1 / 14

Is Student Debt Hindering Economic Growth and Wellbeing? Diana G. Carew

Explore the research on student debt and its effects on the economy and wellbeing. Discover the risks of misinterpreting market signals and the need for postsecondary education reform. Address concerns of high underemployment among young college graduates.

catherinef
Download Presentation

Is Student Debt Hindering Economic Growth and Wellbeing? Diana G. Carew

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Is Student Debt Hindering Economic Growth and Wellbeing? Diana G. Carew Progressive Policy Institute November 3, 2014

  2. Agenda • 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?

  3. 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”

  4. 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 graduates • 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)

  5. 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 family • Reinforces dominance of 4-year degree • CFPB – Annual Report on Private Student Loans

  6. Is Student Debt Killing the Economy? • 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

  7. 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 completion • Too little institutional and student accountability

  8. Concerning: High Underemployment of Young College Graduates

  9. 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 16-24 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 low-skilled jobs traditionally held by teenagers and young adults” (http://www.brookings.edu/~/media/Projects/BPEA/Fall%202014/Labor%20Force%20Participation%20%20Aaronson.pdf)

  10. 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

  11. 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 Agencies • Regulatory Creep Within Agencies

  12. 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 rulemaking

  13. 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?

  14. THANK YOU! dcarew@ppionline.org

More Related