Here & Now

Noon Wednesday: The Growing Student Debt Dilemma

Marisa Wojcik:

Welcome to Noon Wednesday. I’m Marisa Wojcik, multimedia journalists with Here & Now on PBS Wisconsin. Recently Governor Tony Evers signed an executive order creating a task force on student loan debt. He cited a $1.6 trillion in student loan debt nationally. The rate of this debt is increasing rapidly. It disproportionately affects vulnerable populations and all of this could have a negative impact on Wisconsin’s economy. We’re joined by Nick Hellman, the director of Student Success Through Applied Research Lab. He says it’s generally true, but there is a serious lack of data on this issue. And so that’s making it hard to sort out the impacts and next actions. Nick, thank you so much for joining us.

Nick Hellman:

Of course, thank you for the invitation.

Marisa Wojcik:

You’ve been studying this for years and you say there’s a lot that we don’t know about student debt. Like how can that be?

Nick Hellman:

Not to just kind of kick the can on these issues, to say there’s just nothing out there. I mean, I think we’re putting the puzzle together on sort of the magnitude of student loan debt. The implications of student loan debt. And I’d say in the past few years, maybe three or four, have we really been able to start to make some good end roads to understanding the causes and consequences of that. But we’re very limited with respect to data access, research designs and really making definitive statements about student loan debt that make it kind of hard for academic research to kind of keep pace with policy conversations that are happening right now.

Marisa Wojcik:

Where is that data? Why don’t we know it?

Nick Hellman:

With student loans, the federal government is the primary provider of student loans. And because of that, the federal government also keeps track of your payments. I don’t know if you have a loan, but the federal government will keep track in a transactional way, all of those transactions to know if you’re behind on your payments, if you’ve switched repayment plans, how long you’ve been in repayment so you know when to stop paying your loans. The federal system is really designed for just those purposes to keep accountability, keep account of all those transactions. It’s not really designed for research and planning. We’ve had a federal student loan system since the 60s and now today it’s like you said, $1.6 trillion enterprise and our data infrastructure and data systems just aren’t quite aligned with that rapid growth that we’ve seen over the past few years. I think that’s part of it.

Marisa Wojcik:

It’s interesting cause it just seems like it’s a federal agency and there’s many other federal or state agencies where data like that is widely available. And so it seems counterintuitive that some of that isn’t around. And of that 1.6 trillion, you said most of it is federal. Is any of it private student loans?

Nick Hellman:

Yes, credit unions, banks for example, will loan, education loans to students and families. And that accounts for probably about 10% of the total volume of student loan debt. It’s there, but not a big proportion.

Marisa Wojcik:

In context, in that 1.6 trillion total, is that a high figure when we’re talking about debt?

Nick Hellman:

It’s hard to say what to compare it to. It’s a high figure compared to where student loan debt was a decade ago. It’s increased rapidly, two to three times since past decade or so. But the tricky part is that we don’t know how much of that is principal versus how much of that is interest. We see that $1.6 trillion figure floated around. A lot of that’s interest that’s just been accumulated and growing over time and we don’t have a good diagnosis of how much of that outstanding debt is one of the other, principal or interests. That’s part of it.

Marisa Wojcik:

You say it’s growing rapidly over the last 14 years or so, that rate of increase has been 230%, which is alarming a lot of people. Do we know what is causing this balloon?

Nick Hellman:

Compared to other types of consumer credit, like credit cards and auto loans, for example. People like to point at these trends where those lines of consumer credit are kind of like tapping back down to pre-recession levels. People aren’t borrowing as much in those forms of credit, but student loan debt keeps rising sort of unlike any other type of debt. Some people would argue, that’s good that means the people are investing in education and there is a return on that investment both for private individuals but also for society. Some people might say, what’s the problem with growing student loan debt? That means people are going to college. And that’s probably a good thing. Other people would say, not so fast, it depends on what type of college you go to. It depends on whether you finish college and so on. There’s a lot of nuance to student loan debt where student debt might be a very good thing for some people, but it might be very, very troubling for others. That’s what we’re trying to understand with this growth. Why is it different from other types of consumer credit? And what does it mean for people the average borrower? And the more I learn about this, the less I am convinced there is an average borrower.

Marisa Wojcik:

When we’re talking about taking on debt, it can be a good thing to have debt. People are in debt all the time and it can help your credit score all of these things. But it’s a different thing when people can’t make their payments and this executive order says that one in five students in Wisconsin are behind in their payments. How do default on payments factor into this? Is it creating a ticking time bomb?

Nick Hellman:

Student loan default is a big problem with our student lending system in general and a student loan default, it’s basically if you haven’t made a payment in a year, it’s pretty much how this is measured. You’ll go into default and that’ll show up on your credit scores. You possibly could have some public benefits withheld from you if you’re not making progress on your payments. And unlike those credit card, I’m sorry, unlike auto loan or a home loan, there’s not collateral with the student loan, they’re not going to take your education away from you. That makes this a very unconventional type of credit for a lot of young borrowers. Sometimes their first time engaging with the lending system as 18 year olds are entering into arrangements where there’s no collateral, it’s non collateralized debt. And it’s just a really strange system to be able to navigate and so I think because of these things, student loan default is especially challenging in higher education because there is no collateral. It’s not something you could take away from a student. They can’t discharge this generally in bankruptcy.

Marisa Wojcik:

You can have your public benefits taken away from you.

Nick Hellman:

Possibly.

Marisa Wojcik:

Does the rise in student debt and potential default, Is that creating any sort of worry that we saw a weakening of the economy in 2008 with subprime mortgages? Is this on that level at all or are we really far away from there?

Nick Hellman:

I don’t know, I’m not enough of an expert in the subprime mortgage area to know how to compare this. But I would say the student loan default is a significant problem for individuals who have those credit blemishes now following them for potentially a lifetime. ‘Cause they can’t discharge these debts in bankruptcy generally. But also for communities, you see the student loan defaults tend to be concentrated in communities that are already economically depressed. Communities where a large portion of population are people of color. You see some real inequalities that are really baked into our fabric of society. That student loan debt just makes even more unequal. People might say, we know we don’t have a student debt problem. We have an inequality problem and student debt is just a symptom of it. And I think that there’s something to be said about that.

Marisa Wojcik:

And kind of targeting that specifically, Senator Cory Booker requested specific information from the Federal Reserve about majority minority neighborhoods. And Milwaukee was one of those cities that came up and showed some of these alarming rates. What can we learn from what those results showed?

Nick Hellman:

I think they’re probably three takeaways, brief. I’ll try to be brief with them. I think one is to the data point. The data that Senator Booker requested had to come through Equifax consumer credit reports. So our senators and our public officials are getting records from Equifax and from credit card companies to be able to answer these questions about student loan debt, which should be a red flag on the data quality and data infrastructure we started this conversation. That’s one piece of the puzzle. The second piece of the puzzle is that I think it really demonstrates that community based collective efforts are really going to be priorities for trying to resolve some of the debt problems that we have right now in our country. And it’s not just for student lending and student loan debt, but you think about housing and other access to public things that we believe are in the public interest that are just incredibly unequal. And I think that’s the second bucket. The third is that we’ve got to also think about the institutions that are producing the debt. Students don’t just randomly get a debt. It’s because their institution that they’re enrolling in, isn’t providing them enough financial aid. Possibly it’s because maybe the housing expenses in their community are just too expensive and they need loans to be able to pay for housing. It could be a number of things. And so the institutions, I think are really important and trying to be part of the solution to these problems and they’re highly unequal along the lines of geography.

Marisa Wojcik:

If we do know, to some degree that this issue is impacting low income, communities of color, vulnerable populations, potentially more than the broader public, do we know at all how that might be impacting people’s decisions to go into higher education or what decisions they’re making when they leave higher education without a degree or if they leave higher education with a degree. But with a lot of that.

Nick Hellman:

That’s the big question, and that’s the one where, I think if you would asked me that question a few years ago, I probably would have been more willing to have an opinion on it. but the more I’ve learned about this and the more that I think about the advances in social sciences that we’re really trying to like detect causality, does this cause that, the more I learn about these social science standards and the more I apply those to the research that’s out there, the more dissatisfied I am that we have a really good answer. I don’t think, at least the current state of research that I’m familiar with has been able to answer those questions convincingly about cause and effect when it comes to student loan debt. I mean, we don’t randomly assign people a student loan, but that would be the best way to find out a causal effect as if we randomly assign things. We don’t do that. And so we have to kind of work around and find sort of other ways to get at causality. And I’d say most studies don’t do that. And so it’s hard, if I’m looking at the research evidence, it’s hard to use that evidence to say convincingly that debt is causing people to not enroll or it’s causing people to delay family formation causing people to not start a business or not buy a home. I think when there’s smoke, there’s fire, all those things could be true. But the research evidence is not convincing enough at this point to have a consensus within the academic community that there is cause and effect.

Marisa Wojcik:

Can we say that, an increase in debt could be an issue for the economy ’cause that is one of the points that this executive order is trying to make?

Nick Hellman:

It could be, I think pinpointing it would probably be the best way forward. So here’s just an example, think about the doctors and lawyers who take out student loans to be able to pay for their residency or pay for their, post-baccalaureate training. About 40% of all student loan debt today is dispersed for graduate school, students. So people who already have a bachelor’s degree in pursuing post-baccalaureate education. And there’s certainly can still be problems here. I’m not trying to dismiss them. But, I think that there is good reason to believe that the people who are borrowing in those programs are probably going to be able to weather the changes in the economy better than somebody on the other end of the distribution who may be enrolled in just a semester or two. Took out just a couple thousand dollars in loans, maybe didn’t even know they had a loan. ‘Cause it’s actually really complex to really navigate this and oftentimes that borrower is the one struggling the most. So the knee-jerk reaction say lots of debt is a big problem for the economy. Let’s pinpoint that problem and I think there could be some truth to it, but we might be surprised that just the opposite is also true.

Marisa Wojcik:

As this task force is starting to get to work, what do you think is kind of the most important thing to focus on?

Nick Hellman:

Pinpointing the problem I think is a good next step. I think that the state’s interest in student loan debt is warranted. I think the next step is now to say A, B and C are the top priorities when it comes to student loan debt. I don’t think that the state and most states actually are really in the position to to answer what A, B and C are because of the data infrastructure. I think there’s going to be a weird kind of a give and take here. We got to do some more research and do some more data analysis and really get a comprehensive measure of the extent of the problem and then start to answer and identify ways to solve it. I think you’re going to have a little bit of a push and a pull there. Of course I’m an academic, I’m a researcher. We want more data, we want better data, but I really do believe that in this particular case, that’s a fundamental first step in the process.

Marisa Wojcik:

Thank you very much.

Nick Hellman:

Of course, thank you. I appreciate it.

Marisa Wojcik:

For more from Here & Now in PBS, Wisconsin, you can visit PBSwisconsin.org. There’s a nice little tab at the top where you can click on news and thank you so much for joining us for Noon Wednesday.