Tackling the $1.6T student loan crisis

American Enterprise Institute Resident Fellow Jason Delisle joins Yahoo Finance’s Zack Guzman to discuss whether the U.S. should forgive student loan debt and the wealth gap within the education system.

Video Transcript

ZACK GUZMAN: Of course, this is not the only way that we've seen a lot of plans coming together to help meet inequality and economic inequality. When we look at some of the plans in the next wave of stimulus here out of Washington, DC, interesting to note some plans from the more progressive wing of Democrats pushing to cancel student loan debt for the idea that it might help those most disadvantaged here in America get beyond that problem right now.

But when you look into the data, it's worth showing how many Americans might actually not necessarily need the help on that front. And for more on breaking down the issue of canceling student loan debt, I want to bring on our next guest. Jason Delisle, American Enterprise Institute Resident Fellow, joins us on the show now.

And, Jason, I mean, when you look at this, you've been pretty outspoken about how it might be a blunt policy tool to just come in and cancel student loan debt across the board. What does the data say about how the breakdown exists in the country today and some of those maybe least advantaged Americans struggling with this?

JASON DELISLE: Yeah, I mean, you know, it used to be, you know, 20, 30 years ago that if you were from a low-income family that you were more likely to take out a student loan than somebody from a high-income family. But the big shift we've seen over the last 20, 30 years is that high-income and low-income families are just as likely to take out a student loan. And the really big change is that the high-income families, when they do take out a student loan, they borrow twice as much as low-income families.

So they're just as likely as low-income families to borrow, and they're taking out twice as much debt. And so, you know, when you-- and this is at the undergraduate level. The graduate-school level is a whole nother story. But when you're talking about forgiving debt, that's who the winners are going to be are those who borrow the most, and they tend to be from the highest-income families.

ZACK GUZMAN: Yeah, and we've also seen, I guess, the actual wave of stimulus that did come through here was originally pausing student loan payments on federal loans, and that was one thing that won support from both parties here to kind of help stem the problem that was sparked by the coronavirus pandemic. But moving beyond that and canceling student debt would be a different thing that we'd have to discuss here.

But interesting to note, kind of the weight of a college degree has not necessarily carried, I guess, from the promise of decades ago when people needed it as being one of those tools to get from the middle class, maybe beyond it. What are you seeing in the data there? Because it's interesting to point out that I guess wage growth for college graduates has not necessarily delivered on the promises of maybe a generation prior.

JASON DELISLE: Yeah, I mean, but we're-- you know, we're seeing people still borrow. But the debt levels-- you know, I just want to make sure people realize, you know, the amount of debt that we're talking about. You know, for someone who finishes a bachelors degree, if they borrow-- and remember, you know, about a quarter to a third of people don't borrow at all. We're talking about $30,000 in debt. So we're talking about a monthly payment of a few hundred dollars. So, you know, if a monthly payment of a few hundred dollars is what separates you between getting a college degree and not getting a college degree, the debt's probably still worth it to go get the college degree.

ZACK GUZMAN: Yeah, I guess that's the question too that is really here, right? When we think about whether or not it's worth it, it obviously depends on your own circumstances and how much you want to be taking out. The questions of whether or not you'll ever pay that back obviously are different for everybody else.

But interesting to see-- this is from EPI-- a look at who's benefited the most from that college degree. And as I noted, I mean, wages not necessarily playing out that have [INAUDIBLE] worth it across the board. But only black workers with college degrees earned higher wages in 2018 than they did in 2000. At the same time, their wage growth in that time was slower overall than what we've seen for white workers with college degrees.

So I guess the takeaway here for me would be, you know, it's not necessarily indicative that it's going to close the income gaps that we've seen, but it would be at least, I guess, maybe a catalyst there for some people who are lagging behind, and that is still one of the questions in kind of addressing is college worth it? Where would you come out on that debate here when we're thinking about whether or not it is actually worth it?

JASON DELISLE: Well, I mean, yeah, generally [INAUDIBLE] worth it. I think one of the issues we have with the student loan program is, you know, it's open ended, so anybody can get a loan. And, you know, if you drop out, if you don't get the degree-- which is the case for a lot of people-- and you still have the loan, I mean, that's where we see the problems. So I think generally borrowing to get the degree works out. The problem is the people who borrow and then don't finish.

And that, you know, at least in the loan data with respect to the loans, again, that's where we see the big problem. We see defaults and delinquencies. You know, folks aren't really excited about repaying a loan for 10 or 20 years when they didn't finish the degree.

And so, you know, that might be an area where we want to look at reforms. Is it too easy to get a loan, you know, for institutions and pathways that lead to basically dropouts?

ZACK GUZMAN: Well, as I think you noted in the stats there, it may be easier for wealthier families to get the loan if they have the means, you know, to pay for it and everything that comes along with that. But if it's not going to be the best way forward to just blanket cancel student debt, what do you think would be one way that politicians could come together to address that problem you're describing of those people who might not graduate or even those who do graduate but now are graduating into the worst job market we've seen in decades, that they won't get a job and be stuck with all of this debt themselves?

JASON DELISLE: Yeah. Well, there's actually a program that already exists. If you take out a federal student loan-- and 90% of the debt is issued by the government-- you can make payments based on a small share of your income, you know, no matter how much you borrow and no matter what the interest rate is. So if you need some extra time to sort of get on your feet and get through this soft job market, those benefits are there. It's called income-based repayment. And, you know, it's available to anybody who uses a federal student loan.

So that already [INAUDIBLE]. And so this is why I have such a problem with sort of just blanket forgiving all the student debt. Most of the debt is actually pretty good debt. You know, to our earlier points is, you know, people that have the means to pay, they are paying.

I haven't mentioned this stat yet, but somewhere around 40% to 50% of the outstanding debt didn't even pay for college. It paid for graduate degrees. So, you know, if you're doing a blanket loan forgiveness, you're going to be forgiving loans for people who are some of the most sort of educationally elite in this country. They're going to get huge checks from a loan-forgiveness benefit. So I think we've kind of got-- we're on the right track with programs in place for people who are temporarily struggling, which means you don't need these blunt solutions like forgiving all debt.

Now, I'll say that, you know, the income-based-repayment program, you know, there are some fixes that people who [INAUDIBLE] are frustrated with it, et cetera. But I think that's the track to go on rather than a blanket forgiveness.

And, you know, the other thing is I always say with these plans for mass student loan forgiveness, what do you do the day after? Do you stop making new loans? And all the proposals I've seen they say no, we'll keep making new loans, which--

ZACK GUZMAN: Yeah.

JASON DELISLE: --doesn't make any sense.

ZACK GUZMAN: Well, I mean, there are a lot of frustrations around this space, especially now when we talk about the aftermath of the cheating scandal and what it has brought to light in terms of maybe advantages there for the wealthier students that you're discussing, but interesting points brought up. Of course, Jason Delisle, American Enterprise Institute resident fellow, appreciate you taking the time.

JASON DELISLE: Thanks for having me.