Guest Josh Mitchell, Wall Street Journal reporter who covers debt and finance, discusses the history of government involvement in student loans, the soaring college tuition, the value of a four-year college degree, the similarities between the student loan crisis and the housing crisis, President Biden's student loan forgiveness program, and more.
The history of government involvement in student loans and the continuous rise in college tuition since the 1980s are important aspects discussed in the podcast.
The role of Sally May in perverting incentives in the student loan system and the parallel with the housing crisis highlight the flaws in the system.
The podcast raises questions about President Biden's student loan forgiveness program and emphasizes the need to address subprime lending and predatory practices in the student loan market.
Deep dives
The history of government involvement in student loans and the reasons for rising tuition
The podcast episode explores the history of government involvement in student loans and discusses the reasons behind the continuous rise in college tuition since the 1980s. It delves into the value of a four-year college degree and draws parallels between the housing crisis and the student loan crisis. The episode also touches on President Biden's student loan forgiveness program.
The role of Sally May in distorting the student loan system
The podcast episode highlights the role of Sally May, a quasi-public agency created in 1972, in perverting the incentives for banks and colleges in the student loan system. It discusses how the government's guarantee of loans incentivized banks to lend without proper underwriting, leading to a parallel with the housing crisis. The episode explains how Sally May's existence allowed banks to sell loans and offload the risk, resulting in a lack of due diligence in the lending process.
Biden's student loan forgiveness program and its implications
The podcast episode examines President Biden's student loan forgiveness program, which aims to cancel up to $10,000 in student debt for households below an income threshold. It raises questions about targeting the cancellation further to lower-income households and debates the constitutionality of using executive action for loan forgiveness. The episode also highlights the connection between student debt and the mortgage crisis, emphasizing the need to address the subprime lending and predatory practices prevalent in the student loan market.
Flaws of the student loan system
The student loan system is flawed due to the lack of information and transparency provided to students regarding future earnings, interest rates, and the total amount owed. Unlike other loans, student loans are taken out incrementally throughout the college years, with increasing interest rates and tuition costs each year. The college relies on the fact that students are unlikely to drop out and can charge higher prices accordingly. Additionally, charging students interest while in school before they have the chance to repay contributes to the accumulation of unexpected debt. This results in many students leaving college with high loan balances and monthly payments that exceed their income.
Mythology about the purpose of college
The prevailing mythology about college is that it directly equips individuals with job-ready skills. However, there is evidence to suggest that the value of a college degree lies more in the signals it sends to employers, such as discipline, timeliness, and perseverance. Hence, leaving college before completing the full degree can be viewed by employers as a red flag. The college wage premium, the differential income between college and high school graduates, is often cited as evidence of college's worth. However, the wage premium fluctuates with labor market conditions and employers' requirements for certain jobs, indicating that college credentials may not necessarily guarantee higher productivity. It is crucial to critically question the assumption that college is the only path to success and explore alternative educational options.
My guest today is Josh Mitchell. Josh is a Wall Street Journal reporter who covers debt and finance. His book is called "The Debt Trap: How Student Loans Became a National Catastrophe" and it was named one of the best books of 2021 by both NPR and The New York Post.
In this episode, Josh and I talk about the history of government involvement in student loans. We discuss the reasons why college tuition has been soaring since the 1980s. We talk about the value of a four-year college degree. We talk about the similarities between the housing crisis of the 2000s and the current student loan crisis. We also go on to talk about President Biden's student loan forgiveness program, and much more.
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