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NEW RESEARCH ON STUDENT DEBT “The student debt crisis is a crisis of non-repayment”
authored by ME with adept help from @Edi_Nilaj & @Beamshire at @jainfamilyinst
https://phenomenalworld.org/analysis/crisis-of-non-repayment
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This is the fourth post in the "Millennial Student Debt" series, and the second that uses a new dataset of credit reports matched to ACS demographic and economic data.
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I like to use the bathtub metaphor: the student debt crisis is an overflowing bathtub, both because too much water is pouring in (more people taking on more debt to get more degrees) and b/c too little water is draining out--that debt isn't being repaid.
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The last analysis (by @Beamshire) tracked the former and can be found here:
https://phenomenalworld.org/analysis/millenial-student-debt
This post is about the latter, and specifically about measuring the effect of Income-Driven Repayment (IDR) programs.
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https://phenomenalworld.org/analysis/millenial-student-debt
This post is about the latter, and specifically about measuring the effect of Income-Driven Repayment (IDR) programs.
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I'll post a couple of the charts and then engage a bit with the ongoing debate about student debt cancellation. First--deteriorating repayment by loan "vintage." This is the share of loans with higher current balance than initial balance, by loan origination year.
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Second--non-repayment rates by (zip-code-level) racial breakdown. Majority-minority zip codes have much higher non-repayment, and that gap is widening over time.
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Third--the age distribution of loans is getting older, even though more new loans are being originated. This would mean that non-repayment should be getting better (as loans get older and therefore repaid), but, voila, it is not.
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Fourth--this shows progress to repayment for the panel cohort of borrowers who had outstanding student loans in 2009. Recall that 10 years is the standard repayment window. [Numbers are ratios: current outstanding balance to 2009 balance.]
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![Fourth--this shows progress to repayment for the panel cohort of borrowers who had outstanding student loans in 2009. Recall that 10 years is the standard repayment window. [Numbers are ratios: current outstanding balance to 2009 balance.]/8](https://pbs.twimg.com/media/EnHX-fmUwAorOsM.png "Fourth--this shows progress to repayment for the panel cohort of borrowers who had outstanding student loans in 2009. Recall that 10 years is the standard repayment window. [Numbers are ratios: current outstanding balance to 2009 balance.]/8")
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Okay, now to the "relevance to the current debate" section.
1. It's fashionable to say IDR is the more "targeted" alternative to blanket student debt cancellation. In two distinct but related senses, that talking point makes no sense.
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1. It's fashionable to say IDR is the more "targeted" alternative to blanket student debt cancellation. In two distinct but related senses, that talking point makes no sense.
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a. Thanks to IDR, a huge chunk of outstanding student debt is never going to be repaid. Just look at the chart in tweet 5 (figure 4 of the post).
**North of 60% of loans that have been originated since ~2012 have a higher balance now than they did at origination.***
**North of 60% of loans that have been originated since ~2012 have a higher balance now than they did at origination.***
Deferment at worst is supposed to mean that balance rises for a few years, then starts to decline as the loan is paid down. That's simply not happening. And we've just come off the longest labor market expansion in US history.
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b. IDR selects out the loans with the highest balances, because it's much more valuable to people with more debt. Everyone claiming that student debt cancellation is regressive or "poorly-targeted" and IDR is a better and more moderate option is just whistling in the wind.
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(Here's an op/ed that appeared yesterday in the Washington Post denigrating student debt cancellation and making a series of factually false assertions about the alternative.)
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Most of the student debt that is already outstanding is never going to be repaid. The only question is whether we cancel it in 25 years, after a lifetime's worth of fruitless payments, or do so now, recognizing the policy failure that gave rise to this state of affairs.
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2. Leading members of the student debt wonkosphere have made a series of incorrect statements about the significance of (low) payments on student debt, payments that are less than the full interest-and-principal obligation in a 10-year term.
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First: the fact that people are paying less than that means they're not burdened by their debt. In reality, the increased prevalence of IDR signifies precisely the opposite: that people's incomes aren't high enough to retire their loans.
(An example: https://www.brookings.edu/research/is-a-student-loan-crisis-on-the-horizon/)
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(An example: https://www.brookings.edu/research/is-a-student-loan-crisis-on-the-horizon/)
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Second: the fact that student debt **payments** are more skewed towards high-income borrowers than student debt itself means that cancellation is EVEN MORE REGRESSIVE than previously thought. That's perverse--it's the people currently in IDR that need their debt cancelled.
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Here's an example of the latter mistake:
https://www.brookings.edu/blog/up-front/2020/10/09/who-owes-the-most-in-student-loans-new-data-from-the-fed/
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https://www.brookings.edu/blog/up-front/2020/10/09/who-owes-the-most-in-student-loans-new-data-from-the-fed/
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3. Finally: the function of IDR in the current higher education finance system is to effectuate a backdoor federal solution to the problem of state-level higher ed cuts and the shifting of the cost of (rising) higher ed attainment to students/workers.
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We shifted that cost to the agents in the economy least able to handle it, and the feds are picking up the slack. But rather than just have a significant federal commitment to universalizing higher ed, we do it in the worst possible way--ruining lives for no reason.
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This is something that I realized a few years ago working with @jmargetta, but it's a pretty profound point. A ton of wonks claim "expanding IDR" is the reasonable, moderate solution, but that's just the federalization of all higher ed.
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Anyway, I will have more to say about that to come. For now, here's a PDF of the analysis and figures in this analysis:
https://www.jainfamilyinstitute.org/assets/msd4-2020-student-debt-crisis-is-a-crisis-of-non-repayment.pdf
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https://www.jainfamilyinstitute.org/assets/msd4-2020-student-debt-crisis-is-a-crisis-of-non-repayment.pdf
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