New caps for graduates
On Monday, President Obama signed an executive order capping student loan payments at 10 percent of the borrower’s income and allowing debts to be forgiven after 20 years of payments. Income-based repayment — what the administration calls the “Pay-As-You-Earn Program” — is already an option for most borrowers. This order expands it for another 5 million people, mostly those who took out loans before October 2007.
Libby Nelson writes that it’s unclear how much this plan will really help those who need it. “Enrollment rates in income-based repayment plans [that already exist] have increased after an Education Department outreach blitz, but far more people are eligible than are enrolled”. For those who do sign up, borrowers who have the highest overall payments — mostly law and business graduates — will benefit most, says Karen Weise. Kelly Field writes that that means this program isn’t necessarily helping those who need it most: graduates with moderate debt burdens compared to MBAs and lawyers, but much lower incomes.
Megan McArdle says the student loan problem is “still disproportionately a problem of the affluent. And the government already spends quite a lot of money on benefits for the affluent”. Kevin Drum says he partly agrees with McArdle, but at the same time it’s clear that the high aggregate debt burden (now around $1.2 trillion, with staggering growth over the last decade) is having an adverse macroeconomic effect. Plus, he says, “no society is well served by making income a barrier to higher education”. McArdle responds by saying the issue is the high cost of education, and shifting the cost burden to the government doesn’t help the fundamental problem. Reihan Salam agrees with McArdle. “America’s higher education institutions aren’t offering value for money. And that’s a problem that tinkering with the federal student loan program won’t solve”, he says, suggesting that colleges should be fined when students default.
James Pethokoukis posts a quote from Jaret Seiberg, a policy research analyst at Guggenheim Partners, who argues that this move will be bad for the housing market, since borrowers will take longer to pay off their debt, and therefore may have to wait longer for their finances to qualify for a mortgage. However, high student debt burdens may already be having an adverse effect on the housing market. A recent post from the New York Fed pointed out that 30-year-olds with student debt are less likely than other borrowers to have a mortgage (that’s the opposite from before the Great Recession). While Cardiff Garcia points out it’s hard to prove causation, John Carney and Justin Lahart at the WSJ suggest that millennials are a “lost generation” in the housing market, partially because of their high student loan debt. — Shane Ferro
On to today’s links: