Friday, August 3, 2012

Mark Kantrowitz Argues That Six-Figure Debt Is Uncommon

Mark Kantrowitz claims that six-figure debt is a rarity, and says that journalists are sensationalizing the problem. While it might be true, based upon his findings, that there is not a huge percentage of people with that sort of student loan debt, the fact remains that we are in a full-blown crisis. Journalists and activists are not the only ones who acknowledge the crisis. Higher education policy analysts, politicians, and other experts recognize the problem. More importantly, those who are being crushed by their debt, and also realizing that their window of opportunity for financial security in the future is narrowing, know all too well that the crisis is worsening. Those stories matter.

Furthermore, there is no debate that the dramatic increase in default rates on student loans is worrisome.  This is an obvious sign that people are failing to pay back their loans, and that more Americans are falling off the grid. For what reason? Pursuing higher education.

So, while Kantrowitz's findings might be accurate, it does not change that fact that we are still in a deep, long student lending crisis. It also doesn't change that fact that our leaders aren't doing anything substantial to change that fact. When it comes to leaders, we could use some more Browns and Harkins on the Hill.

I also take issue with Kantrowitz's claim that the stories are all sensationalized. Interestingly, a few months ago, he was quoted in a NYT article, and his tone was quite different. I was glad to read his comments in that piece, because it was the first time I heard him express public sympathy for borrowers. Now, I could be mistaken, perhaps he's done it in the past, but his remarks were notable.

What do you think about his findings?


LSTB said...

Kantrowitz—and those like him—are engaging in question-begging. He believes student loan debt is an over-sensationalized problem, so he's chosen to analyze people with an arbitrary amount of debt that's unrelated to wages and prices, and housing and health care costs, and who are few enough in number that he can say they're not a problem at the macro level. Not a problem, that is, for people Kantrowitz thinks actually matter.

The reality is that one doesn't need six figures of student loan debt for it to be a financial burden. People with even $40,000 of debt at 6.8% over 25 years are paying $278/month, and depending on their wages and place of residence that can be quite a burden. Most other places, probably not. More to the point if they're in a job that doesn't require their degree, no amount of salary changes the fact that the debt is essentially radioactive.

Returning to Kantrowitz's "They're so few in number that they don't matter" line, remember two things: (1) Most households aren't six-figures underwater in their mortgages, but a lot of those that are live in North Las Vegas, which just used laws that freeze municipal workers' wages intended to deal with natural disasters to help fill a $30 million budget hole. Thus, high debt levels can cause problems for others, and (2) remember what Michael Hudson says, "Debts that cannot be repaid, will not be repaid."

Let me repeat that: "Debts that cannot be repaid, will not be repaid."

No interest rate, even at current federal discount window rates (0.75%), makes refinancing six figures of student loan debt change the fact that it's still six figures of debt. Only monetary or wage hyperinflation makes that loan serviceable at current wage levels. Income-Based Repayment just socializes excessive higher education costs, for any degree at any level from any institution.

Finally, so what if there are few people with unpayable debts? Their suffering is real and deserves to be remedied just like the hopelessness any other failing policy creates. But, Mark Kantrowitz doesn't want to care about those who deserve relief so he can make money lecturing families, "You need to know more about debt."

LSTB said...

I add, to the extent that it weakens my above comment, that in his paper, Kantrowitz does recommend reforming the bankruptcy code for all student loans. Good.

Anonymous said...

When I read this post, I found myself thinking about what some economist said: "When you lose your job, it's a recession; when I lose mine, it's a depression."

A corollary to that seems to be "If I don't have debt, it must not be common and the media are exaggerating the extent of it."

Anonymous said...

There are many horrific circumstances in this world that are uncommon (childhood leukemia, public massacres in the U.S., etc.) but being uncommon doesn't make sufferers any less devastated by their situations.

At the $1 trillion point, isn't Kantrowitz's arguing over numbers of figures of debt for individuals... just semantics? Does it really matter if Billy has five figures and Joey has six figures? If you can't pay it, you can't pay it. In my case, my six figures might as well be the full trillion. Either way I wouldn't be able to pay it, and it has destroyed my life and future anyway.

Anonymous said...

Why not settle all this debt?

If the credit card companies can settle, why can't the other lenders?

Who wants pity or forgiveness?

All can save face if there is a settlement, and not even the most conservative Republican will have a problem with that.

The real societal psycho madness comes into play when there are no regs in place to stop the debt from ballooning into a personal pressure cooker monster that becomes a huge psychological and emotional burden to carry around day to day.

There has to be some humane, or perhaps emergency legislation and checks and balances, even if it means going outside of, or overriding the bankruptcy code.

Stated simpy: If one borrows 100K, they should not have to pay back 300K.

That is just wrong.

Anonymous said...

This reminds me of a lecture I attended prior to 9/11 where the case was by made the speaker that the risk of terrorist attacks in the US were extremely rare and that terrorism risk was being hugely overblown in the media. The speaker tried to make the argument that even if terrorists managed to infiltrate security like an airport or important building, only a few lives would be lost compared to the entire US population. Therefore the speaker concluded incorrectly that because the risk was so small and the numbers of casualties would be so small, the speaker argued it would be no deal if were to happen.

STEM The Myths

Anonymous said...

He's full of shit. These are the same people that insisted there was no sub prime mortgage problem, insisted that Countywide/BAC wasn't doing anything wrong with foreclosures, insisted law schools and other higher education didn't lie about employment statistics and now are beating the drum with their last bastion, claiming loan debt isn't really that bad.

A few more years from now suddenly these will be the same exact people who will insist "everyone knew" so it is in fact the fault of the victims for getting suckered. This is how people that defraud other people for a living live with themselves, they simply forget what they were doing in the past and nobody holds them accountable.

The average loan debt for people graduation in the past 5 years is going to be around 6 figures, period. Even state schools are charging $25k/yr with room and board, privates are going to run you well over $50k. The people whose parents pay for everything are always used to determine these average statistics, but they are the same people that determined employment statistics for law schools and we see how that is holding up now with scrutiny.

The bubble will pop within 3 years. I would strongly suggest people prepare in that timespan and probably not pay their loans. They simply have no choice, the loans will likely have to be discharged, another New Deal this time for student loans. This country WILL NOT recover as long as it buries its young under educational loan indentured servitude.

Anonymous said...

I have a bone to pick with the "$25,000 average of debt for today's graduates." The average is SKEWED. We're including all graduates in this number, including those whose rich parents paid their way through. If we looked at the REAL statistic, i.e. "What is the average amount of debt that those who hold student loans are graduating with?" I believe the number would be MUCH, MUCH higher. I personally don't know anyone who has less than $50k. And all of my friends graduated from state schools.

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Unknown said...
This comment has been removed by the author.
Irving Penname said...

I foolishly co-signed on my ex-husband's private student loan consolidation for over $100k. We were married for less than 5 years, and have been divorced for less than one year. The loans have been in collections since February, and I just today received an email that they're going to go before a lawyer for review.

I'm now going to be paying for his private art school education (undergraduate, no less) while I have no formal education of my own.

Yes, there is definitely a crisis here.

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