Robert Cruickshank has a response to my earlier post on how to handle student debt that you should check out. My plan was bankruptcy reform and mass refinancing, while Cruickshank thinks those trying to deal with current student loans need to deal with the principal itself, as it is far too high (“The best solution is to simply forgive all existing student loan debt”).
My initial thoughts stand: the core problems of student loan debt as I read them can be tackled with those two steps. If the monthly payment is too high, low-interest refinancing will bring it down. If the lifetime payments are too high, same. If the balance is too high without any interest, bankruptcy process is in play. Low-interest refinancing acts as de facto principal reduction. Also my read is that student debt as a whole isn’t holding back the recovery, and $1 trillion dollars can be spent on better stimulative things now and merit goods later. That said, lower student loan debt is a good thing.
I want to think more about whether removing all student loan debt should be a goal as an ethical matter. As Malcolm Harris put it, if I think college should be free, “how do you ask a student to be the last student to pay for a mistake?”
My first thought is to check distributional impacts. There’s an assumption you hear in the media that college loans problems are an upper-middle-class, things-white-people-like type of problem. How well does that play out? Let’s get some data going.
First off is a chart from the new Demos State of Young America Databook:
This is debt for the graduating class of 2008. African Americans are most likely to borrow and graduate with more debt. Two-thirds of all students graduate with debt, and those that do have a lot of it, which is a giant sea-change within a generation. A weak labor force is even more likely to cause widespread youth discontentment under these circumstances.
Now that’s college graduates in 2008. What does it look like for the population as a whole, many of whom don’t go to college? Let’s go into the Federal Reserve’s Survey of Consumer Finances, 2007, next (special thanks to Arjun Jayadev for pointers). We’ll get some original data analysis soon (anyone in the audience know how to do survey weights in R?), but for now let’s look at their chartbook (large pdf file). First off, to an extent I think media ignores, student loans are a new, generational wide, problem:
A third of the entire country under 35 has a student loan payment. That’s more than half of those under 35 in the late 1980s. It’s also skyrocketing as a percentage of minority population:
How does this break down on distributional lines?
People in the middle of the income distribution, 40%-90%, are the most likely to have a student loans. Those in the top 10% (and presumably especially in the top 1%) are less likely to have a student loan. Those in the bottom 40% are also less likely, presumably for a host of reasons starting with the idea that they are less likely to have finished high school.
An interesting thing for those in favor mass forgiveness – the top 10% with loans have the highest average balance for those loans:
That doesn’t surprise me. What is interesting is how tight the span of average loan balances for those with loans are for the 0-80%. 60-90% isn’t that much higher than 0-60% in actual balance. We are talking the difference between $24,000 and $18,000 in student loan debt – which is shocking given how much incomes drop off under the $60,000 percentile. My initial read is that everyone who takes on debt to fully educate themselves take on nearly the same amount debts. Then they roll the dice in the American economy – it works for some, and the debts are manageable. Less so for others.
What other questions need to be answered in the data as we go further into it?