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“The Lifetime Framework”: The Devastating, Lifelong Consequences Of Student Debt

America has gone through a rapid social experiment over the last 20 years. We have created a system, in large part through public disinvestment, where our young people take on large amounts of student debt in order to achieve a college degree. The sea change has been so quick it’s been difficult to gather even basic, solid numbers on it, making the consequences of such massive student debt subject to intense debate.

A new report from Beth Akers and Matthew M. Chingos of the Brookings Institution has further fueled that debate, arguing that the conventional story of escalating debt burdens due to student loans are overstated. Even though the number of young households with debt has increased from 14 percent to 36 percent between 1989 and 2010, the percentage of monthly income those people put toward their student debt payments is largely the same. Even though student loan debts are going up, they’ve been accompanied by rising incomes, largely balancing out the burden. The focus shouldn’t be on student loans broadly, and instead on more targeted solutions like focusing on those who drop out of college but still have debt.

But this study, like many arguments along these lines, suffers from a major problem: It focuses on a month-to-month comparison. When we look at the effects of a major economic changewhether it’s government debt, taxes, or replacing a system of publicly funded free colleges with a system of debt for a diplomawe can’t just look at what immediately happens. We need to also consider how people behave in the long run. And when we look at student loans from the point of view of a lifetime, the results are more worrisome.

How could this matter? An infamous study on student debt by Jesse Rothstein of the University of California, Berkeley, and Cecilia Elena Rouse of Princeton looked at the results of a highly selective university replacing loans with grants. It concluded “that debt causes graduates to choose substantially higher-salary jobs and reduces the probability that students choose low-paid ‘public interest’ jobs.”

Let’s imagine two scenarios. In the first you have high student loans, so you work for a corporation in the private sector for high wages. And in the second you have virtually no student loans, and you work for less wages in a job focused on the public interest, say as an educator or at a nonprofit. In both cases your student loan payment would be the same as a percentage of your income. The Brookings result would hold. However your lifetime choices will have radically changed as a result.

We see this with other lifetime measures, such as how entrepreneurial people are. A recent study by Brent W. Ambrose of Pennsylvania State University, and Larry Cordell and Shuwei Ma of the Federal Reserve Bank of Philadelphia, found “a significant and economically meaningful negative correlation between changes in student loan debt and net business formation for the smallest group of small businesses.” This makes sense. You can keep your high student loan burdens low if you stay with an established employer. But if you strike out on your own, you’ll have less and more volatile income when you start. This is harder to manage with student loans, which also impacts your credit rating. Again, we can see the short-term student loan burdens staying the same, even though lifetime choices are much more limited as a result.

The lifetime framework also puts front and center something the Brookings study largely hand-waves: the rapid increase in how long people are paying off their student debt. Though the percentage of income that student-loan debtors pay stays the same, the length they are paying those loans is up 80 percent. What was once an average length of 7.4 years in repayment in 1992 is now 13.4 years. All things equal, a large increase in the length you will be paying student loans means you will dedicate a larger portion of your lifetime income to student loans. This burden goes missing by narrowly looking at a month-to-month basis.

This has major consequences for people’s ability to build wealth. Indeed, much of the current energy in analyzing student loan burdens are looking at this longer dynamic, and how it interplays with the ability for people to amass savings. As Richard Fry of Pew found, using the same data set as Brookings, “households headed by a young, college-educated adult without any student debt obligations have about seven times the typical net worth ($64,700) of households headed by a young, college-educated adult with student debt ($8,700).” Fry also finds that those who took out loans are less satisfied with their financial situation compared to people without loans. Similar results have been investigated and found by the Federal Reserve Bank of St. Louis.

This, in turn, has major consequences for how young people will ultimately transition into adulthood. According to Dora Gicheva of the University of North Carolina at Greensboro, student debt decreases the long-term probability of marriage by a significant amount. In a result that should make social conservatives gasp, Gicheva found that an additional $10,000 in loans decreases the probability of marriage by at least 7 percentage points. Meanwhile, the Federal Reserve Bank of New York found that young student debtors are retreating from those traditional markers of adulthood, homeownership and owning a car. These effects reflect the long-term consequences of student debt on a young person’s economic security just as much, if not more, than their monthly bill.

This system of student debt has happened so fast that proper analysis is hard to do. But what’s most interesting is research showing how student debt threatens fundamentally American ways of life. Student debt chips away at the ability to be a risk-taking entrepreneur, a homesteader who has amassed enough wealth to be self-sufficient, or someone who has dedicated their craft to working in our rich civil society. These are three very real versions of the American Dream, and contrary to what studies like Brookings’s might show over the short term, they are all being weakened by the way we saddle young people with student debt burdens.

 

By: Mike Konczal, a Fellow with The Roosevelt Institute; The New Republic, June 24, 2014

June 30, 2014 Posted by | Higher Education, Student Debt | , , , , , , , | Leave a comment

“The Naysayers Are In Control”: A Well-Paying Job Is More Effective Than A Lecture

More and more mothers, whether they wear a wedding ring or not, are becoming their family’s breadwinner.

An analysis of 2011 U.S. Census data found that 40 percent of households rely on mom as the primary or sole breadwinner. That’s a massive increase from 1960, when the figure was a mere 11 percent.

This trend won’t shock a lot of Americans. They already see it within their own homes or those of their neighbors. Plenty of mommies are better educated and better compensated than their husbands, and a growing numbers of daddies gladly accept that it is their duty, too, to change diapers and do carpool duty.

But here is the more sobering tale within the data: Nearly two-thirds of these “sole or primary” breadwinning women fit that description because they are the only one working in their household. These are primarily the single mothers. And they tend to be far less educated, and to be black or Hispanic. Their median household income was $23,000.

Compare that to the families studied where it was a married woman who earned more than her mate. Those homes had a median income of $80,000, well above the national median for all households of $57,100.

The most relevant message behind the study is not so much about marriage as about the growing economic divide in this country. If we understand that, we might just agree on policies that can address the problem.

Demographically, these single mothers are a growing and younger percentage of the population. They are the nation’s future, and it’s not a promising one.

Yet it is virtually impossible to bring up the topic of single mothers, whether in Congress or at the dinner table, without inviting a howling lecture. Everybody’s got a convenient scapegoat to blame, and their certitude of their own uprightness permits them to do absolutely nothing to change the status quo. Except to call for more discipline imposed on the already unfortunate.

Attitudes about poorer families feed into the politics of welfare reform, food stamp allocation, education grants, fair wage policy and childcare subsidies.

Concern, when it’s genuine, is not misplaced. Moralizing doesn’t help.

It’s not the fact that these women are unmarried with children that drives their household poverty. It’s their lack of education and too few jobs, including for the equally under-educated men who are most likely to marry them.

Low-income families are more likely to divorce. Arguments and stress about money, after all, are often a contributing factor in divorce.

Those who wish to promote marriage often miss a truth about poorer mothers. The single mother without a college degree, and perhaps more so one without a high school diploma, might be making the best choice for her children by continuing to stay single. College-educated men aren’t exactly searching low-income areas to find a suitable spouse. The men who are more readily available to many of these single mothers — the men they may have already partnered with to father their children — tend to be of similar if not lower education levels.

And less-educated men have seen their real wages shrink along with job opportunities in the last 40 years, as Stephanie Coontz, director of research and public education at the Council on Contemporary Families, has pointed out.

Coontz also observes that stable single-parent households are better for children’s development than domestic situations in constant flux due to their mother’s relationships, or homes where there is constant parental conflict.

People who are better-educated and who have firm employment opportunities are more likely to marry and stay married.

A study published last year in the Journal of Marriage and Family found that low-income people value marriage as an institution and share thoughts about romance similar to people in higher income brackets.

Researchers at UCLA found that “low-income respondents were more likely than affluent couples to report that their romantic relationships were negatively affected by economic and social issues such as money problems, drinking and drug use.”

The low-income respondents actually held more negative views about divorce than their wealthier counterparts.

So let’s not pontificate about marriage or make false assumptions about mothers raising kids who aren’t living with a spouse.

Ordinary people in this country need to be able to find stable, legal employment that pays wages that make it possible to raise a family in a safe, nurturing environment. We have the ability to make that happen through education and training programs, minimum-wage legislation, trade policy, fiscal policy and other means.

If we ever resolve to turn the tide that is swamping Americans of modest means, we’ll inevitably find that some policy gambits succeed and others are bound to fail. Have you noticed, though, that our political class isn’t even trying?

The naysayers are in control. Their message is that nothing can be done. They also happen to be the loudest moralizers.

We know where that will lead us, because we’re already there.

 

By: Mary Sanchez, The National Memo. June 3, 2013

June 5, 2013 Posted by | Economic Inequality | , , , , , , , , | Leave a comment

“The Morose Middle Class”: At Best, Treading Water And At Worst, Sinking

The Middle Class is in a funk, its view of the future growing dim as fear rolls in like a storm.

An Allstate/National Journal Heartland Monitor poll released Thursday found that while most Americans (56 percent) hold out hope that they‘ll be in a higher class at some point, even more Americans (59 percent) are worried about falling out of their current class over the next few years. In fact, more than eight in 10 Americans believe that more people have fallen out of the middle class than moved into it in the past few years.

The poll paints a picture of a group that is scared to death about its station in life.

By the way, 58 percent of respondents in the poll viewed themselves as either middle class (46 percent) or upper middle class (12 percent).

According to the poll, Americans see a middle class with less opportunity to get ahead, less job security and less disposable income than the middle class of previous generations.

Respondents were most likely (52 percent) to say that losing a job would put them at the greatest risk of falling out of their current class, followed by an unexpected illness or injury in the family.

Most of those polled believe that higher education is the key to staying in the middle class, but many worry about its prohibitive cost and inaccessibility.

And who did most of them say is responsible for making it worse for the middle class? Congress, chief executives of major corporations and big financial institutions.

Of those who blame politicians, there is some evidence that Republicans get more of the blame than Democrats. A CNN/ORC poll released last month found that 32 percent of respondents thought that Democrats favor the middle class compared with 27 percent who believed the same of Republicans. Sixty-eight percent of those polled believed that Republicans favor the wealthy, compared with 24 percent who believed that Democrats do.

This anxiety about a shrinking middle class is understandable.

A Pew Research Center study, “The Lost Decade of the Middle Class,” released in August, found that “since 2000, the middle class has shrunk in size, fallen backward in income and wealth, and shed some — but by no means all — of its characteristic faith in the future.”

According to the report, “Fully 85 percent of self-described middle-class adults say it is more difficult now than it was a decade ago for middle-class people to maintain their standard of living.”

The report continued:

“Their downbeat take on their economic situation comes at the end of a decade in which, for the first time since the end of World War II, mean family incomes declined for Americans in all income tiers. But the middle-income tier — defined in this Pew Research analysis as all adults whose annual household income is two-thirds to double the national median — is the only one that also shrunk in size, a trend that has continued over the past four decades.”

It’s important to note that many of the people who describe themselves as middle class would not be placed under that rubric by most objective observers. For instance, the Pew study found that 35 percent of people making $30,000 and under and 46 percent of those making $100,000 and over self-identified as middle class. (Meantime, six percent of those making $30,000 and under self-identified as upper class, and six percent of those making $100,000 and over self-identified as lower class. Go figure.)

As Pew pointed out, over the last decade, “middle-tier median household income” fell and median net worth plummeted, and people in the middle class said it was becoming harder to maintain their lifestyles.

To add insult to injury, another Pew report, released this week, found that “during the first two years of the nation’s economic recovery, the mean net worth of households in the upper 7 percent of the wealth distribution rose by an estimated 28 percent, while the mean net worth of households in the lower 93 percent dropped by 4 percent.”

As The Washington Post reported in September after the release of a frightening Census report: “The vise on the middle class tightened last year, driving down its share of the income pie as the number of Americans in poverty leveled off and the most affluent households saw their portion grow.”

The wealthy have come surging back, riding record stock market highs, but many in the middle class are at best treading water and at worst sinking.

In his State of the Union speech in February, President Obama said that the “true engine of America’s economic growth” is “a rising, thriving middle class.”

It certainly looks as if that engine has stalled.

 

By: Charles M. Blow, Op-Ed Columnist, The New York Times, April 27, 2013

April 28, 2013 Posted by | Economic Inequality, Middle Class | , , , , , , , | Leave a comment

“Welfare For The Rich”: What If The Outrage Over Excessive Welfare Extended To The Tax Code?

Senator Jeff Sessions (R-AL) has created quite a stir with his estimates that every household below the poverty level receives an average of $168-a-day (or about $61,000-a-year) in government welfare.

Sessions’ calculations are extremely controversial and overstate the amount of government assistance for those in poverty. But for the sake of argument, let’s assume he’s right. How would $61,000 in direct government spending and refundable tax credits for the poor stack up against tax subsidies for the rich?

It isn’t even close. Indeed, my colleagues at the Tax Policy Center figure that in 2011 households making $1 million and up got that much in average tax benefits from just two deductions–for charitable gifts and state and local taxes. Add a fistful of other preferences–such as deductions for mortgage interest and exclusions such as the one for employer-sponsored health insurance– and top-bracket households got far more in tax benefits than the poor got in means-tested assistance.

These estimates exclude low tax rates on capital gains and dividends which are, arguably, very different from, say, subsidies for mortgage interest or employer-sponsored health insurance. If you include preferential rates on investment income, households making $1 million or more got an additional $119,000 in tax benefits, on average, in 2011.

Keep in mind that tax rates on ordinary income were relatively low in 2011. Now that the rate for high-income households has gone up significantly, their tax subsidies will be even more generous.

I readily admit that on one level, this is a fairly silly exercise. But there is an important point here: In much public discourse, direct government aid for the poor is easily dismissed by the pejorative “welfare.” Yet, spending-like subsidies administered through the revenue code provoke far less outrage. This is true even though many of these tax preferences are economically indistinguishable from direct spending and often add far more to the deficit.

Take housing, for instance. CBO figures that the lowest-income 20 percent of households get an average of about $1,100-a-year in means-tested rental housing assistance. TPC estimates that the lowest-income households got no benefit from tax deductions for mortgage interest and real estate taxes in 2011. But those in the top 20 percent, who make more than $100,000, got an average tax benefit of $2,900. Those in the top 1 percent, who make an average of $1.5 million, did even better. They got an average tax break of $5,700, more than five times the benefit the government provided low-income renters.

As with so much of the tax code, these homeowner tax benefits are upside down. On average, the more you make, the more you get. This seems an odd design in an era when fiscal restraint is all the rage. Yet politicians still recoil when tax expenditures—the vast bulk of which go to middle-class and high-income households—are described as subsidies.

In recent years, both Democrats and Republicans (including their recent presidential candidates) did talk about capping or limiting tax preferences for the highest income households. But so far, at least, that talk has come to nothing. It would be helpful if Sen. Sessions directed some of his outrage to the more than $1 trillion in tax expenditures that litter the revenue code—much of which go to those who need help the least.

 

By: Howard Gleckman, Tax Policy Center, February 26, 2013

March 4, 2013 Posted by | Economic Inequality, Tax Loopholes | , , , , , , , | 1 Comment

Age Gap: The GOP’s Generational Weapon In The Medicare Fight

To senior citizens at town hall meetings angry or worried about their plan to convert Medicare to a private insurance scheme, Republicans have a simple answer: It’s not about you. You’ll be fine. This is for “the next generation.”

The next generation is everyone 55 or under, since the plan would not start for ten years and would affect only newly eligible seniors. The stated logic of the ten-year delay is that it takes time to put the system in place and that people need time to plan. But if “premium support” (a euphemism right up there with “enhanced interrogation”) were ever going to work, it could be implemented as quickly as the Affordable Care Act (four years) or Medicare’s prescription drug coverage (two years). Presumably, the delay is mostly a political kludge, intended to avoid a backlash from those now or soon to be dependent on Medicare by affecting only those young enough to be giving little thought to retirement health coverage.

But the line they chose is more than a gimmick: The 55-and-over cutoff marks a sharp and significant generational divide. Those over 55 will continue to benefit from one of the triumphs of social insurance in the Great Society, while the rest of us will be on our own, with a coupon for private health insurance. If you consider what it means to be 55 years old in 2011, you’ll see the significance of the line.

Today’s 55-year-old was born in 1956. That’s not generally considered a major break in the generations. It’s smack in the middle of the Baby Boom (the peak of the boom, in fact), with almost a decade to go before the first Gen-Xers were born, dreaming of Winona Ryder. But the difference between early and later Boomers, especially in their experience of the economy, is dramatic.

A baby born in 1956 would have graduated from high school in about 1974, from college in 1978 or so. Look at almost any historical chart of the American economy, and you see two sharp breaks in the 1970s. First, in 1974, household incomes, which had been rising since World War II, flattened. Real wages started to stagnate. The poverty rate stopped falling. Health insurance coverage stopped rising. Those trends have continued ever since.

Second, a little later in the decade, around the time today’s 55-year-olds graduated from college (if they did—fewer than 30 percent have a four-year degree), inequality began its sharp rise, and the share of national income going to the bottom 40 percent began to fall. Productivity and wages, which had tended to keep pace, began to diverge, meaning that workers began seeing little of the benefits of their own productivity gains. The number of jobs in manufacturing peaked and began to drop sharply. Defined benefit pensions, which provide a secure base of income in retirement, began to give way to 401(k)s and similar schemes that depend on the worker to save and the stock market to perform. While the benefits of higher education rose, college tuitions started to rise even faster. Those trends, too, have continued.

If there was ever going to be a generational war in this country, that high school class of ’74 would be its Mason-Dixon line. It’s the moment when Bill Clinton’s promise—“if you work hard and play by the rules you’ll get ahead”—began to lose its value. Today’s seniors and near-seniors spent much of their working lives in that postwar world, with their incomes rising, investments gaining, their health increasingly secure, and their retirements predictable. Everyone 55 and younger spent his or her entire working life in an economy where all those trends had stalled or reversed. To borrow former White House economist Jared Bernstein’s phrase, it was the “You’re On Your Own” economy. Finally, those 55-year-olds are spending several of what should be their peak earning years, years when they should be salting away money in their 401(k)s and IRAs, in a period of deep recession and very slow recovery.

The Ryan plan, in other words, delivers to the older generation exactly what they’ve had all their lives—secure and predictable benefits—and to the next generation, more of what they’ve known—insecurity and risk. It’s hardly the first generational fight the GOP has started. The previous one was just last fall, when they campaigned for Medicare, and against the $500 billion in cuts (mostly by getting rid of the overgenerous subsidies to private insurers in an experimental program) passed as part of the Affordable Care Act. With an off-year electorate that was overwhelmingly older, they could put all their bets on the older side, knowing that seniors would see little benefit from the Affordable Care Act and were naturally worried about any change to the health system they enjoyed.

Heading into the 2012 election, however, the electorate is likely to shift back to one in which younger and middle-aged voters vote in proportion to their share of the population, so a “Mediscare” campaign won’t work. This time, the GOP hopes to play both sides of the generational war, gambling that while seniors want security, younger voters never expected the certainty of Medicare, just as they don’t expect reliable pensions or Social Security benefits, and thus will embrace a plan that sounds innovative, flexible, and market-based. Contending that the only alternative to premium support is the end of Medicare entirely, they are offering a generation that is accustomed to getting less than their parents a little bit, rather than nothing.

This strategy is a variation on the generational conflict the Bush Administration tried to launch in 2005 over Social Security privatization. Although it never reached the level of specificity that Ryan achieved, the calculus was the same: Younger voters would welcome the opportunity to take advantage of the stock market for their retirement, rather than the stodgy and predictable system their parents and grandparents liked.

That wager didn’t work, however: It turned out that older voters were terrified of Social Security privatization and younger voters unenthusiastic. Within five months, the radical move that every pundit thought was a near-certainty when George W. Bush declared “I’ve got political capital and I intend to use it,” had disappeared, never even introduced as legislation. And despite this week’s relaunch of the Ryan plan, it’s likely to end in the same result. If Social Security is any precedent, younger voters will be indifferent, while older voters won’t believe they’re exempt. The Republicans will again walk away from the conflict, hoping to get credit for being “serious” without bearing a political price for the error.

For Democrats, the defeat of the Ryan plan, like the failed Social Security privatization before it, will be regarded as a great victory, and an opportunity to get a fresh start with worried older voters. But they should not ignore the generational divide revealed by Ryan’s cutoff. If progressive politics has nothing to offer the late Boomers and the generations that follow except the same old programs, and nothing that responds to their distinctive experience of the economy, then eventually they’ll fall for one of these gimmicks from the right.

 

By: Mark Schmitt, The New Republic; Senior Fellow, Roosevelt Institute, May 20, 2011

May 29, 2011 Posted by | Affordable Care Act, Class Warfare, Congress, Conservatives, Consumers, Economy, Elections, GOP, Government, Health Care, Ideologues, Ideology, Income Gap, Jobs, Lawmakers, Medicare, Middle Class, Politics, Rep Paul Ryan, Republicans, Right Wing, Seniors, Social Security, Voters | , , , , , , , , , , , , | Leave a comment

   

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