US $ 1.5 trillion student loan industry a ‘failed social experiment’

Ask economists and policymakers how worried we should be about historically high levels of 20- and 30-year-old student debt, and you’ll get a wide range of answers. After all, this group is also the most educated ever, and higher education is becoming more and more necessary to ensure a decent standard of living in the United States.

But ask many borrowers of this generation if they are worried about how loans will affect their futures, and you’ll get a plethora of grim answers: It kept them from getting their cars fixed, changing jobs, buy a house and have children. Even a tax credit aimed at helping low- and moderate-income American workers can be seized to pay off delinquent student loans.

People say student debt has kept them from changing jobs, buying a house, and having children. Even a tax credit aimed at helping low- and moderate-income American workers can be seized to pay off delinquent student loans.

They feel that the $ 1.5 trillion in student debt crippled their progress towards financial stability. A paper released Tuesday by the Roosevelt Institute, a progressive think tank, aims to explain an economic rationale for these sentiments.

The researchers hope to turn the conversation about student debt into a conversation that assumes student loans are a useful tool in improving the economic outlook for one individual to another that recognizes higher levels of debt and education. highs have not necessarily improved the financial future of young Americans.

“We are making several policy decisions right now based on the idea that student debt is essentially a benign mechanism for funding higher education,” said Julie Margetta-Morgan, a fellow of the Roosevelt Institute and one from the authors of the article, which focused on borrowers aged 25 to 40. “Our research suggests that this is not, in fact, the case.”

“We basically got into a failed social experiment where the government thought it would be good to give people student debt because it would pay off in the long run and we find that it doesn’t,” she added. “Individuals should not bear the full burden of paying for this mistake.”

Workers get degrees, but wages don’t go up

The paper takes a different look at the numbers that experts have historically used to claim student debt is a decent investment in a worker’s future. The authors focused on the “college wage premium”. This refers to the increase in earnings that a worker receives for a college diploma compared to a high school diploma only.

Between 2000 and 2017, the share of employees with a university degree increased by around 6%, but this document indicates that this did not translate into an increase in the incomes of these workers.

They note that even though college graduates earn more than 50% more than their non-graduating counterparts, much of this disparity is due to a decline in the value of a high school diploma. . In other words: between 2000 and 2017, the share of employees with a university degree increased by around 6%, but this did not translate into an increase in the incomes of these workers, according to the newspaper. At the same time, the median student debt rose from $ 10,000 to over $ 20,000.

The authors argue that “accreditation” is one of the driving forces behind this. This refers to how the availability of federal student loans allows employers to demand more credentials from workers without having to pay them. Instead, individuals – and, in some cases, taxpayers – foot the bill. Higher education institutions are also able to increase their income by offering more of these types of degrees.

“The idea that student debt pays for itself is just a false economic deduction,” said Marshall Steinbaum, research director at the Roosevelt Institute and the other author of the article. “It has been used to justify prescriptions for individuals and to justify policies.”

High balance borrowers are a concern

The paper also challenges the idea that policymakers should only worry about defaulting borrowers, which has long been seen as the most serious consequences of tackling student debt. For borrowers with high debt and education levels, it may seem like their investment is paying off as they are able to manage their monthly payments. But the authors argue that these borrowers are actually struggling under the weight of it.

The article challenges the idea that policymakers should only care about defaulting borrowers – long seen as the most serious consequences of tackling student debt.

Steinbaum said students can use an income-based repayment program that allows borrowers to repay their loans at a manageable percentage of their income to avoid default, but such measures extend the life of the loan.

Matthew Chingos, director of the education policy program at the Urban Institute, a Washington, DC-based think tank, is one of the experts who has tried to steer public discourse and political conversation around debt. female student away from high balance borrowers with advanced degrees.

In her book “Game of Loans: The Rhetoric and Reality of Student Debt”, Chingos and her co-author Beth Akers argue that policymakers and the media should be more concerned with borrowers most likely to default – those who have relatively small students. loan balances that did not get back on their college degree.

He agrees that there can be psychological consequences to having a high student loan balance, even if it comes with manageable monthly payments. From a political point of view, this borrower is much less worrying than the one who is in default, he added. “I wouldn’t put these things together,” he said.

Student debt as a labor policy

The dynamics discussed in the article – including accreditation and the inability of educated people to get ahead of previous generations – affects borrowers of color most severely, the researchers note.

Other research indicates that black borrowers are more dependent on student debt and have a harder time repaying it than their white counterparts, in part because the racial wealth gap means they have less family money on which to rely. count to pay for their studies. Additionally, discrimination in the workforce means that black workers generally need more education than white workers to earn the same amount of money.

Research indicates that black borrowers are more dependent on student debt and have a harder time repaying it than their white counterparts, in part because the racial wealth gap means they have less family money to rely on for. pay for their studies.

Given all of this, researchers question the role that student loans have played in recent years in the efforts of policymakers to increase prosperity by upgrading the skills of workers. “The federal government’s most important labor market policy is the expansion of the student loan program,” said Steinbaum. “Like an unsuccessful labor policy.” Instead, he suggests policymakers focus more on shifting power from employers to workers.

For Chingos, the evidence that the salaries of college graduates are stagnant and the incomes of high school graduates are troubling, “but I’m not sure what that tells us about higher education and student debt,” he said. he declared. “If the point is, ‘we’re all screwed up because of the structure of the labor market,’ then go fix the labor market.”

Some of the implications of the article are that labor market solutions would help alleviate some of these challenges, according to the authors. These fixes include policies such as increasing the marginal tax rate on top earners and modernizing labor laws to make it harder for employers to classify workers as independent contractors.

But adjustments to our higher education and student loan system would also help alleviate some of the issues raised in the paper, according to the authors. Their findings suggest that policymakers should consider some sort of partial student debt cancellation for borrowers, Steinbaum said.

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