e-Literate

Present is Prologue

Tag: student loan crisis

  • GAO Report: Yes, student debt is growing problem

    In case anyone needed additional information to counter the Brookings-fed meme that “Americans who borrowed to finance their education are no worse off today than they were a generation ago”, theU.S. Government Accountability Office (GAO) released a report yesterday with some significant findings. As reported at Inside Higher Ed by Michael Stratford:

    More than 700,000 households headed by Americans 65 or older now carry student debt, according to a report released Wednesday by the U.S. Government Accountability Office. And the amount of debt owed by borrowers 65 and older jumped from $2.8 billion in 2005 to $18.2 billion last year. [snip]

    Between 2004 and 2010, for instance, the number of households headed by individuals 65 to 74 with student loan debt more than quadrupled, going from 1 percent to 4 percent of all such families. During that same period, the rate of borrowing among Americans under 44 years old increased between 40 and 80 percent, even though borrowing among that age group is far more prevalent than it is among senior citizens.

    I have been highly critical of the Brookings Institutions and their report and update. This new information from the GAO goes outside the selective Brookings data set of households headed by people aged 20 – 40, but it should be considered by anyone trying to draw conclusions about student debt holders.

    Noting that Brookings analysis is based on “Americans who borrowed to finance their education” and the GAO report is on student debt holders, it is worth asking if we’re looking at a similar definition. For the most part, yes, as explained at IHE:

    While some of the debt reflects loans taken out by parents on behalf of their children, the vast majority — roughly 70 to 80 percent of the outstanding debt — is attributable to the borrowers’ own education. Parent PLUS loans accounted for only about 27 percent of the student debt held by borrowers 50 to 64 years old, and an even smaller share for borrowers over 65.

    Go read at least the entire IHE article, if not the entire GAO report.

    Student debt is a growing problem in the US, and the Brookings Institution conclusions are misleading at best.

  • Brookings Institution analysis on student debt becoming a farce

    I have previously written about the deeply flawed Brookings Institution analysis on student debt with its oft-repeated lede:

    These data indicate that typical borrowers are no worse off now than they were a generation ago …

    Their data is based on the triennial Survey of Consumer Finances (SCF) by the Federal Reserve Board, with the report based on 2010 data. With the release of the 2013 SCF data, Brookings Institution put out an update this week on their report, and they continue with the lede:

    The 2013 data confirm that Americans who borrowed to finance their educations are no worse off today than they were a generation ago. Given the rising returns to postsecondary education, they are probably better off, on average. But just because higher education is still a good investment for most students does not mean that high and rising college costs should be left unquestioned.

    This conclusion is drawn despite the following observations of changes from 2010 – 2013 in their own update:

    • The share of young (age 20 – 40) households with student debt rose from 36% to 38%;
    • The average amount of debt per household rose 14%;
    • The distribution of debt holders rose by 50% for debt levels of $20k – $75k and dropped by 19% for debt levels of $1k – $10k; and
    • Wage income is stagnant and same level as ~1999, yet debt amounts have risen by ~50% in that same time period (see below).

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  • Federal Reserve Board backs up e-Literate in criticism of Brookings report on student debt

    I have been very critical of the Brookings Institution report on student debt, particularly in my post “To see how illogical the Brookings Institution report on student loans is, just read the executive summary”.

    D’oh! It turns out that real borrowers with real tax brackets paying off off real loans are having real problems. The percentage at least 90 days delinquent has more than doubled in just the past decade. In fact, based on another Federal Reserve report, the problem is much bigger for the future, “44% of borrowers are not yet in repayment, and excluding those, the effective 90+ delinquency rate rises to more than 30%”.

    More than 30% of borrowers who should be paying off their loans are at least 90 days delinquent? It seems someone didn’t tell them that their payment-to-income ratios (at least for their mythical average friends) are just fine and that they’re “no worse off”.

    Well now the Federal Reserve Board themselves weighs in on the subject with a new survey, at least as described by an article in The Huffington Post.  I have read the Fed report and concur with HP analysis – it does argue against the Brookings findings.

    Among the emerging risks spotlighted by the survey is the nation’s $1.3 trillion in unpaid student debt, suggesting that high levels of student debt are crimping the broader economy. Nearly half of Americans said they had to curb their spending last year in order to make payments on student loans, adding weight to the fear among federal financial regulators that the burden of student debt on households will depress economic growth for years to come.

    Some 35 percent of survey respondents who are paying back student loans said they had to reduce their spending by “a little” over the past year to keep up with their student debt payments. Another 11 percent said they had to cut back their spending by “a lot.”

    The Fed’s findings appear to challenge recent research by a pair of economists at the Brookings Institution, highlighted in The New York Times and cited by the White House, that argues that households with student debt are no worse off today than they were two decades ago.

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  • To see how illogical the Brookings Institution report on student loans is, just read the executive summary

    il·log·i·cal
    i(l)ˈläjikəl/
    adjective
    1. lacking sense or clear, sound reasoning.  ((From Google’s definition))

    There have been multiple articles both accepting the Brookings argument that “typical borrowers are no worse off now than they were a generation ago” and those calling out the flaws in the Brookings report. I have written two articles here and here criticizing the report. The problem is that much of the discussion is more complicated that it needs to be. A simple reading of the Brookings executive summary exposes just how illogical the report is.

    College tuition and student debt levels have been increasing at a fast pace for at least two decades. These well-documented trends, coupled with an economy weakened by a major recession, have raised serious questions about whether the market for student debt is headed for a crisis, with many borrowers unable to repay their loans and taxpayers being forced to foot the bill.

    The argument is set up – yes, tuition and debt levels are going up, but how is a crisis defined? It’s specifically about “many borrowers unable to repay their loans”. Is there a crisis? That’s not a bad setup, and it is a valid question to address.

    Our analysis of more than two decades of data on the financial well-being of American households suggests that the reality of student loans may not be as dire as many commentators fear. We draw on data from the Survey of Consumer Finances (SCF) administered by the Federal Reserve Board to track how the education debt levels and incomes of young households evolved between 1989 and 2010. The SCF data are consistent with multiple other data sources, finding significant increases in average debt levels, but providing little indication of a significant contingent of borrowers with enormous debt loads.

    This is an interesting source of data. Yes, the New York Fed’s Survey of Consumer Finances tracks student debt, but this data is almost four years old due to triennial survey method.  ((Also note that we’re skipping the years with the highest growth in student debt.))

    But hold on – now we’re talking about “significant contingent of borrowers with enormous debt loads”? I thought the issue was ability to repay. What does “enormous” even mean other than being a scary word? (more…)