1. Is Student Debt Hindering Economic Growth and Wellbeing? Diana G. Carew Progressive Policy Institute November 3, 2014

2. Agenda What’s New in Research? Is Student Debt Killing the Economy? – Hint: Not as Much as we Thought Then What is the Problem? What am I working on? What’s the risk from misinterpreting market signals?

3. What’s New in Research? Federal Reserve #1 (Brown, Mezza et al): – Homeownership falling for ALL young Americans, with or without college AND with or without student debt Pew Study (Richard Fry): – 2010 Survey of Consumer Finances – Wealth is 7x lower for young Americans with student debt…because they are more likely to have other forms of debt Vehicle and credit card; same percent with housing – Still, not under more “financial distress”

4. What’s New in Research? Federal Reserve #2 (Dettling and Hsu) – 30% of increase in young people moving back home due to rising debt burdens – Found effect of larger balance on subprime borrowers at least 76% larger – Delinquent borrowers at significantly greater risk Federal Reserve #3 (Abel and Deitz) – “College May Not Pay Off for Everyone” – Earnings premium for college degree never been greater, because HS diploma worth so much less – About 25% college graduates earn less than HS graduates Brookings #1 (Akers and Chingos) – Conclusion1: Rise in debt not worrisome – Conclusion2: Repayment burden no worse today than two decades ago – Conclusion 3: Broad-based policies for all borrowers unnecessary (no evidence)

5. What’s New in Research? Brookings #2 (Dynarski) – Repayment crisis over debt crisis – Proposes auto-IBR – Large gaps in available data make effective policymaking difficult Federal Reserve #4 (Kaplan) – Survey of Young Workers 18-30 (Nov 2014) – About half receive financial assistance from family – Reinforces dominance of 4-year degree CFPB – Annual Report on Private Student Loans

6. Is Student Debt Killing the Economy? Answer: Not as Much as We Think – It is, however, ruining the finances of those who took out loans but didn’t complete the degree Would be willing to bet problem also varies significantly by factors: – College – Major – Geographical location

7. Then What is the Problem? Answer: Slow-Growth Economy – Correlation Does Not Imply Causality – The ‘Great Squeeze’! – Young college graduates are having a tough time in today’s economy – Policies do not embrace data-driven economy Answer: Outdated, Mismatched Postsecondary Education Sector – Not everyone needs a four year degree – Too focused on enrollment and not completion – Too little institutional and student accountability

8. Concerning: High Underemployment of Young College Graduates

9. And Yet One More Study September 2014 Joint Brookings-Fed Panel on Economic Activity: – Dive into troubling fall in the labor force participation rate for young people aged 16- 24 since the mid-1990s – Conclusion: “some crowding out of job opportunities for young workers [is] associated with the decline in middle-skill jobs and thus greater competition for the low- skilled jobs traditionally held by teenagers and young adults” (http://www.brookings.edu/~/media/Projects/B PEA/Fall%202014/Labor%20Force%20Participati on%20%20Aaronson.pdf)http://www.brookings.edu/~/media/Projects/B PEA/Fall%202014/Labor%20Force%20Participati on%20%20Aaronson.pdf

10. What am I Working On? A Lot on Smart Regulation versus Over-Regulation Across Sectors – Regulating in the Data-Driven Economy Postsecondary Education Reform – Entire Sector Needs Facelift – Four-Year Model Dominates Federal Aid as a Catalyst for Reform Well-Being of Young Americans – Employment – Wages

11. The Risks What happens if the public is convinced that student loans are the cause and not a symptom of their woes? Populist-motivated Regulation – Wrong or Ineffective Policy – Poorly Designed Legislation (e.g., Re-Fi legislation) Increased Regulatory Overlap Across Agencies Regulatory Creep Within Agencies

12. The Risks: What Could Happen Continued pushback on Ed leads to: – Greater oversight – More rules – More CFPB engagement Revised Default metrics for servicers – Split Servicing Gainful Employment Pre-emptive and/or prescriptive rulemaking

13. Open Questions What Could Servicers Do to Improve Their Reputation? – Is the perceived unwillingness to alert borrower of options and to assist in enrollment in IBR overblown? What Should Private Lenders and Servicers be Responsible for? – Should type/frequency of communication with borrowers be required?

14. THANK YOU! dcarew@ppionline.org