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NPR Ed
A lot of student debt...
This week, the NPR Ed team spent some time digging into the topic of
student debt. A lot of people have it — 45 million people to be exact —
but, as Elissa Nadworny writes, “amid all the national debate right now
about what to do about it, it's important to remember that not all debt
is created equal, and some borrowers are struggling more than others.”
For example, while a lot of people take out loans for school, not
everyone necessarily defaults on those loans. One expert told NPR that
the default rate actually goes down the higher the debt amount. That’s
because the more loans you take out, the more likely you are to use
those loans to finish your degree and get a better job to help you pay
those loans off.
Student loans are also coming up in political debate. Presidential
nominees like Bernie Sanders and Elizabeth Warren have proposed plans
to offer some sort of debt forgiveness. So this week, Clare Lombardo of
the NPR Ed team asked this not-so-simple question: What might happen if
the government starting forgiving student loans?
In her reporting, Clare points to research that shows that loan
cancellation can have a big impact on borrowers already in default. For
example, after a group of 10,000 people had their loans forgiven, Ankit
Kalda, one of the study's co-authors, told NPR that people were able to
move and get new jobs. When loans are forgiven, Kalda says, borrowers
"are also less likely to file for bankruptcy, or be foreclosed upon, or
even default on their medical bills."
But it's not that simple. Critics of debt forgiveness plans say that
these proposals would benefit well-off Americans the most because the
people who take out the largest loans do so to pay for costly graduate
degrees.
There’s a lot to unpack here… read on!
These Are The People Struggling The Most To Pay Back Student Loans
Elissa Nadworny
Lots of people have student loans: more than 45 million people. They collectively owe about $1.6 trillion.
That is, of course, a lot of debt — but amid all the national debate
right now about what to do about it, it's important to remember that
not all debt is created equal, and some borrowers are struggling more
than others.
"The large debts we hear about are often taken out by graduate students
— people who get an MBA or who get an M.D. or get a law degree or get a
master's," says Susan Dynarski, an economist at the University of
Michigan.
Those aren't the folks to worry about, Dynarski says. Neither are
borrowers who got their bachelor's degree — who on average have about
$30,000 in loans after graduation. For many of those borrowers, the
loans did their job: They allowed students to go to college, get their
degrees, land a better job and, ultimately, pay back those loans.The
people who are really struggling, experts say, are the roughly 1
million borrowers who default on their student loans each year — about
7 million borrowers in total at the end of 2018, according to the
latest numbers from the U.S. Education Department.
Defaulting "is not the only sign of struggle, but it's the worst sign
of struggle," says Ben Miller, vice president for postsecondary
education at the left-leaning Center for American Progress.
When you're in default, the government can take your tax refund or part
of your paycheck. When you get older, you can even lose part of your
Social Security.
These are the people, experts say, that give us a clear idea of who is
struggling the most with student debt. And the size of those loans is
smaller than you might think: "The typical defaulter has under $10,000
in debt," Miller says.
Borrowers with debt and no degree
"The people having problems with their debts are those who dropped out
of school after just a few courses or a year," Dynarski says.
The default rate among borrowers who didn't complete their degree is
three times as high as the rate for borrowers who did complete. When
these students stop taking classes, they don't get the wage bump that
graduates get that would otherwise help them pay back their loans.
"Getting a degree really does make a difference," says Tiffany Jones,
the director of higher education policy at the Education Trust.
There are other inequities in the distribution of loans and defaults, too.
Half of African American borrowers who took out loans for the 2003-2004
school year had defaulted after 12 years, according to federal data.
Because black students have less generational wealth on average,
experts say, they're more likely to borrow in the first place. They're
also more likely to attend for-profit schools, and they often earn less
money after college.
Even African American borrowers who graduate with a bachelor's degree
still default about four times more often than their white counterparts.
"In other words, the bachelor's degree can't completely wipe away issues related to race," Miller says.
Low-income students
Students who receive a Pell Grant — that's the program that provides
free money for low-income students — are also more likely to default.
Dynarski explains it this way: If you are a low-income student and you
take out loans in addition to Pell Grants, but then drop out and don't
earn a degree, then you probably aren't getting a wage bump to help you
pay back those loans.
"If you look at the likelihood that someone is going to default, it
actually drops as debt goes up," Dynarski says. "That sounds completely
counterintuitive, but that's because the missing piece here is
earnings. You can't pay off a debt if you don't have any money."
People who went to for-profit colleges
Though for-profit institutions only serve about 10% of students, these students are more likely to default.
When the government looked at the default rates for student borrowers,
they found it was nearly double at for-profits what it was at community
colleges: of defaulters, just 26% started at community college, while
52% attended a for-profit institution.
For-profit schools are more expensive than community colleges, so
students who attend them are more likely to borrow. For-profits also
have low graduation rates, so lots of students who start there do not
finish, and of those who do, the credentials are less valuable. With
that in mind, when you look at all students — not just borrowers — who
attend a for-profit college or university, they are four times more
likely to default on their loans than community college students.
As Dynarski puts it, often students who attended for-profit colleges
have "little education, lots of debt." That's because "the for-profits
have very high default and very high dropout rates."
Student Debt Forgiveness Sounds Good. What Might Happen If The Government Did It?
July 10, 2019
Clare Lombardo
Americans owe about $1.6 trillion in student loan debt. That's about
twice the current budget for the Defense Department and around 22 times
the budget for the Education Department.
About one in every six American adults owes money on a federal student
loan. So it makes sense that candidates for the 2020 presidential
election have proposed ways of dealing with this debt to allow millions
of Americans to move on. Their proposals vary.
Sen. Elizabeth Warren, D-Mass., says she would forgive "up to $50,000
in student loan debt for 42 million Americans." Her plan would cancel
up to $50,000 in debt for individuals with a household income of under
$100,000. The plan wouldn't take away debt for people with a household
income above $250,000. Those in the middle would have loans canceled
based on how much they make — the more you earn, the less would be
forgiven.
Paying for it: Warren says she'd institute a tax on the wealthiest Americansto come up with the money for this.
Vermont Sen. Bernie Sanders has proposed a seemingly simple plan:
canceling student debt for all borrowers who carry it. He says it'll
save $3,000 per year for the average borrower.
Paying for it: Sanders says he'll create a "Wall Street speculation tax," taxing stock, bond and derivative trades.
These plans to eliminate debt come in tandem with proposals to decrease
or eliminate college costs, which prompt questions of their own. But
what, exactly, might happen if the government simply wiped out student
loans?
For one, it would cost a lot of money: Eliminating all student loan
debt would cost somewhere around $1.6 trillion, though the exact cost
is anyone's guess. Sanders says that his plan, which includes making
all public colleges in the U.S. free, would cost $2.2 trillion.
Warren's overall education plan — including free public college — would
cost $1.25 trillion, she says. Her plan for loan forgiveness would cost
about $640 billion, according to a report for her campaign, though the
authors note that "a precise estimate is challenging."
Both Warren and Sanders say wiping out debt en masse would stimulate
the economy. One 2018 study found that this could be true. The
researchers, including a senior economic adviser to Sanders'
presidential campaign, found that canceling all student debt would lift
GDP and decrease unemployment.
And recent research shows that loan cancellation has a big impact on
borrowers already in default on their student loans. The authors
studied what happened when a group of about 10,000 borrowers got their
loans discharged from a private loan company. The company, National
Collegiate, couldn't prove in court that it owned the debt it was
trying to collect, freeing borrowers from paying back those loans.
People moved, got new jobs and made more money when their loans were
discharged, says Ankit Kalda, one of the study's co-authors. When loans
are forgiven, he says, borrowers "are also less likely to file for
bankruptcy, or be foreclosed upon, or even default on their medical
bills."
But critics of mass debt cancellation plans fear that these proposals
would benefit well-off Americans the most. That's because the people
who take out the largest loans do so to pay for costly graduate
degrees. While they might be expensive, these graduate degrees help
borrowers earn a higher salary, so they don't have as much trouble
paying back their debt. So, these borrowers default on their student
loans less.
The people who default on their loans have, on average, less than
$10,000 in student loan debt. These people are more likely to be low
income, black, former students of for-profit institutions and those who
stopped taking classes before getting a degree.
Eliminating all student debt, per Sanders' plan, would increase the
wealth gap between white and black households, according to one 2015
study co-authored by left-leaning think tank Demos. (Two economists
from Brandeis University who worked on the study co-authored an
economic analysis for Warren's campaign this year.)
To decrease the racial wealth gap, researchers at Demos have
recommended a plan like Warren's, which eliminates more debt for
borrowers who make less.
But even Warren's proposal would aid folks who are less likely to
struggle with paying back their loans. An analysis of her plan by Adam
Looney of the Brookings Institution found that under her proposal, "The
bottom 20 percent of borrowers by income get only 4 percent of the
savings."
And, some economists fear that wiping out debt on a wide scale could
contribute to the rising cost of college if students take out loans
expecting debt forgiveness down the line. Already-pricey colleges would
have no incentive to keep costs down. "If we get into a system where
people anticipate that their loans will be forgiven in the future, I
think we're only going to see that problem exacerbated," Beth Akers of
the conservative-leaning Manhattan Institute predicts.
So what about simply improving on existing policies to ease the pain of student debt?
"We have fairly robust and generous loan forgiveness programs and
income-driven repayment programs," says John Brooks, a professor at
Georgetown University Law Center.
Take the current system of income-driven repayment: For those enrolled,
monthly payments are capped based on income, and depending on the plan,
remaining loans are forgiven at the end of a 20- or 25-year period.
But not many folks know about these plans, says Akers.
"It's not well understood by people who are thinking and talking about
policy change," she says. "It's also not well understood by the
borrowers who could potentially benefit from the program."
Some candidates are thinking about it though: Former Housing Secretary
Julián Castro says if he were elected, he would reform the repayment
system, capping loan payments at zero for borrowers earning under 250%
of the federal poverty line — $31,225 for a single-person household in
2019.
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