« The Weeds

Understanding the student debt crisis

2019-10-15

The Aspen Institute's Katherine Lucas McKay joins Matt to discuss the origins and consequences of America's ballooning student debt loan.

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This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
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Youtube Channel and now on the way form. Podcast Andrew and I use that experience to dig even deeper into latest tech for smartphones too. I max to electric cars. So if you're a gadget, lover or attack head or if you just want to figure out whether the latest gadget is worth your harder in cash, give us a lesson sacred fine way, formed the MTV Ftp cats on your favorite Pakistan, every Friday, see over their student loans. That is an issue that is important too, to a lot of weeds listeners to a lot of people. I know it's. A lot of you folks are struggling with personally, so is really excited to sit down with Catherine Lucas Mackay. She is an expert at the Aspen Institute. She's been tasked with studying the question of student debt and its consequences for the past couple of years.
Now we really fastening conversation about all alone. Welcome to another episode of the weeds. Only bucks media Pakistan, like a mathematical esias before we get to it. I just want to let you know we're shaking up the schedule. Little bit instead of a Friday episode mean as recline organ do a post debate episode that should be out on Wednesday, my guest today, Catherine Lucas Mackay, is a program manager at the financial Stability programme at the Aspen Institute. That's a mouthful, but she has been working on student loans, which is not something we ve had the chance to talk about here, but I know of interest to a lot of people have really glad to have you here yeah. Thank you. I'm really glad to be here both as a person whose passionate about that
a big and as a passionate weeds voluntary go? So I you know, I think, about this summer's filling. This topic, on which I am sure my age, and you know I think about. I go to college and into thousand three you know most people who I was gradually with had some student loans, and you know I think, like wish. We didn't have them. I know nobody likes to be in debt, but you know we. It was good school jobs, afterwards, probably jobs that were like better paying than people who hadn't gone college like that was part of the reason- and you know ten fifteen years later the loans I've been again, maybe wish you didn't have to, but like it's,
fine and were a cohort of people who are like better off than most people than people who haven't gone to college, and so isn't that, like just like the system working as intended, like you, you go into that you go to school, but in schools, valuable, and so you pay back when the system works that way for peace. Oh that's great, increasingly doesn't, and increasingly we don't see. I find social policies, keeping up with the reality of costs every year, since you were born college costs of Ghana faster than inflation, which mean, every year for a few years more than I've been alive and well far longer than tomorrow's first years, and then, in addition to that, tomorrow's first, your students looks so different than you and your colleagues or classmates back. Then you know: college students now tend to be older. Then eighteen when they start or older than eat, in when they go back
a lot of giving it a start needing to take some time off finishing later it takes. An average six years, not for two graduates. That's two additional years of borrowing that most people aren't fully factoring in most people who have not been through this recently, when they are thinking about the costs, there's a lot of working parents, and now you have kids going to school, whose parents haven't paid off their loans. So in some ways the system is working really. Well, I mean that you know you have seventy percent of kids, you graduate high school in Rome, in some sort of higher at women here, that's great! That's what we want for a productive, highly educated you know, decently earning population right. Why we still haven't really moved the needle and how many of those kids, finnish and the majority come out with death so. That I mean the finishing distinction is important because, as you have sort of emanate, I picked up the point you making. My does, like
a tradition, all vision, right of light, given Rhone school right after you, high school. You finish in four years, and you know after the races and then there's a much bigger pool of people who were attending school right now, and a lot of people who attend school don't actually grudge away, and in that case you ve gone into debt like going into debt. To get a college degree is valuable, but going into that did not get a college degree, but really isn't yeah. So you ve talked to us, leaving the income benefits, there's been really interesting: research out of the Federal Reserve Bank of Saint Louis, looking at the overtime returns to income on your college, education have stayed strong there,
now flattening out a bit compared to the massive growth from the seventies onward returns to wealth. Aren't there so there's, there's kind of this mismatch between the fullness of what people's expectations of going to college is going to do their life and then sure they do earn more. But it's not quite getting them to that. Like security part right, yeah They have the same right because I mean you know I mean it. In business terms. Right I mean this. What you think of You say well disinvestment, like a really pays off and you just talk about the revenue that you generate right. That's not It's not right right! You, you wanna, talk about. Ok, like on NED. Has this made you better better off right? That's more like the wealth metric rape as a weapon is that because of the loans that essentially the higher income, is now eaten away by servicing the das.
Oh, I actually want to go back a little bit. Do the non completer mom, since you know that that is a big sure there is that large group of students who don't finnish and if you're looking at you know if we had to help only one group, they are for sure both the easiest group to help and the ones most in need. Why are they easiest her because they don't have a huge? of debt, the median amount of debt for people who didn't complete is right around ten thousand dollars over the median amount of debt overall for every one who has to learn. Tat is nineteen thousand dollars so so soon The non completer are both less indebted, but also more burden. Yes exiled asked that ones are being a sort of really compelling value, At this rate, it you're delivering a lot, help form for relatively little money right,
so yeah there, the most likely to default there, the most likely not to see any wage gains based on having gotten higher education, but they do come out these bills. There's nothing! You can do about those bills because, of course you can't get rid of it in bankruptcy. So, and the high depot red is also relevant because, like in most cases, the federal government zombie alone, hook for these. Yes right, so forgiving a pool of loans, that's relatively likely to default is cheap, yeah right, yes, right, eat eat like it gets. The hypothetical defaulters out of the painful process is love like going all the way down the road to devolve exact, but it doesn't actually have the fiscal cost it might that the face value. Were also paying to administer it the whole time we're paying some one to say: oh hey, they didnt pay their bill and someone else to call
and say you didnt pay your bill and just do that over and over for as many years as it takes yet. So, what's the history, this this bankruptcy point rank as I regularly that's a minute. It happens right people people get to dead, they filed for bankruptcy. It's not the funniest thing. In the world it's gonna make it hard to get a car loan. You know next year of every five for bankruptcy. Alba. You can do it and and move on with your life, so why not soon London's? There are actually decent reasons there. You know just to be before student loans became such as central component of how people would be able to go to college, they were. They are mostly for people whose families couldn't afford to send them, or you know people who were choosing to go to a more expensive school, then the cheapest option they could. I need some help and in Situations like you could have gone to lie. You states grey
you wanted to go to a private school, they caused more highly meet you needed. Yet I mean it's up to you right, so you take some mountains and so the argument when we tried, as a policy matter to get lots more people into higher education was well private. Lender aren't going to expand this market for unsecured loans. They're not really allowed to do too much lake tradition all risk we gang and underwriting on the point is broader access. So this basically aid- an argument- that's not me, you know completely out of the realm of basic economics. The moral hazard there was real and that it would be too easy for people to get an education not get a job purposely declare bankruptcy.
Have their loans wiped away and then go on with their education and their married life ends duck out on the debt owed. So, let's, let's, let's walk through some of this- raises banking technicalities rate, because people are no red, so so was secured loan ride, like the classics loan is a mortgage ride, so the bank lending money to buy the house, and they are going to ask you to put money down, ran to show that you have some confidence that the house is worth what you're paying for it, and they also ask you for an official upright meant of the house and the idea is that if you never repay back a time of that long, they get the house right. So credit for something like that is available on pretty generous trends. Yet in the world right at the other. End of that is, like you, just show up somewhere near like hey Gimme, a thousand bucks rate right and that's that's a guy
hard sell. Rather normally a bank is only gonna wanna make and unsecured loan to people with has detailed information about the mink gives us reason to believe you are going to repay it, and that typically means like inject, like you have to have a lot of my right hand, positive cashflow, things that each Europe is about to be full time. Students don't have or that twenty four year old working parents trying to get there. I do so with Russian. We were talking about the whole point, as we will want to broaden access to higher education to people who are more economically marginal, like unsecured loans or not get that dot, neither private market exact radio. So that's like how all this policy comes in and so restricting access to bankruptcy is part of trying to make this a business. People who want to get in
and that happened in the MID Seventys, which was along the time where we are pushing hard to make a more productive, more prosperous workforce through higher. And then you had some changes in the eighties that added more lenders to the groups that could hang onto those loans forever, including non profit lenders. So that's when you started getting private sector players structured as non It's similar to the way that we do in like the healthcare sector, so that they too could make loans that- borrower had no recourse on and then in bankruptcy, form in two thousand five. They just everything now is not chargeable internet, get ready or loans if their student loans, no matter what and so the and then in two thousand and nine ten. The federal government directly takes over right. Most of this lending might be
previously, it just was still never really a market that was appealing right to banks the federal government is doing. A lot of guarantee is right, like a lotta stuff going in because socially we wanted people to be able to buy education, that that was beyond their families. Current means, but it's not a great it's fundamentally unsecured you can't you can't repossess somebody's college degree right and sell it to somebody else, threat way, yeah, I'm so view you get a thing of vat you from going to school, but the lender can can't sees ride so so the government was always involved and then just took it over directly, as I think that's like the most cost effective way to two one. One right yeah. I remember so. I graduated in two thousand sex, which was as though own burden started creeping up quite a bit more just a couple years before
and it was from my perspective, lake such an obviously good step to take in terms of the nightmares that my friends and I in school. With you know you, getting. If you weren't getting a direct Stafford subsidized loan- from the government. You had to deal with some sort of middle man, financial institution, and it was a pain and you know it was a very similar situation to guaranteed loan programmes during the housing bubble in that the government had all this risk. There wasn't enough oversight was happening with the loans and, as result borrow has ended up in just bad situations that should have been avoided because it being very much just in the lenders. Interest rate it in that kind of, like one side, a guarantee to be like. Basically, I just want to talk people into borrowing re much money as possible great cause. You know
carrying any we'll credit risk, but he just looking for people who meet the technical programme qualifications and then, but whenever I, what? What more can I do for you exact right on the suit at the time, as a young graduate in an increasingly tough workforce with friends who were still coming out like this seemed like a really good idea: the fray unintended consequences is just too small her. What happens after that? So what happens when you implemented both just federalized. Basically, almost everything and very near that point in time implemented income driven repayment. So now you have a situation where the department of it, Commission rapidly becomes the largest bank in America. It was not designed for that, and there was not really like an investment in the departments- competencies to run the largest banking,
go so you have a lot of administrative problems just flowing straight from than you. I also have a situation where schools are are able to charge more and more and more because the the loans are available to people you borrow up to fifty seven and a half thousand as an undergrad just from ST federal loans, so as long as schools are structuring their tuition issue fees and there should, at you, like their basic aid packages, to accommodate that. They can charge as much as they want to see if no reels measure of price control, there's not any quality control so someone can borrow the same amount to go to you now. Universe Dear Virginia, like a premiere public school or to the terrible, failing private for profit college that so surely has a store fry Em Charlottesville Way webs
I mean you essential you. You created a situation where there was a big implicit. They did. A lot of money was put on the table red within very little restriction is too like who can who can grab the money right or under what terms? As long as you can talk some student into assuming the intermediate Rex grades of allowing the forever ask if you think about it, in terms of never being able to discharge their right right, but it means that the federal government is ultimately guaranteeing the loan right otherwise like otherwise it one way or the there there took. The federal government is holding a piece of default web Scully raised. It would not function in a private lending market right. But yes, then, like the students can't get rid of it and schools could just proliferate right, I mean there was, as I don't know, potentially opium idea about market competition or something and higher education, but, like we know
like everybody knows why there has been no like disruptive entrant right into american higher education. Ride like University Virginia is like still the school and, like all the schools? You would a name twenty years? Well, let's take a break and analyse hung about, but what what is problematic about the way we live with a lot noise between the pings, the dings, the emails labelled urgent. That aren't really that urgent, it's hard to cut through the static zero on the things that really matter just like. We can train our bodies to be better running faster or lifting her we can train our minds to stay focused to all the noise. We live with step one download head space its basis and have loaded with guiding meditations designed offer a daily dose mindfulness concessions for every situation like a three minute s away, meditation when you're overwhelmed by the day and even meditations. You could do it. You, kids, when you're all of run by the day had space has been like a really cool,
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hours on the distress using its unbiased feedback. You be pretty surprise when you can gain for it see if it's for you, the weeds, sponsored by better help and listeners get ten percent off the first month, better help dot com such weeds, that's, B, e, T, T, R, H, e L, a p d come slash weeds, so you can tell a sort of like sad stories about individuals, but look what what do we know like from a macro prospect, What's the problem with a lot of people now have a non student, so there's a couple of problems, one you have this massive amount of economic suffering that affects people really do Lee and here you're talking about the eleven percent of loans that are indeed fall. I think it's slightly less than eleven percent of people actually hold those loans in default, and then the people who
You know once a year pretty regularly or even a little more often can't make a payment and get behind and then struggle to catch up. So we know that stew loan debt for some unknown reason has a more staff, full impact on borrowers who feel like their struggling with it and that's like that's interesting. I think the forever aspect of those loans has something to do with it. I mean like Sancho, Lodge yes yeah, but then psychological stress leads to health problems that are very real and it leads to households where parents and children have more struggles in among joyously managing a family having a happy household, our family, that is ready to succeed, and you know it from position as someone who researches household financial security, I think that's a much more serious problem than people recognise. So there's that economic suffering that has real consequences for the families that experience and not just the borrowers. Then you have all these
but who are not buying houses nazi for retirement. When you have your own Powell, testifying before Congress that he is worried about once that's what he's worried about. He is worried. Not a foreclosure crisis, but decades of real drag on the economy. Reduce to manage that could have been turned into long term wealth, so I mean this: is this is reduced to mend how it is? I guess the question is like: is there something special happen or is it just that? Well, when you're making loan payments you're, not you know, you have less income, laugh to divide something else: ride like its equivalent to an old people having slightly lower incomes right, there's this less disposable consumption, or is there something like special about the about the dead dynamic? So there is a lie around the psychology of debate when you look at just behavioral, research in economics is very interested in the way that people think about being in debt and bow
and seeing their needs for savings and liquidity and balancing their long term youth. It's just tough, there's a lot of emotional and psychological pressure. There. That's that's one thing, then the other is that it do. You know that the crowding out effect is real. If you are struggle to pay savings away, because you're paying a hundred and fifty two two hundred dollars a month which is in there like relatively typical range repayments, not into an emergency fund not into a home downpayment fine. Not even into retirement that has compounding effects just like it could have compounding benefits right and It is something that I think we all should be thinking about and taking seriously in having. This is probably it's a little hard to measure because it in a sort of like really simple right: leg: macro economic model. Will you gonna, say money that goes dependence in loan balances like that? Is household? Save? Yes! Well, why meagre?
is rightly give eve if you're doing the accounting identity is right, so I mean for four listeners at home. If you love accounting, identity is right: when everything is either hausa consumption or its taxes, or it saving right I'm so you may think red. It's like paying a credit card bill is not saving paying your son in law and is not quite unquote. Saving that somewhat people mean, when I say, I'm saving for the future, but like in the deep economic guenaud scales, like that's. That's when that saving great right, but people who are caught him quote: saving by paying off all stood loans or not accumulating financial resilience exactly when the financial resilience is a great way to put it on. You see when you look, even just a graduates Who have student loans versus? Don't have student loves? You see, lower
levels of liquidity, riches. Exactly that. You see a lot of things that then flow from them. Did you know right down the line? So look liquidity is like money in the bank. Brett! That's like your car breaks down. You need a car to get to work right. If you have money, you just get your car facts right and it's not a big deal. If you don't you can be down a whole spiral of potential problems, with exact heyday loans or losing jobs and and there's another piece to this It is really important and that's that if you are saving by hang down the costs of earlier consumption of education. You should finish paying it down, and people just spend their wheels MA am you know there is interest assessed on your student loans while you are in school, unless you have a subsidized wound and most of them are in it a cruise during the six month, Grace Poole
before you start paying. So by the time you start paying your loans, you, oh thousands more than you borrowed and with come driven repayment. The idea- is to Lake, reduce the short term. Severe payments, but the impact is that people who make a good living and borrowed to get their arse EL paying less each month, then there international interests- and this is not just a problem- for you- are typical for your grad from an ok enough public school a pretty good job. This is every teacher. I know including my own wife, russian he's never mainly payment. She graduated with her masters in twenty twelve, and she owes more today ends. Every teacher I know, is in a situation. I know a lot of educators cause it's my whole family and that's not success
and it's also not what you would want from the perspective of being able to make an investment in yourself, pay it down Most people don't want to pay their student loans for twenty years if it were feasible, they just get it over with ray, but here we are, and the structure of this kind wondering is that it also operates as a kind of now steep marginal tax increase on on younger people right because the genome, so you try to get a promotion you get a raise, but then your payment is gonna, lousy as well read. So it's I mean it's. I guess better than
totally bankrupting people in the first couple years of their life right, but he creates a situation that really hangs over you. It's it's it's hard to get out from under, because if you start making more money like your payments will also increase right right, and so I mean is this responsible for some things we see in terms of younger people seem less likely tat Any stocks less likely to buy how's is, I mean, do a tribute that financially, it is allowed, and I think that you know the most rigorous research approaches have not consistently found strong offences, but when you ask people, What are you know? What are your financial goals? What are you doing? what do you not doing that? You wish you could and why, which others actually quite a bit
survey data out there on that from the private sector, because it helps them design, products and market them better ashore. When you, when you take a look at that people say I want to be saving for retirement. I want to buy a house, I want to start a business, but these payments are holding me back right and so what we, mention here, because I think we ve sort of implicitly talked a lot about college, but people take soon loans for four graduate school they did as well, and I mean simply by targeting said they think this is a boy. This came up because a couple candidates paired debt relief plans with essentially like free college lands, but the debt that would be relieved in those plans includes all kinds of graduate schools that they weren't contemplating any forward. Looking policy changes on anything is so important for butter.
Understand that weird like how much of this debt is from beyond college rate and so on, and one thing I do. You also want to say with that- is that it's really port and I want to see us do big ball things to deal this problem that is hanging over two entire generations and starting to hang over a third. It has to be paired with big, bold things to deal with. Why we got here why Oh just helping the forty five million people who are dealing with student loans day will do nothing to solve the next twenty years or the problems we have to. So it in that way. I think there's something really great about the way the candidates have started, linking those two things as if they are a single package deal. I think we should be thinking that way. I would also say sorry, let's go back to the core of our question- that I waited a helper. So, yes, a decent amount of debt
There is graduate school that people borrow more to go to grad school of Ino per year. That is a topic of debate that, to be honest, I find the debate pretty fast. Reading because it tends to be? Should we or should we not include people who went to grad school in our reform? Plans are relief plans and the feeling tens be now. These are the most highly educated, most likely to be successful people right. So, let's just deal at the undergraduate datum ends. What I would say to that is teachers, social workers? We have a lot of poorly paid highly educated workers who had to get masters and their situ actions are pretty simple. To that of many people with just undergrad debt? Who are spending their wheels and repayment? Why would seem important to me
How about that is, as you were, saying, waited see. You need to integrate both the sort of backward looking and forward looking re aspects of this, and I haven't seen many people offering leg. A forward. Looking answer on the graduate school swayed, so it's like it. If, if teachers are going into debt to get masters degree, is that then do not have large income payoffs like we need to ask some questions about right like or those programmes so valuable that we should be paying for people for qualified teachers to go, get those amend degrees for free, because we need a teaching workforce or are those programme firms, actually not that valuable, they're, just eight arbitrary statutory requirement that we should get rid of me. What whatever India, but what we don't want to do is like every thirty years, have a random teacher debt jubilee exactly
yeah like we needed a teacher workforce development solution that makes sense freight, and so I think one thing, that's interesting with them. The debt free college plans is some of them are really closely tied to rural strings around state investments in their public education systems and those are that will not just strengthened undergraduate programmes and help control costs there? Those are things that will strengthen whole university system and help control costs there. So I think that's something that people are starting to think of I dont think it's enough in the discussion. You know I think, with grads, while you are allowed to your borrowing limit is a lot higher. I plus loans are essentially unlimited, so you have that apostle. Oh, it is alone that is on top of or plus your basic package of loans.
Oh, you get Stafford loans primarily for your God school and for your undergrad. If that doesn't cover, everything for an undergraduate apparent can take out alone. For the rest, that's not limited and has fewer protections and benefits not apparent plus loan. Those are now what a great students as well I so if you are taking out your maximum of twenty thousand five hundred dollars in Stafford and you need additional funding on top of that, you gotta, plus one. So I mean it just seems like four grammar school at least it seems like common sense. A you'd want to distinguish what kinds of programme right that if there's a you hear about a guys like always got such high student loans by actually just graduate from Yale LAW School, and he is like an associate,
why'd you law, firm ray. I you that's not that sympathetic rang. I know it's not in the end, not in a highly idiosyncratic way, but just like very specifically, like people go to law school and get a certain kind of job. People get masters social work degrees and they get a different kind of job. Where these are highly differentiated programmes. Are we probably want to think about indifferent way? Is re underweight, I'm intimacy, different undergrad schools are different, but we ve organised undergraduate education to be a little bit of a like, like hazy mass, but like the grand programmes like the game, you entry into specific professions- and we should probably think about the financing of that rate in Re Pacific way. I think so. It's interesting you saw and why use medical school declare that they are going to emission free and there are like an amazingly great medical school further. They're, trying to lake think about how do you change that model about being a war?
hunting their extremely well trained, highly qualified doctors, not Argo, become orthopedic surgeon, and that's that An interesting thing that institutions with wealth in hiring industries can experiment where I think that would be great I also think that, Even when you're looking at doctors, not all of them are going to and why you were not. Lawyers are going to Yale, even so, when you think about all of these things, you should be thinking about who is the typical organizing around that ray, I think one. Way that you start to see people focusing on. How do you kind of separate out the people who really could or to pay for their higher ended later grad school is around how much you might forgive if you're talking about loan forgiveness sure, because people who go to grab cool for those highest earning positions under our current system, our borrowing three hundred thousand dollars, sometimes paying it down in there.
Five years everything is fine, but that is to say right. It's like looking at that debt level can in some ways be less informative. Right right. You can definitely do more of lake a debt to projected income, raw, and that's actually what people have tried to do with thinking about limiting where dollars, King go, the institutions is saying like how much debt dear students come out with and how much do they earn their first three years in the workforce? Ultimately it is not yet ban like fully implemented or enforced. There's a lot of reticence to make those pieces of data public among a very large body of schools work, but that is an approach that really could help figure out lake. Who needs the assistance once they have that really level of education. This was in me me, Obama years this was there. What do they call it gainful employment?
latent role, yeah right, and so they were trying to say that you were going to have to document right busily as a school, that your graduates were king eyes and a man of my right did. They were making an amount of money that was commensurate to the tuition. You charge read, write and that would be very welcome or traditional financial underwriting model, right Iraq. If, if the federal government is a bank- and it is investing in human capital than its asking, its essentially treating these schools as the bar orders, rather than the student and straight and is because the schools presumably have expertise in their field and is then asking them to say, proved to us right that the investment in your human capital factory actually pays off right, and then we will give you the money
Everything schools didn't then what did I do not like it, but they got Irene was it was like a sound approach. I think so. I do think so. I think that there is. Nothing wrong with thinking about the fact that we use to not I so much on loans, but have a lot more requirements around what adequate investment in education looked like. We did to have this for profit sector, then leaving that aside You know there was an expectation that a federal grants were flowing public universities that they were flowing to universities that were, in fact investing in their faculties. In their facilities in their students, and you so slow We have had an erosion both of what states do and what the expectations for states among federal and among households actually are. I don't
think many families who have a high school student today expect their state to fully cover the costs of their child college, because we just stopped doing that which was a choice right. What's a good break animals, what sort of message. It feels like you, don't ever of hours in the day to get everything done, might because you're missing out on three, where those to me, I was up how he fell into a deep, dark abyss that opens up amongst which, between workers at those we hours to all the productive time we miss out on thanks to at home distractions, disorganization fatigue. It's no wonder the days future work should work with clear up. It does look up as a flexible productivity platform, the wings or you work at one place. That's all you ve, chats, apps docks and ass. One centralized place admission could travel companies like Goober and Google use click up to make their days more productive, managed projects, people and goals more effectively, but for tee
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Van today, twenty one plus and present in Pennsylvania first online, real money wager only refund who does none withdrawal side, credit that expires in fourteen days. Restrictions apply, see terms at sports booked out Van dual dotcom. Gambling problem call one eight hundred gambler. So what do we do? Ok, well again sitting in yet know the seat of the person who says the most fourteen thing here is that households families are doing hey financially, and if we get that in order, so Eddie and our economy will thrive as we studying what to do about the problem. We had three guiding principles. One is that- and we don't even talk about this- that much but student loans have exploded. Racial shall gap, but like really in a way that just makes me want to cry because it was supposed to do the opposite, and just we asked people to pay more for the same degree,.
Knowing that they would go into a labour market where they were discriminated against by the color of their skin and would earn less. Where and of course, the outcomes of that have not been good where they ve been very bad student loans. Explain roughly twenty percent of the black white wealth now. So this is all a everyone. American college graduates earn much less money than white collar scratch right and so in an unconstrained marketplace. The banker would say I'm when we less willing to lend to the african American Arrogant right now, obviously, in the rear, world. We would say that is itself that is described morally right. So we're not Antonio this all the time I mean I talk to people in infant tack and they're, always coming up with like algorithms and then like the questioning, ass. It is like what are you? Are you just proxy Yang Tipp to find black people and not let the money and like they always are? And this because
If there is discrimination in the labour market, then it's like technically correct to introduce discrimination into the London market if its fully privatized- and you don't have social values, round equity exactly. But so then, then we say: no! Ok, that's not an acceptable outcome right for a big, really obvious reason re by. If you dont address the inequity that exists in the labour market, you are actually creating this very disparate debt situation right right, because, though, that the degree is not as value I hate to put it like that, but it's true. It's not because a degree as a signal to employers about who you are and how much your worth as much as it is, and education and the cold hard fact is that so all somehow means a lot less to employers based on Europe's answer. That is, Very different. Writing me ray if the higher education was fully funded by
discrimination would still exist, which is bad and good you can make me do something about it, but the education would be of positive value example body who god you're right, but the loan truly transforms right so that you can wind up being like underwater inadequate. You see see so there's actually been to really interesting recent reports, one from demos which is a very progressive, think tank. Looking at what happens. Twelve years after you, Starry Pang best cases, Rio. If you are a white man, twelve years in you, ve paid off fifty five percent of your balance. That's not success, snow worst case scenario. If you are a black woman, you owe more twelve years later than when you started there was for it. That was out just last week from a an academic research centre, Brandeis that found that once you get to twenty years weight
hours have paid off ninety five percent of their balance. Black borrowers have ninety five percent of their balances. And this is one of those situations where an academic was like no no I must have done something wrong and ultimately, no that's what they're data told them and woe though, solving for that to your magic solution, so a debt forgiveness programme needs to from mine effective and my programs perspective needs to do something to roll back the damage that was done and create a greater level, or at least less of a bad disparity. So that's one of our hiding stars another is that it has to be easier for people to make their payments in the now, because the financial suffering proceeded without any opportunity, costs are very high and then in the long run, people should be paying less on
student loans, whether that's from borrowing less on the side of fully funding education or There is on the side of maybe just getting rid of some once Joe format. You know current payments perspective I mean: do you think, is the right thing to do to basically, just forgive some quantity of this dad, I mean maybe may be limited in some way, but basically to say, like we need to amend the federal government's borrowing. Costs right now are very low. It would not be actually that financially disadvantageous to just ride off a bunch of student. Let it would not particular Given that the apartment and educate in the Treasury are no longer able to say this is what we think it will cost in the long term, so at least Now we know what it will cost. If we say we're going to write off a bunch of these lines in the future is unknown.
And certainly there will just be more and more accumulating- that's not collectible. So, yes, I do think that it's him, to say we need to just get rid of some of this start with that premise. Assuming that we're doing something, really important and big on the side of how education is binding in law in the first place You can do that in a lot of ways, and I think what s interesting is you have a broad cross section of experts, policymakers, regular people, thinking about the student loans, that day people in their lives have who are you Nino, supportive, different ways of doing that all kind of come down to some degree. More or less, of reducing as burden The one thing that Democrats and Republicans actually agree on is it would not be that hard for Congress to fix income driven repayment,
that would not necessarily leg just knock off balances, for it would prevent people from defaulting and your costs increase a lot when you to fall and it would prevent people from paying more right now than they have to know what is fixing mean in this sir, driven repayment currently has ten or eleven different flavors. We could probably do with lake too, and that's just emerged legislatively over time. Some way through and Ministry of Roma Gang, but during different periods unit is one that the acronym is repay and another one where it was it used to be pay. You know, that's that's where we're, There is confusing people or know well and you know you do. You have to resubmit your paperwork and every year after year and
department of add, has the information, your service or has the information. The IRS has the information that could be automated. You could only have two recertified every couple of years to make sure that, with the guy remained knows from all of its other data sources is still correct. What so the basic one as the IRS knows how much money everybody's bright and says. I really need to do secondary verification right of of peoples in exactly and the whole thing in Ministry of leave me. I remember talking to people at Treasury, midway through the Obama years, and they were very upset that this whole programme had been handed over to the departure of education.
In their opinion, to know anything about loan servicing and when they were saying nation, even do it at a tragedy, but they they wanted like had to do it like somebody they did they like Congress is thinking about. This was like. Oh, this is an education issues that would give it to the education people like it's a financial management issue, and you have to give it to somebody who knows something about that exactly ray. What do we do about the the phenomena? Right I mean it's like. We are oh, several generations into this idea of. Well, it's an investment in the future, so people should get some loans and it seems, like everyone, is actually really unhappy with the outcome that, like conservatives, feel like we ve created this. I
did higher education sector progressive preservatives and progressively to carry on that to read as few places progressive feel bad about people having all this dead dislike all the slick. I finally get more of his very angry about higher education, sedation right now and so on, but like book, we do so on the side of all of these unhappy borrowers and how you just like get rid of some of those conservative folks who have looked at this really carefully have said hey. What have we done stopped, allowing negative amortization to happen. You just freeze at whatever interest would be applied on the principal and that's it not on your Ino recapitalization principle every year or get rid, of interests altogether in charge? One origination fee up front. You know. I think that those are ideas that
are sensible and relatively efficient Ganz. You know I like. If that's all we could get okay, there would be like a very heavily subsidized kind of rice, good, like very cheap right, exactly yeah, and you can get rid of all of that. You know underwater portion of shores, loans right now and that's nice and simple. We can tell how much someone's balance comes from that and just forgive it and don't tax it. So that's lake the can serve at a think tank outwardly like like a minimal rattling, a minimal viable. Can you know once you start looking at what is being discussed in in a more liberal and progressive, and even you know, moderate and centrist spaces. It's really a question of who do you target and how much are you willing to forgive or cancel? I think that you know when you look at the press
actual proposals? You see a lot of that who'd EU target Quatrain playing out me of Sanders. Like now don't target anyone just like health care. This is a public good shouldn't There get rid of him, you have Senator Warren, whose like well, let's just exclude people who are earning a whole lot? That's fine! You know it. Her proposal to cancel up to fifty thousand is based on the household, not the borrower, so that actually constraints that a little more in its based on earning, I think at less than a hundred thousand anywhere and there's a sliding scale to very sensible policy, but then you get Lake commonly Harris who wants to target teacher is public servants and then, like certain other categories of rebel, PETE booted
as really wants to focus on public service, there are people who really want to focus on veterans. All of those are important, and there are also people who say lake. Let's focus on disadvantaged racial groups. There, though, who then most harm right. We need to figure out how to do that within the bounds of the law. But that's an important target group is well Ray. I loose policies are hard to implement. That is My number one comment on that: there's nothing wrong was saying, let's make sure that the most assistance goes, the people who need it most, but when I kind of back out a set of strategies that could get to those three big goals that we have first what things that could get us there and second, I want them a simple thing possible here I mean it's really worth saying me: the abandoned ministries and implemented a public service. Lawn forgiveness programme programme has been a huge
disaster, because it's easy to say like on a podcast what we should do, soon, loan forgiveness for people in public service. But that requires an administrative definition. It requires a set of criteria to which you verify it requires a bunch of rules about will what happens if you don't like that, all the eyes and cross over two years, and it is not like actually generated forgiveness of student loans, snow for people in public, service now, I think we're up to a five percent forgiveness rate up from one percent when they started taking application. This is like the boring part of government, but you, but it does matter where, whereas, if you do, but if you do like an income targeted forgiveness, you will end up hitting like most
the public servants by definition. Anyone's you, dont head would probably have very high income. Spouses allowed its game. You not a big deal, but yes, soap, so simplicity There's a lot of value. That's to me personally. Looking at policies that have worked in both debt relief, Amanda worked in education trying to target really specific populations is just hard because it requires them to come to you and that's it. That's a burden were so. Yes, if you want to look at Vienna, more simplicity for the public Service Loan Forgiveness programme, First of all, I work in and on the last private sector job I had was flake for tv. I Fridays, two thousand one. My wife is a teacher.
Oh! If there were not a public service loan forgiveness programme, I would have made some different choices, but also we would just have no financial future where and when I think about what's happening now, where I personally sit, that's terrifying, so I print out a bank statement for each of us ever month, highlighting our payment defend loan, and I also copy voting print out. Every single letter I get from FED Loan saying I have made no payments towards my personal forgiveness plan steel, with that there are some relatively easier administrative things, but I agree that if you're talking about that type of targeted programme, where you it's not just government workers but nonprofit workers as well. There's gonna be hoops when there's also faster goodness and to some degree additional hoops faster forgiveness, is a trade off rat. You might be willing to make, but if you're talking about the larger population
that lake, the really interesting. What's the best way to go, oh question, in my mind, is: do you do it by income or do you do it by you know everyone can have a fixed amount up to axe, and you see stars Senator Warren kind of threading, that needle wait. What I think is interesting, is you know We we lake did some back of the envelope kind of calculations. Her plan would cost, is one point: two trillion You could forgive up to the media in force, half of that less than half of that you could forgive uptake thousand in that number where people are particularly likely to default and completely get rid of all of that for the most vulnerable people for less than five hundred million
so little foreign Bernie Sanders. Whoever is president, am there like a guy like we're doing the trillion dollar one forgiveness programme and then Kristen Cinema calls you up and she's like we're. Not gonna do that, but I gotta gonna throw burning a bone and we're gonna. Do it do a debt? you're just Bell, but like we got it, we got a shrink it down, and what would that be? Your recommendation that, like basically you just like, look at for giving less than a hundred per cent of the debt and that that's a pretty good getting system that if I were making choices for real for what to do in legislation, that's how I would go so was I gave you know we we can argue like how much money in aggregate should we invest in this idea. Right
Mrs other kinds of thanks Melick, if you wanna cut it down just say, will forgive ten thousand set of twenty thousand will forgive twenty thousand set of thirty thousand rate and that, paradoxically, it's like the least indebted people, often of the biggest problem right. Let's get Taylor, That is, I think you know this is a complex problem. That's gonna last generations, but it is solvable and theirs really great ideas out there to solve it. Ok, fantastic! I won't let you go with me, that, but I do like to ask you know: is there like one one last question I should have asked you hear what were we miss sets big subject? I think if you missed anything. It would be there. Really fierce, progressive debate over their loan forgiveness is progressive. A regressive yes and, I think, a skipper. Essentially Alitalia tv, but let's talk about so late either you know it. It is kind of tedious in that lake. How much does it matter but
terms of building groundswell support, and I think it really does the perception of that matters, and I understand the perspective of no. This is regressive. Being has will be delivering some windfalls to some people I understand the argument that its progressive, because it does deliver the most distance to the most in need, and I think, ultimately, that the rule, The progressive argument here is that everyone will pay more. If we do nothing and doing anything. However small or however eyes sure it in a way where it. You know it's not perfect, for you is a step forward to this website. The broad economic impacts meant right. My this is about helping people, but it's not like just about helping people. It's about getting the whole life
go economy. May it's about healthy society. Is it's about communities where this isn't a burden on everyone's, so everyone's more able to thrive? Fantastic! Thank you! So much Catholic Mackay from the Aspen Institute, thanks, as always tore producer, Jeffrey girl and tumult. I protest whose engineer on this up and the weeds will return on Wednesday, accessible, affordable broadband helps community, reach toward their american dream for students. Lectures on a Chavez means rising above the poverty line and becoming valedictorian of international High School Langley Park, and thanks to access from eighteen t, can help these dreams. Turning to reality, that's my eighteen tease me- two billion dollar three year, commitment to help close the digital divide to more Americans, have a chance to succeed, to learn more,
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Transcript generated on 2021-09-10.