“The Macroeconomic Effects of Credit Card Debt Cancellation”
I wonder how the results would differ?
My comment above regarding previous iteration of BK code:
Was able to roll over secured assets, mortgage and auto
CC and unsecured were subject to payment plan that ran several years, including auto as I recall. So subject to income available to determine the payment plan. Everything discharged after several years, credit impaired for several years. Sorry not more specific about the details, but you get out of the hole and going forward maybe there is a new start. Chap13
Not sure if worse for similar subject with Biden’s BK revision, but not letting the students out of the hole while encouraging debt is horrible.
Those are at least dischargeable in bankruptcy. Nor are they essential to participate in our economy. Nor were they incurred to meet a SOCIETAL need for educated people.
Facts.
An auto — presumably, then, auto loans — is most definitely required to participate in our economy, at least depending on where you live (I don’t accept “you should move” as an answer, here). And remember that the poor are increasingly being shoved out to the burbs, hours away from work.
Yes, when my city is planning on giving developers money to redo an area of the city, in their presentation they note the places where the bus stops will be since the rent costs will double.
When I asked if eminent domain would be used to remove individuals and businesses who would be displaced by the new requirements to add wealthier constituents, I was told “we hope we will not have to do that.”
So I moved before I could be forced. I did not like the uncertainty of when this would happen.