Asset Building News Week - July 22, 2016

Featured Story: The State of Student Debt

On Tuesday, the White House released a report on the student debt crisis entitled, “Investing in Higher Education: Benefits, Challenges, and the State of Student Debt.” The report covers many aspects related to higher education and student debt, but most reactions have been related to its impact on the economy and how repayment differs between those who graduated and those who did not.

“The people having the hardest time repaying their student loans are not graduates with six-figure debt, rather they are borrowers who took out a fraction of that amount, attended for-profit or community colleges, and never earned a degree,” writes Danielle Douglas-Gabriel for the Washington Post. Douglas explains that according to the report, nearly 60 percent of borrowers owe less than $20,000 in undergraduate debt, which conflicts with the common narrative of a majority of college graduates with massive amounts of student debt. However, this figure does include those who attended but did not finish college, which raises a different question: How is this group doing when it comes to repaying their debt? The answer is not good.

The Atlantic’s Derek Thompson explains. “[D]eclining state support for public college fed the rise of for-profit schools, many of which served as factories for dropouts with relatively small amounts of outstanding student debt. These are the people most at risk of default—not the college graduates with $100,000 loan burdens, but rather low-income students who took on a few thousand dollars in debt and didn’t even get a degree.” According to the report, those with under $5,000 in student debt are eight times more likely to default on loans compared to someone with $40,000+ in student loans, and out of all of the defaults on student loans, two-thirds are on loans under $10,000. While the Obama Administration has taken steps to decrease the number of defaults by providing more income-based repayment plans, those in low-wage jobs still struggle.

Gillian White, also with The Atlantic, explores the role employers sometimes pay in student loans—and how those who need the assistance most often do not get it. Employer assistance, “tend[s] to come in one of three forms,” White writes, “tuition assistance..., student-loan payment assistance..., and consolidation and refinancing opportunities.” SoFi, a lender that helps borrowers refinance their student loans, markets itself to companies like IBM and Kronos who will (and do) include information on SoFi refinancing to its employees. This is great, but as White points out, these workers would likely be able to pay off their debt without any assistance. It’s the borrowers that Thompson profiled, who graduated with minimal debt and no degree—and who are typically not working for businesses that offer student debt assistance—that are more likely to default.

New America’s Higher Education Initiative has done a lot of work surrounding the nature of student debt and those who default.  

News Highlights: Universal Basic Income and Food Stamps

An Expert on Fighting Poverty Makes the Case Against a Universal Basic Income

Dylan Matthews, a regular commentator on universal basic income (UBI), remarks in a Vox piece that it was “somewhat jarring” when Robert Greenstein, president of the Center on Budget and Policy Priorities, came out against UBI. Matthews interviewed Greenstein to uncover why an advocate for increased assistance programs for the poor like Greenstein would argue “that using basic income to replace the safety net would actually increase poverty.” Greenstein says that universal programs are not necessarily stronger than means-tested programs, since means-tested programs have recently made gains, likely due to their lower cost and thus greater political viability. Greenstein tells Matthews that he is skeptical of UBI because of US political culture; he worries about “getting cash to people who aren't working and have no work record,” a population with little political support, as he thinks that they would likely be excluded from a UBI. He instead points to policy proposals like a universal child tax credit, which would be an expansion of a program the US already has. “Progress in the US basically does occur incrementally,” says Greenstein.

The Return of American Hunger

The U.S. economy, while not great, is doing better than it was during the Great Recession. “And yet, when it comes to the number of Americans who go hungry, it’s almost like the recovery never happened,” writes The Atlantic’s Ned Resnikoff. The number of food insecure households spiked during the recession and it has barely gone down since. Why is that? Resnikoff points to the recently reintroduced work requirements for able-bodied adults without dependents (ABAWDs). “Under federal law, ABAWDs can only receive three months’ worth of SNAP benefits every three years before they get cut off. In order to receive any more, they must either find employment or enter a job training program that meets federal requirements.”

News in Brief: Minimum Wage, the Wealth Gap, Mortgage Lending, and More

• Five years ago, “Congress created the CFPB as the only federal agency with the sole mission of protecting consumers in the financial marketplace.” Happy 5th Anniversary, CFPB!
• Max Ehrenfreund reports in the Washington Post that the official Republican Party platform unexpectedly calls for the restoration of the “Glass-Steagall” law. The platform also calls for significant curbs to the power and independence of the CFPB.
• According to a report from KTVZ.com, Oregon's Retirement Savings Board outlined key features of the state's forthcoming Oregon Retirement Savings Plan. The ORSP is expected to begin enrolling workers in July 2017 into a plan that is based on Roth IRA and defaults to a 5 percent contribution level invested in age-based funds. The plan will first be available to larger employers and phased in to cover smaller employers over several years.
• Many companies have announced minimum wage increases in the last few weeks. Is this a growing movement or a moment? The Atlantic’s Derek Thompson reports.
• Writing for the New York Times, Stephanie Land discusses decluttering and the minimalist movement and how “[f]or people who are not so well off, the idea of opting to have even less is not really an option.”
• The intergenerational wealth gap isn’t just an American thing—it happens in the United Kingdom too. The Guardian’s Larry Elliott reports.
• A new survey from the Indexed Annuity Leadership Council reveals that 25 percent of Americans are worried that they will outlive their retirement savings, writes Rodney Brooks for the Washington Post.
• Peter Eavis with the New York Times writes on a new report from the National Community Reinvestment Coalition. According to the report, race is an important factor in deciding where banks lend, more specifically, “banks made fewer loans to middle- and lower-income borrowers in minority neighborhoods than to borrowers with similar incomes in white neighborhoods.”
• Andrew Yarrow writes in the Baltimore Sun that 45 percent is an important number when discussing inequality. This is because “45 percent of employed workers are paid less than $15 per hour,” “close to 44 percent of Americans are ‘asset poor,’” “45 percent of private-sector workers do not have access to an employer-provided 401(k),” and the same percentage of people receive no paid sick leave, have young children but can’t afford them preschool, and have no equity in a home. “These aren’t the same people,” but Yarrow reminds us that these are “largely overlapping populations.”