Impact of Student Debt on the Greater Economy-Pt2

Is Student Debt Hindering
Economic Growth and
Diana G. Carew
Progressive Policy Institute
November 3, 2014
• What’s New in Research?
• Is Student Debt Killing the Economy?
– Hint: Not as Much as we Thought
• Then What is the Problem?
• What am I working on?
• What’s the risk from misinterpreting
market signals?
What’s New in Research?
• Federal Reserve #1 (Brown, Mezza et al):
– Homeownership falling for ALL young
Americans, with or without college AND
with or without student debt
• Pew Study (Richard Fry):
– 2010 Survey of Consumer Finances
– Wealth is 7x lower for young Americans with
student debt…because they are more likely to
have other forms of debt
• Vehicle and credit card; same percent with housing
– Still, not under more “financial distress”
What’s New in Research?
• Federal Reserve #2 (Dettling and Hsu)
– 30% of increase in young people moving back home
due to rising debt burdens
– Found effect of larger balance on subprime borrowers
at least 76% larger
– Delinquent borrowers at significantly greater risk
• Federal Reserve #3 (Abel and Deitz)
– “College May Not Pay Off for Everyone”
– Earnings premium for college degree never been
greater, because HS diploma worth so much less
– About 25% college graduates earn less than HS
• Brookings #1 (Akers and Chingos)
– Conclusion1: Rise in debt not worrisome
– Conclusion2: Repayment burden no worse today than
two decades ago
– Conclusion 3: Broad-based policies for all borrowers
unnecessary (no evidence)
What’s New in Research?
• Brookings #2 (Dynarski)
– Repayment crisis over debt crisis
– Proposes auto-IBR
– Large gaps in available data make effective
policymaking difficult
• Federal Reserve #4 (Kaplan)
– Survey of Young Workers 18-30 (Nov 2014)
– About half receive financial assistance from
– Reinforces dominance of 4-year degree
• CFPB – Annual Report on Private Student
Is Student Debt Killing the
• Answer: Not as Much as We Think
– It is, however, ruining the finances of
those who took out loans but didn’t
complete the degree
• Would be willing to bet problem also
varies significantly by factors:
– College
– Major
– Geographical location
Then What is the Problem?
• Answer: Slow-Growth Economy
– Correlation Does Not Imply Causality
– The ‘Great Squeeze’!
– Young college graduates are having a tough
time in today’s economy
– Policies do not embrace data-driven economy
• Answer: Outdated, Mismatched
Postsecondary Education Sector
– Not everyone needs a four year degree
– Too focused on enrollment and not
– Too little institutional and student
Concerning: High Underemployment
of Young College Graduates
Real Earnings Keep Falling for Young College Grads*
*Average annual earnings for full-time workers aged 25-34 with a Bachelor's degree , In 2013$
Source: Census Bureau, PPI
And Yet One More Study
• September 2014 Joint Brookings-Fed
Panel on Economic Activity:
– Dive into troubling fall in the labor force
participation rate for young people aged 1624 since the mid-1990s
– Conclusion: “some crowding out of job
opportunities for young workers [is]
associated with the decline in middle-skill jobs
and thus greater competition for the lowskilled jobs traditionally held by teenagers
and young adults”
What am I Working On?
• A Lot on Smart Regulation versus
Over-Regulation Across Sectors
– Regulating in the Data-Driven Economy
• Postsecondary Education Reform
– Entire Sector Needs Facelift
– Four-Year Model Dominates
• Federal Aid as a Catalyst for Reform
• Well-Being of Young Americans
– Employment
– Wages
The Risks
• What happens if the public is convinced
that student loans are the cause and
not a symptom of their woes?
• Populist-motivated Regulation
– Wrong or Ineffective Policy
– Poorly Designed Legislation
• (e.g., Re-Fi legislation)
• Increased Regulatory Overlap Across
• Regulatory Creep Within Agencies
The Risks: What Could Happen
• Continued pushback on Ed leads to:
– Greater oversight
– More rules
– More CFPB engagement
• Revised Default metrics for servicers
– Split Servicing
• Gainful Employment
• Pre-emptive and/or prescriptive
Open Questions
• What Could Servicers Do to Improve
Their Reputation?
– Is the perceived unwillingness to alert
borrower of options and to assist in
enrollment in IBR overblown?
• What Should Private Lenders and
Servicers be Responsible for?
– Should type/frequency of communication
with borrowers be required?
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