Pros and Cons to a Growing Economy

You’re probably thinking after reading the title – what’s a scientist turned educator doing authoring a blog on the pros and cons to a growing economy? The answer is simple: there’s growing concern that the increasing cost to achieve a post-secondary degree is placing those using loans to pay for their higher-education at risk of financial ruin.

Earlier this month, the new Federal Research Chairman Jerome Powell met with the Senate banking committee. The theme of his remarks (summarized here) implied that the economy, on the whole, is doing well and measures taken by his predecessor (Janet Yellen) and the current administration were working (to stimulate growth). There was a point, however, that was concerning – when Chairman Powell outlined a case in which the many Americans (approximately 44.2 million) holding some level of student loan debt (approximately $1.48 trillion) would be unable to stay current on paying back their obligations.  With debt levels increasing and interest rates likely to rise as well into a growing economy, the picture only gets worse without some type of intervention.

Powell went on to suggest some tactics to minimize the impact of student loan debt challenges to the trajectory of the current economy. While personally I don’t agree with filing for personal bankruptcy (in most circumstances), student loan debt is almost impossible to wash using any bankruptcy proceeding. In fact, those attempting this route to resolve financial issues will find they need to prove that they cannot maintain a reasonable standard of living due to student loan debt burden. This rule can only be changed by Congress so it’s not likely to change anytime soon.

After reading this, I did a bit of research to determine what can/should be done to assist those currently struggling with payments and prevent individuals in the future from accruing debt levels that exceed their ability to pay back the loan secured to assist with their education. One author suggests six ways that Congress could help student loan borrowers – four are summarized here that could have an immediate impact if enacted:

• Pass a federally backed student loan refinancing bill – while it is true that you can refinance federal student loans, any refinancing must be done through private companies and not using government dollars. That means that the loan holder would no longer qualify for federally backed programs like Public Service Loan Forgiveness and income-driven repayment.
• Keep student loan interest rates low – regardless of what the federal reserve decides to do with the fed funds rate (likely to increase by 0.75-1.0 percentage points in 2018), Congress can decide to keep loan rates low. This would be a prudent move for both current loan holders that haven’t locked in a fixed rate and also for those just starting their post-secondary journey.  
• Determine the fate of the Public Service Loan Forgiveness (PSLF) program – designed to reward students for working in the non-profit or public service sectors, this program is reliant on yearly inclusion in the federal budget. In theory this sounds like a fair deal for both sides – supplement lower paying non-profit/government jobs by forgiving loan debt and providing these sectors with a stable workforce at a time when unemployment is at historic lows. More data is obviously needed to confirm the goals of the program. The first cohort that has agreed to the terms can be analyzed and success determined.
• Incentivize employers to provide student loan benefits – with this pro-corporation, pro-workforce administration and Congress, this one seems like a no-brainer. Provide corporations tax incentives similar to 401k retirement plans to provide loan payoff programs.

While I’m no economist and don’t claim any formal training in finance, I do know how to balance my checkbook and ensure my bills are paid. I also know that obtaining a college degree will mean a more than $1MM increase in potential compensation over one’s lifetime and post-secondary tuition is rising at seemingly exponential rates. Putting these together paints a picture where people need (four year) degrees and have to borrow in order to pay for them. Couple that increased debt with the real potential for rising interest rates and you can plainly see potential challenges with loan repayment. Like seeing a bridge out ahead on the train tracks, we need to do something (or multiple somethings) to ensure both the dream of post-secondary education remains available to those that want it and the costs associated with securing a degree aren’t crippling.