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The Subprime Loans for College Hiding in Plain Sight

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Many families can borrow most of the cost of college using a Parent PLUS loan. This will not end well.If you want your kids to go to college but you can’t afford the bills, the federal government has a deal for you that will blow your mind.You can borrow the entire cost — minus any other aid your child receives — through something called a Parent PLUS loan. Moreover, your income — and thus your ability to repay the debt — doesn’t matter. As long as you don’t have one of a handful of black marks in your recent credit history, you can borrow six figures even if your take-home pay puts you below the federal poverty level.This is totally bananas. But don’t take my word for it.“The honest truth is that Congress created a subprime lending program unintentionally,” said Rachel Fishman of New America, the left-leaning think tank.“I absolutely hate them,” said Beth Akers, of the American Enterprise Institute, the right-leaning think tank, referring to these loans.“It’s gone completely off the rails,” said Justin Draeger, the president of the National Association of Student Financial Aid Administrators.Most parents don’t pay for college using this loan. But about 3.6 million of them — with about $107 billion in outstanding debt — have. Within that group are a number of low-income Black families at schools that may not have given their kids enough help in the way of scholarships. Many of those families are struggling to repay the money that the federal government so freely offered up.And, really, why wouldn’t moms and dads use a PLUS loan if it appears to be the least horrible option? For many people, parenting means keeping the American promise that children should do better than family members from previous generations. A college degree is a rocket booster that can help make that possible.When Congress created parent PLUS loans in 1980, there were decent reasons for doing so. College costs had increased, and many middle-income families struggled to pay for tuition out of their income. At the time, interest rates were also very high.The PLUS loan, which came with a lower-than-market interest rate, solved a worsening problem. It also made it easier for parents to pay a larger share of the bill and perhaps help their children borrow less.At the time, you could borrow only $3,000 per year. In 1992, that cap went away, thanks, it seems, to a successful push by a higher education lobbying association, according to a report from the Urban Institute report in 2019.What to Know About Student Loan Debt ReliefCard 1 of 5Many will benefit. More

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    in Economy

    Biden’s Big Dreams Meet the Limits of ‘Imperfect’ Tools

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    The student loan plan is the latest example of Democrats practicing the art of the possible on the nation’s most pressing economic challenges and ending up with risky or patchwork solutions.WASHINGTON — President Biden’s move this week to cancel student loan debt for tens of millions of borrowers and reduce future loan payments for millions more comes with a huge catch, economists warn: It does almost nothing to limit the skyrocketing cost of college and could very well fuel even faster tuition increases in the future.That downside is a direct consequence of Mr. Biden’s decision to use executive action to erase some or all student debt for individuals earning $125,000 a year or less, after failing to push debt forgiveness through Congress. Experts warn that schools could easily game the new structure Mr. Biden has created for higher education financing, cranking up prices and encouraging students to load up on debt with the expectation that it will never need to be paid in full.It is the latest example, along with energy and health care, of Democrats in Washington seeking to address the nation’s most pressing economic challenges by practicing the art of the possible — and ending up with imperfect solutions.There are practical political limits to what Mr. Biden and his party can accomplish in Washington.Democrats have razor-thin margins in the House and Senate. Their ranks include liberals who favor wholesale overhaul of sectors like energy and education and centrists who prefer more modest changes, if any. Republicans have opposed nearly all of Mr. Biden’s attempts, along with those of President Barack Obama starting more than a decade ago, to expand the reach of government into the economy. The Supreme Court’s conservative majority has sought to curb what it sees as executive branch overreach on issues like climate change.As a result, much of the structure of key markets, like college and health insurance, remains intact. Mr. Biden has scored victories on climate, health care and now — pending possible legal challenges — student debt, often by pushing the boundaries of executive authority. Even progressives calling on him to do more agree he could not impose European-style government control over the higher education or health care systems without the help of Congress.The president has dropped entire sections of his policy agenda as he sought paths to compromise. He has been left to leverage what appears to be the most powerful tool currently available to Democrats in a polarized nation — the spending power of the federal government — as they seek to tackle the challenges of rising temperatures and impeded access to higher education and health care.Arindrajit Dube, an economist at the University of Massachusetts Amherst who consulted with Mr. Biden’s aides on the student loan issue and supported his announcement this week, said in an interview that the debt cancellation plans were necessarily incomplete because Mr. Biden’s executive authority could reach only so far into the higher education system.“This is an imperfect tool,” Mr. Dube said, “that is however one that is at the president’s disposal, and he is using it.”But because the policies pursued by Mr. Biden and his party do comparatively little to affect the prices consumers pay in some parts of those markets, many experts warn, they risk raising costs to taxpayers and, in some cases, hurting some consumers they are trying to help.Mr. Biden’s plan would forgive up to $10,000 in student debt for individual borrowers earning $125,000 a year or less and households earning up to $250,000, with another $10,000 for Pell grant recipients.Cheriss May for The New York Times“You’ve done nothing that changes the structure of education” with Mr. Biden’s student loan moves, said R. Glenn Hubbard, a Columbia University economist who was the chairman of the White House Council of Economic Advisers under President George W. Bush. “All you’re going to do is raise the price.”Mr. Hubbard said Mr. Biden’s team had made similar missteps on energy, health care, climate and more. “I understand the politics, so I’m not making a naïve comment here,” Mr. Hubbard said. “But fixing through subsidies doesn’t get you there — or it gets you such market distortions, you really ought to worry.”Mr. Biden said on Wednesday that his administration would forgive up to $10,000 in student debt for individual borrowers earning $125,000 a year or less and households earning up to $250,000, with another $10,000 in relief for people from low-income families who received Pell grants in school.What’s in the Inflation Reduction ActCard 1 of 8What’s in the Inflation Reduction ActA substantive legislation. More

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    in Economy

    Biden Student Loan Plan Squarely Targets Middle Class

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    President Biden is offering what independent analysts suggest would be his most targeted assistance yet to middle-class workers — while trying to repair what he casts as a broken bridge to the middle class.WASHINGTON — The big winners from President Biden’s plan to forgive hundreds of billions of dollars in student loans are not rich graduates of Harvard and Yale, as many critics claim.In fact, the benefits of Mr. Biden’s proposals will largely go to the middle class. According to independent analyses, the people eligible for debt relief are disproportionately young and Black. And they are concentrated in the middle band of Americans by income, defined as households earning between $51,000 and $82,000 a year.The Education Department estimates that nearly 90 percent of affected borrowers earn $75,000 a year or less. Ivy League graduates make up less than 1 percent of federal student borrowers nationwide.Economists say the full scope of Mr. Biden’s plan, including significant changes meant to reduce the payments that millions of borrowers will make for years to come, will help middle-income earners from a wide range of schools and backgrounds.“You’ll have a lot more people who are making zero payments and will have significant loan forgiveness in the future,” said Constantine Yannelis, an economist at the University of Chicago’s Booth School of Business. “The relief to borrowers is going to be more targeted to the people who really need it.”Yet despite the appeal of such debt relief, the program still has set off a contentious debate as economists and political figures assess the full consequences of the plan. By some estimates, it will cost as much as a half-trillion dollars over the course of a decade, imposing a future burden on American taxpayers.The plan also could encourage colleges to raise tuition even faster than they already are. Schools could try to persuade borrowers to take on as much debt as possible to cover higher tuition, with the belief that the federal government would help pay it back.Some conservative and Democratic economists also say the program could add significantly to what is already the highest inflation rate in four decades. Evidence suggests those claims are overstated, however, and American shoppers are not likely to see prices spike because of the program.The announcements Mr. Biden made, including both debt forgiveness and a restart next year of loan payments for all borrowers after a nearly three-year pause, will most likely be a wash for consumer prices, a wide range of economists say.“Debt forgiveness that lowers monthly payments is slightly inflationary in isolation,” analysts from Goldman Sachs wrote in a research note on Thursday, “but the resumption of payments is likely to more than offset this.”What to Know About Student Loan Debt ReliefCard 1 of 5What to Know About Student Loan Debt ReliefMany will benefit. More

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    in Economy

    The Potential Dark Side of a White-Hot Labor Market

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    The strong job market may be about to take a turn for the worse. That could come to haunt those who made choices based on today’s conditions.Shanna Jackson, the president of Nashville State Community College, is struggling with a dilemma that reads like good news: Her students are taking jobs from employers who are eager to hire, and paying them good wages.The problem is that students often drop their plans to earn a degree in order to take the attractive positions offered by these desperate employers. Ms. Jackson is worried that when the labor market cools — a near certainty as the Federal Reserve Board raises interest rates, slowing the economy in an attempt to control rapid inflation — an incomplete education will come back to haunt these students.“If you’ve got housing costs rising, gas prices going up, food prices going up, the short-term decision is: Let me make money now, and I’ll go back to school later,” Ms. Jackson said. Anecdotally, she said, the issue is most intense in hospitality-related training programs, where credentials are often valued but not technically required.Strong labor markets often encourage people to forgo training, but this economic moment poses unusually difficult trade-offs for students with families or other financial responsibilities. Cutting working hours to go to class right now means passing up the benefits of strong wage growth at a moment of soaring fuel, food and housing costs.Taking advantage of the plentiful job opportunities available now could come with upsides — employment can build résumés and provide people with valuable experience and skills. But labor economists say that deciding to skip school and training today could come at a cost down the road. Research consistently suggests that people with degrees and skills training earn more and have more job stability in the longer run.“It’s really great to have income, but you also want to keep your eye on the future,” Mary C. Daly, president of the Federal Reserve Bank of San Francisco, said in an interview last week. “Workers with higher skills will have higher wages and more upside potential.”Ms. Daly speaks from personal experience. She herself dropped out of high school at age 15 to earn money. She eventually earned her graduation equivalency and enrolled in a semester of classes at a local college, but had to work three part-time jobs — at a Target, a doughnut shop and a deli — to support herself while she studied. She went on to pursue a degree full time and later earned a Ph.D. in economics.“That hard work was the best choice I have ever made,” she said. Drawing on her own experience and on the data she parses as a labor economist, she often urges young people to stay in training to improve their own future opportunities, even if they have to balance it with work.“The jobs that are hot right now — restaurants, warehousing — these are things that won’t last forever,” Ms. Daly said.Many sectors are, unquestionably, booming. Today’s labor market has 1.9 open jobs for every available worker and the fastest wage growth for rank-and-file workers since the early 1980s. That’s especially true for lower-wage occupations in fields such as leisure and hospitality.The State of Jobs in the United StatesJob gains continue to maintain their impressive run, even as government policymakers took steps to cool the economy and ease inflation.May Jobs Report: U.S. employers added 390,000 jobs and the unemployment rate remained steady at 3.6 percent ​​in the fifth month of 2022.Slowing Down: Economists and policymakers are beginning to argue that what the economy needs right now is less hiring and less wage growth. Here’s why.Opportunities for Teenagers: Jobs for high school and college students are expected to be plentiful this summer, and a large market means better pay.Higher Interest Rates: Spurred by red-hot inflation, the Federal Reserve has begun raising interest rates. What does that mean for the job market?Against that backdrop, fewer students are opting to continue their education. The latest enrollment figures, released in May by the National Student Clearinghouse Research Center, showed that 662,000 fewer students enrolled in undergraduate programs this spring than had a year earlier, a decline of 4.7 percent.Community college enrollment is also way down, having fallen by 827,000 students since the start of the pandemic. The decline is likely partly demographic, and partly a result of choices made during the pandemic.The shift to online learning was challenging for many students, and, just as schools were allowing students back into the classroom, the job market heated up and opportunities suddenly abounded. Inflation began to ratchet up at the same time, making earning money more critical as the cost of rent, gas and food climbed. That confluence of factors is likely keeping many students from continuing to pursue their education.Gabby Calvo, 18, left the business administration program at Nashville State this year. She said she did not know what she wanted to do with the degree, and had begun making good money, $21 an hour, as a front-end manager at a Kroger grocery store. The job was an unusual one for someone her age to land.“They didn’t really have anyone, so they took a chance on me,” she said, explaining that nobody else stood ready to fill the position and she had worked closely with the person who held it previously.Teenagers are often finding they can land positions they might not have otherwise as companies stretch to find talent, and teenage unemployment is now hovering near the lowest level since the 1950s.Ms. Calvo is hoping to work her way up to the assistant store-manager level, which would put her in a salaried position, and thinks she has made the prudent choice in leaving school, even if her parents disagree.“They think it’s a bad idea — they think I should have quit working, gone to college,” she said. But she has made enough money to put her name on a lease, which she recently signed along with her boyfriend, who is 19 and works at the restaurant in a local Nordstrom.“I feel like I have a lot of experience, and I have a lot more to gain,” Ms. Calvo said.The question, then, is how people like Ms. Calvo will fare in a weaker labor market, because today’s remarkable economic strength is unlikely to continue.The Fed is raising rates in a bid to slow down consumer demand, which would in turn cool down job and wage growth. Monetary policy is a blunt instrument: There is a risk that the central bank will end up pushing unemployment higher, and even touch off a recession, as it tries to bring today’s rapid inflation under control.That could be bad news for people without credentials or degrees. Historically, workers with less education and those who have been hired more recently are the ones to lose their jobs when unemployment rises and the economy weakens. At the onset of the pandemic, to consider an extreme example, unemployment for adults with a high school education jumped to 17.6 percent, while that for the college educated peaked at 8.4 percent.The same people benefiting from unusual opportunities and rapid pay gains today could be the ones to suffer in a downturn. That is one reason economists and educators like Ms. Jackson often urge people to continue their training.“We worry about their long-term futures, if this derails them from ever going to college, for a $17 to $19 Target job. That’s a loss,” said Alicia Sasser Modestino, an associate professor at Northeastern University who researches labor economics and youth development. Still, Ms. Sasser Modestino said that taking high-paying jobs today and pursuing training later did not have to be mutually exclusive. Some people are getting jobs at places that offer tuition assistance while others can work and study at the same time.Other students, like Ms. Calvo, might use the time to figure out what they want to do with their futures in ways that will leave them better off in the long run.Plus, the economy could be shifting in ways that continue to keep workers in high demand. Baby boomers continue to age, and immigration has declined sharply during the pandemic, which could leave employers scrambling for employees for years. If that happens, degrees and certificates — labor market currency for much of the past two decades — may prove less essential.Luemettrea Williams, who holds down three jobs in order to pay her tuition and other bills, at her job in a doctor’s office in Nashville in May.Laura Thompson for The New York Times“There comes a point at which there are so few high school graduates to play with that you have to give your pool cleaner a raise,” said Anthony Carnevale, the director of Georgetown University’s Center on Education and the Workforce. Plus, Mr. Carnevale said, economic policies coming out of Washington could add to the need for high-school-educated workers for a time. President Biden’s infrastructure bill, passed last year, is expected to create jobs in construction and other fields as it directs investment toward bridge rebuilding and airport and port upgrades.“We’re about to go through an era when you don’t need to go through college. That’s going to be a popular story,” he said.Even before the pandemic, people were increasingly questioning the value of a college education. Many people do not complete their degree or certificate programs, leaving them without improved job prospects and often crushing student loan burdens. And higher education alone is not a panacea: Some certificates and qualifications confer much greater labor market benefits, while others offer a smaller wage premium.But data and research continue to suggest that staying in school benefits workers over the long run. Unemployment is consistently lower for people with college degrees, and wages increase notably as education levels climb. The typical worker with only a high school diploma earned $809 a week in 2021, while one with a bachelor’s degree earned $1,334.“The high school job market has been declining since 1983,” Mr. Carnevale said. His research has shown that after the early 1980s, degree holders began to widen their lifetime earnings advantage.The economic resiliency that comes with education is what Luemettrea Williams is banking on. Ms. Williams, 34, has recently transferred to Nashville State as a nursing student.She had been working for years as a medical assistant in a doctor’s office, but got the job because she already knew the doctor; she did not have the relevant credential. Early in the pandemic, the doctor asked her what she would do if he retired, and she realized it was time to return to school. She is working three jobs to pay her tuition, along with her rising gas and grocery bills. She and her 9-year-old daughter have moved in with her aunt, but Ms. Williams is confident she’ll end up with a sturdy career at the end of her two-year program.“That is No. 1: being able to have a stable income where I don’t have to work three jobs to make ends meet,” Ms. Williams said. “I just have to get through these two years, and my life will change.” More