Sept. 22, 2020

Is the student debt crisis really a crisis?


The amount of student debt here in the U.S. is some $1.6 trillion, roughly the size of Russia’s economy. That sounds like a crisis...right?

Maybe not. Today on Business Casual, we’re exploring student debt and the narratives that got us where we are today. It’s pretty obvious that 1.6 trillion anything is a lot—but some experts think that debt load is but a number in this case.

  • One such expert is our guest—Dr. Beth Akers, an economist with the Manhattan Institute who makes talking about remittance and interest rates and tuition costs feel way more fun than you’d expect.

 

As Dr. Akers and her cohort see it, student debt isn’t all that bad. Repayment rates are high, the benefits of borrowing usually outweigh the costs, and college is still considered a ticket to a better life. The real crisis, then? The narrative of crippling debt hamstringing an entire generation. 

Let’s debunk some myths. Listen now.

Transcript

Kinsey Grant, Morning Brew business editor and podcast host [00:00:09] Hey, everybody, and welcome to Business Casual. It is your host, Kinsey Grant, and I will bet you $5 that you're going to learn something new today. So, let's get into it. [sound of a ding]


Kinsey [00:00:20] Going to college was really fun and really eye-opening, but for a lot of people, it was also really, really expensive. And that, my friends, is how we ended up with over $1.6 trillion in student loan debt here in the United States. Now, for some context, it's about the size of the GDP of Russia, and anything in the trillions warrants air time here on this show. So we know student loan debt is ballooning. But how did that happen? Well, we're going to try to figure that out today. 


Kinsey [00:00:47] We're also going to parse through some of the language used to describe student loan debt. I have one specific word in mind that rhymes with "schmeisis." But to be honest, I'm not totally sure that using that word is a fair characterization of the student debt problem. So I will leave it to today's guest to help us figure it out. Welcome to Business Casual, Dr. Beth Akers. 


Dr. Beth Akers, Senior Fellow at the Manhattan Institute [00:01:07] Thanks so much for having me. I appreciate it. 


Kinsey [00:01:09] Thanks for joining, Beth. So you are a senior fellow at the Manhattan Institute, an expert on the economics of higher education. We're lucky to have you here to talk to us about just that. And I have to say, as a side note, Beth has maybe one of the best book titles of any [Beth laughs] of the guests we've had on Business Casual, co-author of "Game of Loans: The Rhetoric and Reality of Student Debt." That's a great title. Way to go. 


Beth [00:01:30] I appreciate it. I have to be completely honest, since that's the nature of this conversation here, that the editor came up with that title, and I said, no, it's not serious enough. People won't take me seriously as a scholar on this issue. And they said, yeah, that's going to be the title. [Kinsey laughs] So it turns out I was wrong. It's not the first time and it's not the last time I'll be wrong. 


Kinsey [00:01:50] Well, [chuckles] I appreciate your honesty, and it is just a great title. We'll have to check it out. So thank you again, Beth, for taking the time to speak with me today. We have a lot to cover—over $1.6 trillion worth of stuff [laughs] to cover here, to be precise. So let's jump in, shall we? 


Beth [00:02:04] Yes, let's go ahead. 


Kinsey [00:02:06] OK. So I want to start with the sort of headliner question here. Is student loan debt in the United States a crisis? 


Beth [00:02:14] So it's a good question. I started working on this issue about a decade ago, and at that time I had just finished graduate school. And this was a question I was getting from reporters almost daily because my job at Brookings at the time was to answer questions from reporters. 


Beth [00:02:28] And I didn't know how to answer it, because from my understanding as an economist, I was looking at the fundamentals of that debt market in the way that economists would. And what I was seeing was that people are borrowing a ton of money, but they were borrowing a ton of money to make investments that historically had paid huge dividends. To me, that's not the nature of a crisis. At that time, we were not too far out from the mortgage crisis. 


Beth [00:02:55] And so I think at that time, maybe less so today, people were thinking, do we have a second round of the mortgage crisis coming because of borrowing that's happening in student lending? And so I think it's helpful to point out what's different about those markets so that we can appreciate what made one a crisis and one not. In housing, what we saw is that people ended up paying more for houses than they were really worth in the marketplace, and they were borrowing to do so. 


Beth [00:03:22] And when housing prices eventually fell, people were unable to make those payments. And then we had a crisis because mortgages are such a huge portion of the U.S. economy and the consumer debt market. Student loans, on the other hand, again, are used to finance an investment that actually pays a huge dividend. All the evidence that we have so far suggests that, at least on average, people are not overpaying for college. It's still really worth it. 


Beth [00:03:47] And so it's missing that fundamental misalignment that occurred in the mortgage market. And lastly, even though it's a huge volume of debt, it's actually still a relatively small share of the consumer debt market. So unlike with mortgage debt, which did cause a systemic crisis, the scale of this market, even if it were to collapse entirely, would be a much smaller-scale problem. It wouldn't have the systemic disturbance, the fact that we had from mortgages. 


Kinsey [00:04:15] So we wouldn't see something like a Bear Stearns in the student loan debt crisis.


Beth [00:04:20] Right. And it's also good to remember that student loans are largely a government program rather than an industry. So there are industries all around. Student loans are private student loan providers. There are student loan refinancers. There are servicers. There's lots of players in here. But the main player is the federal government, that's who finances these loans, originates them, and sets the terms. So worst case, we've got the federal government not getting repaid on a huge liability. 


Kinsey [00:04:47] And we all know that the federal government just prints money. [Beth laughs] So how come, I guess, Beth, when we see numbers like 45 million borrowers, $1.6-plus trillion in student loan debt here in the U.S., higher debt then than the credit card debt load here for the United States. That seems pretty unsettling. How come, and should we be unsettled by it? 


Beth [00:05:08] I think that the way that the media has covered the issue of student debt, over the past decade really, has drawn attention to some outliers. So what we've seen, there was a study a few years back that looked at whose stories are being told in the newspaper about student loan debt. And what they found is that if you looked at the anecdotes that are included in these newspaper stories, the borrowers that are included have three times the level of debt that's actually the national average. So we're hearing about worst-case scenarios. 


Beth [00:05:38] And a separate study, actually, this is an interesting thing, where they followed up with the people that were covered in those same stories several years later. And what we found was that often people who were facing these difficult circumstances, were at a moment in time when they were having a hard time making ends meet. But they wanted to have a productive career that paid them huge dividends. And so their education actually did pay off in the long run. 


Beth [00:06:00] So I think part of the problem is that we're getting like somewhat of a non-representative snapshot of what's happening with student loans. It is a big number, but it would be sort of like saying, you know, we have all this debt that people take on to start businesses in the U.S. How scary is that? But that money is being borrowed to make investments that we believe is good for the economy and good for the individuals who take it on. 


Beth [00:06:23] Student debt is the same. In some sense, we could be celebrating this. We want more people to go to college. We want bigger investments in higher education—in education in general. That's why we have huge subsidies. So on the other hand, we could be saying, woo hoo! We have $1.6 six trillion in outstanding student debt, which represents investments that individuals are making in themselves, which will result in more growth for our economy, which is good for everyone. 


Kinsey [00:06:51] OK. So as heart-wrenching as some of these stories that we so often see about, I couldn't afford rent, I couldn't afford to buy groceries because my student loan debt was so crippling at this specific moment in time. What would be a more representative way of understanding these numbers? Do we have any sort of framework for what the big picture looks like? 


Beth [00:07:08] Sure. So on average, people who borrow to go to an undergraduate program will end up with about $30,000 in debt. So just to give you some perspective, in the basic default repayment plan, you'll repay that over 20 years. And the payments will be less than $200 a month. $200 a month for a young person with a college degree is going to amount to about 4% of their income. So the financial burden for the typical borrower is actually not huge. It's reasonable and it's worth it. 


Beth [00:07:39] The other thing that's really important to remember, that's often forgotten in these conversations, is that you don't need to make payments on that strict schedule. If you are in a moment in time where you're having a hard time financially, maybe because you've lost your job, which is especially relevant right now in the midst of the COVID economic crisis, you can make reduced payments on what's called an income-driven repayment plan. 


Beth [00:08:01] What these plans do is you certify to the federal Department of Education that you're not making very much money, and then they set payments for you on a monthly basis that are in accordance to how much you're earning. And so if you're earning below a certain threshold of income in a given month, they'll drop your payments to zero and you'll pay no extra fees other than that you'll have your loan outstanding for a longer period of time and you'll accrue more interest. So no one should ever be having to make an unaffordable monthly payment on a federal student loan. 


Beth [00:08:31] Private student loans are a different story altogether. But that's a much smaller share. It's something like less than 10% of all the outstanding student debt is in that category. So the vast majority of the debt has these sort of terms, which means no one should be in a position of having to choose between paying rent and paying the student loan. 


Kinsey [00:08:49] I've read that 66% of Millennials have no student debt at all. They're either not taking on debt because they're not going to college or they don't need a loan to get through college. What about the percentage of that 66% that's just not going because they're afraid of taking on debt? Is that something that we should be considering here? 


Beth [00:09:07] Yeah, it's a real concern. I'm a bit concerned that we are portraying student debt as nefariously as we are, because I think that it's actually a really powerful tool. It allows people who aren't born into wealthy families to access higher education, which is really the most successful mechanism we have for social mobility. So if you want to increase your socioeconomic status, the best way to do it statistically is to go to college. And without debt, people can't do that for the most part, especially with college prices increasing year after year. 


Beth [00:09:41] So we have the rate of borrowing is going up, meaning more people are borrowing now than ever before, continues to go up each year. That's again because of these high price tags. On the other hand, though, we also see that a lot of wealthy students are borrowing. And part of that is because they're taking advantage of an opportunity to borrow at a very low interest rate. 


Beth [00:09:59] The federal loan interest rates are subsidized. And so a lot of times it makes sense to borrow, even if you do have cash on hand. So, you know, I think there's a big concern of scaring people away from student debt, because it does push the most vulnerable students out of potentially having access to higher education. 


Kinsey [00:10:16] Let's talk about this difference between wealthier borrowers, or borrowers from wealthier families, and borrowers from lower-income families. What is the biggest difference between the two? Do we have any sort of metrics for understanding how much those two different groups are borrowing to get that degree? 


Beth [00:10:30] Yeah, surprisingly, borrowers coming from more well-off families, so young people going to college at a high school with their parents picking up the bill, they end up borrowing more than students from lower-income households. And if you think about it, it's not that surprising. It's because these people are going to more expensive colleges and they're staying in school longer. 


Beth [00:10:49] They're going for four-year degrees. They're going on to get graduate degrees. And all that adds up to a higher price tag. So they're paying a higher price tag. They also may be financially savvier than a lower-income student, which means that they appreciate that even if they have cash on hand to pay for college, they'd be better off putting that money in the stock market and taking out federal student loans to pay for their schooling. 


Kinsey [00:11:11] Who defaults more often? 


Beth [00:11:13] The highest level of defaults are seen among people who borrowed less than $5,000 in debt. And the reason for that is that people who don't succeed in being able to repay their debt are the ones who don't finish their degrees. The whole premise behind borrowing is that you don't have the money to pay for school now, but you will tomorrow because this is an activity that raises your ability to earn. 


Beth [00:11:35] If you don't cross that threshold into having the credentials that you can go out into the labor market and actually make more money, it's really tough to pay back these loans. And the people who start, take a few credits, maybe they're at a community college, or are part time, they get a couple thousand dollars in debt. These are surprisingly the people who are in the most trouble. 


Kinsey [00:11:53] Is there any way of understanding what other kind of debt they have? And I know that this might be a [laughs] big question. Are they more likely to take on, say, credit card debt as well? 


Beth [00:12:03] I'm not sure, to be honest. I don't think we have a good sense of what borrowers' entire debt portfolio looks like. 


Kinsey [00:12:11] Yeah, it just makes me wonder, you know, if, say, a Millennial who has a couple thousand dollars in student loan debt is less likely to do the things that we're supposed to do when we become adults, like get a credit card, buy a house, buy a car, because we don't want to jeopardize payments for those student loans. So to me, that could then have this domino effect on the entire economy at the large scale. 


Beth [00:12:35] Yeah. So there's been a lot of research actually trying to figure out what is the impact of student borrowing on the way people live their lives. People are especially concerned about if people delay marriage, delay having children, buying a house, all those sorts of things. The research on this is really tough because people who borrow to go to college are different from people who don't borrow to college. Ideally, you'd love to look at those two different groups and say, look, these people with all this student debt, they don't go on to get married. They don't buy cars, et cetera, et cetera. But those people are very different from the people who didn't borrow to go to college, in a lot of different ways. And those same ways may be determining when they get married, when they have children, whether they live in cities, and things like that. So the research is difficult. You know, I always like to say that we still believe higher education is a lifetime wealth-enhancing activity, so that over the course of your lifetime, having gone to college, even if you borrow to do so, is going to put more wealth in your pocket. It's hard for me to see in the long run how having more wealth as an individual would reduce, you know, these sort of, quote unquote, adult activities that people are doing. I could see that it might affect their timing. I think there's definitely a psychological burden of carrying their debt. But if the alternative is to push people not to borrow, that means they may not be getting the education. And on net, are going to be worse. So I think those are difficult conversations, but important ones to have. 


Kinsey [00:13:59] Right. Certainly an important economic perspective with that. I want to talk a little more extensively about whether or not going to college is worth it. We'll do just that in a second. But first, a short break to hear from our partner. —


Kinsey [00:14:12] And now back to the conversation with Beth Akers. So, Beth, we've talked a lot here about how going to college actually can be proven to make you more wealth later on in life, that it's a net good for people, but it has gotten super, super expensive to go to college. And that is at the root of this—not a crisis, but maybe a problem with student debt is that it's just gotten more expensive. Can you put that in context at all? 


Beth [00:14:34] Yeah, so historically, research has taken a lot of different approaches to say how much is college worth? What's the return that individuals are getting. Consistently, when we do that, we get that the returns are huge. We can estimate it's like a 15% rate of return if you were to invest that level of money in the stock market, which is huge. 


Beth [00:14:54] On average, yields something like an extra million dollars over the course of your lifetime. And so that's all sound, and that's important. And I tout that all the time. But what I think we need to move the conversation towards is that not only is there [chuckles] a potential return, but there's also a huge risk in going to college. So the typical student may end up a $1 million better off over the course of their working lifetime. 


Beth [00:15:16] But a lot of people are gonna end up worse off than if they hadn't gone to college in the first place. And so we're starting to push in the direction of realizing that college is not just this commodity that everybody can go in and through and end up with these average returns. But when people shop for college and we subsidize colleges, we need to think about where are those positive returns? And the nice thing is that there is a lot more emphasis on that in current discussions about college than it was even five years ago. 


Kinsey [00:15:43] Right. I also think that there's been this sort of middling out of colleges—that we have the Harvards and the MITs of the world, and then everybody else. And you know if you're going to go to one of these elite universities, you're going to have an elite career after you graduate. That's not exactly a guarantee for somebody who's going to a state school or community college. 


Beth [00:16:02] Yeah, there's huge variation on returns within colleges, but also across colleges. So there's the Harvards and the not-Harvards, but even amongst the not-Harvards, there are a lot of places I probably wouldn't send my child. [laughter] And so I think it's worth noting, you know, it was maybe several years ago at this point, the Obama administration started publishing data so that you can actually now look and see which are the colleges that are producing high earnings for their graduates. 


Beth [00:16:27] That's something that we didn't have. When I went to college, I was flipping through this old U.S. News and World Reports digest that had pages like a telephone book, and that's how we picked out our college. Now, if you want to, you can go online and say, OK, graduates from SUNY Albany, where I went to school, they have an average earnings level of this in their economics department. 


Beth [00:16:47] Or I can then look at RPI, which was a neighboring college. What do their economics majors make? And then think about the trade-off in prices and make decisions that way. So we're really opening up a new world where people can think more economically about what they're paying for college. 


Kinsey [00:17:03] It's interesting to think of colleges, almost this offshoot of apprenticeships. You know, when in the olden times, you would go find a blacksmith and spend two years and learn everything you need to know. And then that made you a higher earner, instead of just like toiling away in the feudal times. [laughs] And now we have so much choice and we have so much information at our fingertips, it's almost a little overwhelming, I think, for a lot of people. 


Kinsey [00:17:26] Are you gonna be an art major and not make any money? Are you going to be a journalism major and not make any money? Are you going to sell your soul and become a finance person and hopefully [chuckles] make a boatload of money? And it's just compelling to think about the ways that the decisions we make at 18 affect everything for the rest of our lives in a lot of ways. 


Kinsey [00:17:44] And to me, that's part of the conversation that's important to have with student loans, is that you're essentially lending to one of the least reliable kinds of people in the world, an 18-year-old who probably doesn't have a ton of income, if any at all, has barely a credit score, if any at all. And we're giving them a ton of money and saying, you'll pay us back someday. Is that a concern in this conversation? 


Beth [00:18:06] Absolutely. [laughs] I think college is inherently a very risky venture. 


Kinsey [00:18:12] Right. 


Beth [00:18:12] Now take an uninformed young person who's never been asked to sign a financial contract before and put it on them to make this huge decision. I think it's absolutely a problem. You know, especially—we haven't had a culture of college-going where people are pressed to make hard decisions about college. 


Beth [00:18:31] I did a study a few years ago where I asked a bunch of freshmen right after they'd signed their first promissory note for their loan. I asked them how much they'd borrowed for school and how much they were even paying in tuition. And the vast majority had no idea. And to me, that's really concerning as an economist. I'd like to imagine —


Kinsey [00:18:45] [laughs] I just gawked. 


Beth [00:18:49] Yeah. I'd like to imagine that people are kind of sitting with their calculators and saying, does this make sense? Can I afford this? But it's not what happens in homes. And it's not the fault of the students. They're not dumb. They're the product of this system which has pushed people to say college is something like the golden ticket. So just sign here and you can go. 


Beth [00:19:07] We've got to get away from that mentality. It's what's causing debt to go up. It's what's causing, or allowing, colleges to continue to raise their prices year after year. We definitely have to get much more literacy about college finance to stop all these trends that are really concerning. 


Kinsey [00:19:23] Mm hmm. I'd love to hit on this changing the narrative concept. Before we do that, though. I just have to wonder who's making money off of this industry. It is a subsidized industry and a lot of ways, but there is still money to be made in terms of interest. Where does that go? 


Beth [00:19:37] Well, so actually, for the most part, student loans are financed by the federal government and they are not generating profits. So it costs the federal government more to run the federal student loan program than they bring in in revenues. Now, if you look at graduate students in combination with undergraduates, they end up subsidizing them so that there are some offsets because of that. 


Beth [00:20:01] But remember, this is really just a program. It would sort of be like asking, you know what, who profits off of Medicare or Medicaid? I guess that's a longer conversation. [laughter] But the private players in this are relatively few. So there's student loan servicers. If you have a student loan, you know that the bill that comes every month, or the website you log into every month, is not the federal Department of Education. 


Beth [00:20:23] It's something like Navient in or Great Lakes. It's these companies who our federal government pays to collect those loans. You know, that's a reasonable thing to do. The government would have to pay to do it themselves if they weren't outsourcing. But also, a small private student loan industry that remains often used by graduate students. They're paying pretty high interest rates to borrow. But again, they're doing pretty well on the back end. So those are the primary ones. 


Kinsey [00:20:47] Beth, I want to talk about the narratives, how they've changed in recent years in just a moment. But quickly, a short break here from our sponsor. —


Kinsey [00:20:57] And now back to the conversation with Beth Akers. Beth, student loan debt has become a overtly political issue in recent years. How did this happen and why? 


[00:21:09] Well, yeah, it has become [indistinct] political. You know, when I first started covering this issue, in my research, there was no talk about widespread student loan forgiveness. I mean, we were arguing about interest rate cuts. So it's a much more wonky issue. And now they are just center stage, especially at the Democratic primary, when candidates were proposing different sort of loan forgiveness programs. I think what politicians have identified is that this is an issue that hits very close to home for a lot of their constituents. 


Beth [00:21:42] So, you know, vocal and active participants in the political process, many of them have student debt. And it seems that they are being pulled into the conversation by this being at the top of the agenda. That being said, I think that when we started to see these student loan forgiveness proposals during the Democratic primary, I was really anxious to see how they'd be received by the general population because remember, the majority population doesn't have student debt, right, maybe because they didn't go to college or they didn't borrow to do so. 


Beth [00:22:11] And I thought for sure these people aren't going to be really excited about the idea. It turns out, even those people have been convinced [chuckles] that student debt is a huge problem and that forgiveness of a widespread nature would be a good idea. So I think it's been politically convenient for politicians, but I think it's also a topic that people do have a genuine concern about. 


Beth [00:22:30] And, you know, I can say all day that the numbers add up and it's OK to borrow for college. But it's also very clear that people are very upset about the idea that young people are having to go into debt in order to finance education. So there's a conversation to be had there. Just because the numbers add up doesn't mean we can dismiss the conversation. 


Kinsey [00:22:49] So we'll talk about what forgiveness actually looks like. Before we do that, we think about education as a right from K through 12. What about higher education? How come that has not become the norm [indistinct]? 


Beth [00:23:04] So from, like a very textbook economics perspective, the reason that we subsidize education is because it has social benefits. The idea is that by paying for someone to get kindergarten, first grade, all the way through high school, we are supporting them and investing in them. And they'll return that to society. So it justifies us using collective or taxpayer dollars to pay for it. Once you start getting to the level of higher education, at least in theory, we're shifting away from there being more public returns to education, to a lot of those returns being private. 


Beth [00:23:38] So if I were to go to college, rather than just start working after high school, I'd make more money. Most of that money is going to come to me, goes to my bank account. I get to have a bigger house, a nicer car. Of course, some of that goes back to the federal government too, which is through taxes, I should say, which is why we do subsidize it. We subsidize it through the loan program, through the Pell Grant program. But we don't subsidize it to the same degree as K through high school education. And really, it's an arbitrary cutoff. 


Beth [00:24:09] So I think when the free college conversation started happening, you know, I'm not an advocate for free college. I think the market-based system works reasonably well. I remember telling an advocate, if you want to beat me into an argument about free college, just say this cutoff between 12th and 13th grade is completely arbitrary. And so, unless you can defend it, then [laughs] why not make college or at least community college free? And so it's a great question. 


Kinsey [00:24:35] Yeah, absolutely. Let's get back to the student loan forgiveness conversation—canceling student debt. What would that look like? Is it ever, I guess, two questions. One would be, what would that look like? And two would be, is that ever a realistic outcome? 


Beth [00:24:49] Yeah, I think it's unlikely. Politically, it could happen. Like I said, this is a public program. This is not an industry. So, if we were saying forgive all mortgage debt, that wouldn't make a lot of sense, right, because those are contracts between individuals and companies. The government doesn't own those. They don't set the terms. But for the most part, student loans are just a government contract, a government program. So the government theory could unilaterally decide, you don't need to pay me back. It absolutely could happen. 


Beth [00:25:17] Right now, it's worth noting, we already have a forgiveness program in place. So once students have been making payments on their loans for 10 or 20 years, depending on the sector of their employment, they can have their debt forgiven. That's under the income-based repayment program that I talked about before. And right now, when people have those debts forgiven, they actually have a big tax bill that comes along with it too, because it's taxed as if that were a gift to them of the amount that was outstanding on their loans. So that's like a wrinkle to think about. 


Beth [00:25:48] But it seems more likely to me we'd get some kind of lower level of forgiveness. You know, not a widespread forgiveness of all outstanding debt. That's really problematic because it delivers like a lot of cash benefit to people who are already really wealthy. I mean, think of doctors and lawyers and MBAs who have a lot of debt, but have very high earnings. Are those the people we want to give our taxpayer dollars to, to help them out? Probably not. We probably much prefer to help people who are struggling. 


Beth [00:26:17] Something I've even proposed as a more of a conservative in this space is to forgive something like $5,000 of debt for everyone. That would wipe away the really problematic balances for the people who started college but didn't finish, and would cap the amount that higher earners are going to benefit from it. Though the universal nature of it would make it politically palatable, I think. 


Kinsey [00:26:38] So what about the people who've already paid off their student debt? 


Beth [00:26:42] Yeah. I mean, that's sort of an interesting debate to follow in the wake of the proposals coming out during the Democratic primary. So a lot of people feeling angry or disgruntled that they had paid back their loan and these younger generations haven't had to. 


Kinsey [00:26:58] These Millennials have it so easy, don't they? 


Beth [00:27:01] Yeah, exactly. There are a lot of things that younger generations benefit from that older ones did not. And so I don't know if it's a reason not to do it. But I think that the bigger concern to me is the distributional impact amongst those who do receive the benefit. But then again, think of the people who haven't gone to college at all. Who are the lowest earners in our economy, most vulnerable to unemployment. And they get no benefit from a plan that forgives student debt. 


Beth [00:27:28] Wouldn't that money be better spent on supporting them, maybe with rent relief or supporting nutrition programs for poor children? When you think about where those dollars are going, it's just kind of hard to reconcile that the people who have gone to college, even if they've had to borrow to do it, they're probably not the neediest ones in our society. 


Kinsey [00:27:47] So let's say your plan happens. You're elected president and you enact all of these policies. Everybody gets $5,000 to help pay off their student debt. What's the impact on the broader economy? Is there any way of making some sort of conjecture for what that would do to the economy? 


Beth [00:28:03] Yeah. Good question. So a lot of times people who are advocating for loan forgiveness are saying this will be great for the economy. It's essentially a huge stimulus plan. And there's some truth in that. So whenever we deliver cash to people, just like we did with the initial COVID payments that came out of the Cares legislation, the goal is to support people, to support their welfare, but also to stimulate the economy, because the idea is that they go out and spend. 


Beth [00:28:29] But if we're actually designing a stimulus program, we would make sure to send those dollars to the people who are most likely to go out and spend them tomorrow. And unfortunately, the people who have student loans are probably not those people. Again, it's going to be the poorest people, people who are most in need, who will take those funds, go out, spend them at the grocery store, use it to pay their bills tomorrow. And that actually has a better effect on the economy. So sure, it's a positive effect. But again, if that's our goal, there's a better way to do it. 


Kinsey [00:28:59] So if we're going to send money to people, send a check to people, it shouldn't necessarily be the college educated people who are theoretically higher earners. 


Beth [00:29:07] That's my idea. Yeah. Yeah. 


Kinsey [00:29:11] OK. So what would be the argument in favor of totally canceling debt? I mean, beyond this conversation around it being a huge boon to the economy, what else do we have? 


Beth [00:29:23] I think it's actually more of a philosophical posture, to be honest with you. It seems to me that people who are advocating for those sorts of policies just seem to object to a system in which education is something that individuals need to pay for in a market-based system. And, you know, that's not my position, but it's a reasonable position. 


Beth [00:29:43] That's why we often see those sorts of proposals going hand-in-hand with free college regimes, going forwards and making all public institutions free of cost. And the idea is college will be free going forward, but let's also grandfather in the people who paid and make it free for them too. And so, again, I think it's a philosophical position more than it is an economic one. 


Kinsey [00:30:02] Do we have any governments to look to that you think are successfully doing the right thing in terms of student debt? Like you think of, I know the U.K. is after, what, 30 or something years, your debt is wiped. Is that a viable option in the United States? 


Beth [00:30:18] Yeah, it is. It absolutely is. One system that is often celebrated is that in Australia. And so, you know, what we have in the U.S. is what really looks like a loan program, just like a loan that you take out for a car. You expect to make these monthly payments. And then, oh, yeah, there's this extra program that if you're in trouble, you can sign up for and we'll set your payments equal to a proportion of how much you're earning. That's a really complicated, messy way of doing things. 


Beth [00:30:44] The Australian system just says you're going to pay X percent of your income for X number of years after you graduate. And then you're off the hook. We'll pay for your schooling upfront, and that's how you pay it back to us. So then people know automatically, I'm essentially paying a tax to go to college and I'm paying a proportion of my income that is affordable, based on what I'm earning and based on what my family structure is. 


Beth [00:31:07] People who have kids and spouses that aren't working have a lower liability than those without. So having that kind of baked into the basic system so that it's not like a loan with a safety net on top, but rather just the seamless, you pay me a percentage of your income after you graduate, I think there'll be a big improvement. 


Kinsey [00:31:26] Another big question I'm sure a lot of our listeners have heard about or thought about is student loan debt in bankruptcy. What do we need to know? Can it or can it not be discharged in bankruptcy? 


Beth [00:31:36] Student loan debt is difficult to discharge in bankruptcy. So it is generally not discharged. But if there are circumstances in which a person becomes disabled or is otherwise unable to benefit from their education or to repay their debt, the debt is discharged. But it's much more difficult than, say, a credit card debt to just discharge through bankruptcy. So that is something to be mindful of, especially with private student loans. 


Beth [00:32:02] Because remember, part of the reason federal student loans needn't be dischargeable in bankruptcy so easily is because there you have the forgiveness provisions at the end. So if you're somebody who's in financial trouble, you're going to be making those reduced payments and eventually have your debt forgiven anyway. So we don't need to have it taken care of through the bankruptcy system. Private student loans don't come without protection. And so those are the ones that get kind of sticky because you're going to carry them with you most likely through a bankruptcy. 


Kinsey [00:32:28] Yeah. And, in a perfect world, no one who needs to borrow to go to school would have to declare bankruptcy, because, especially if you're young, that's a mark on your credit for decades after that. It's option Z [laughs] in many cases. 


Beth [00:32:41] Yes. 


Kinsey [00:32:41] So, Beth, thank you so much for coming on Business Casual. This was certainly an eye-opening conversation. I hope that the people listening to this, whether you have student debt or not, will walk away thinking that there is a narrative shift that needs to happen here. There are more options than maybe we are made aware of in most cases. And this is a huge economic issue that certainly is not going away. So thank you so much for taking the time and offering such wonderful insight. 


Beth [00:33:04] Thanks so much for having me. It was really fun. 


Kinsey [00:33:13] Thank you so much for listening to this week's episode of Business Casual. The student loan debt conversation is a stat-heavy one. I wrote about the context that all of these numbers deserve in my weekly column on Sunday. If you don't know about this weekly column, let me fill you in. It's a Sunday op-ed newsletter breaking down the upcoming week's Business Casual content, and it's can't miss journalism, if I do say so myself. 


Kinsey [00:33:37] So go subscribe at businesscasual.fm/signup. That's businesscasual.fm/signup. See you next time. [sound of a ding]