Monday, December 31, 2018

Thanks to student loans, many Americans can't afford homes or children: Nice work, Congress!

Imagine if you will that you are sitting in the chambers of the U.S. House of Representatives in 1965 just before Congress adopts the Higher Education Act, which launched our nation's huge experiment with student loans.

Now imagine that the Ghost of the Future appears before the lawmakers just the way the Ghost of Christmas Future appeared to Ebenezer Scrooge in Dickens' Christmas Carol.

Before the vote, the Ghost issues this chilling warning: "Congress," the ghost whispers,"behold what will happen to this great nation if you launch a massive college loan program."

And this is the ghost's prediction:

First, within a half century, 45 million Americans will be burdened by student loans, which will amount to $1.5 trillion in outstanding indebtedness. Millions will be forced into 25-year repayment plans that are structured such that borrowers will never pay off their student loans--even if they make monthly payments for a quarter of a century.

Others will simply default on their loans--ruining their credit. By 2016, borrowers will be defaulting at the rate of 3,000 a day. Student-loan default rates will be much higher than default rates on mortgages, credit cards, or car loans.

Fueled by massive infusions of federal money, a corrupt and venal for-profit college industry will flourish, scamming millions of people--especially minorities, first-generation colleges students, and the poor.

A higher-education "arms race" will emerge, with colleges raising tuition to build luxury student housing, food courts, and recreational amenities like LSU's "Lazy River" water feature. Small, liberal arts college will shut their doors, unable to lure enough students who are willing to borrow $40,000 a year to attend a college no one has heard of.

Bad as these developments are, worse calamities will arise from an out-of-control student-loan program. As the Federal Reserve Bank of New York reported, home ownership will decline as young people are unable to save enough money to buy a house due to oppressive student-loan burdens.

And finally, the nation's fertility rate will nosedive so that birthrates aren't high enough to sustain the nation's current population. Fewer children means fewer young adults in the labor force, which means fewer working people to support a growing population of the elderly.

"Now," the Ghost from the Future asks Congress, "do you really want to pass the Higher Education Act of 1965?" Of course, the answer would be no. 

If you think my fictional Ghost from the Future is over-sensationalizing the student-loan crisis, then you should read Declining Fertility in America, written by Lyman Stone of the American Enterprise Institute. "Birth rates in America are declining," Stone writes, "leading to one of the lowest rates of population growth on record, soon to become the lowest ever" (p. 3).

This crisis, which has mass economic implications, is not about devaluing children, Stone argues. Rather it is about barriers to childbearing.  Among these barriers, Stone identifies the following (p. 3):
  • Increased young adult debt service costs due to student loans;
  • Decreasing young adult homeownership due to rapidly rising housing costs and student loans;
  • Increasing years spent actively enrolled in education institutions, which tends to reduce birth rates dramatically while enrolled [italics inserted by me].

As Stone documents in his report, Americans are not having enough children to maintain our population--a population that is rapidly aging.

Their are several ramifications to the nation's plunging fertility rates. As Stone points out, a low fertility rate will put pressure on Social Security, Medicare and individual retirement accounts:
Without as many young workers to pay into Social Security and Medicare or buy the hot dogs and iPhone apps that make corporate shares worth holding, the retirement prospects for American workers will dim. Their 401(k)s will not be worth as much, they will have long lines at the hospital, and their Social Security checks will perhaps be smaller than they expected. In other words, in a low-fertility world, Americans may have to work longer and harder before retiring. (p. 6)
And much of this future suffering is due, as Stone asserts, to student loans.

Stone optimistically observes, that some barriers to childbearing, like student loans and housing costs, "may be readily addressed through various policy changes" (p. 3); but I am not so sure. In spite of all the suffering and hardship that student loans have unleashed on America's young people, we're really not talking much about the crisis, much less proposing solutions.

References

Rajashri Chakrabarti, Andrew Haughwout, Donghoon Lee, Joelle Scally, & Wilbert van der Klaauw. At the N.Y. Fed: Press Briefing on Household Borrowing with Close-Up on Student Debt. April 3, 2017.

Lyman Stone. Declining Fertility in America. American Enterprise Institute (December 2018).


A Ghost from the Future could have predicted the catastrophe caused by the student loan program.









1 comment:

  1. Is this a blog series? If not, it should be. I would love to read the next installment on this subject.
    mortgage refinance in Toronto

    ReplyDelete