Larry Summers is “skeptical” about general loan cancellation is discussed During President-elect Joe Biden’s transition to office, he argued that debt relief would benefit the rich, not the poor.
“I am rather skeptical of general, massive student debt reduction programs as I think many of these programs would benefit the wealthy who have invested in themselves. [and who] get a high return on this investment, ”the former Treasury Secretary (1999-2001) and director of the National Economic Council during President Obama’s first term told Yahoo Finance Live (video above).
“I’m more concerned about Americans who don’t go to college than about Americans who do,” added Summers. “So I am concerned that if not done carefully, this could be an upward redistribution of income rather than a downward redistribution of income.”
Marshall Steinbaum, a senior fellow at the Jain Family Institute, told Yahoo Finance that Summers’ view of debt relief did not have the nuances needed to resolve the problem.
“Larry Summers doesn’t understand the economics of student debt,” Steinbaum told Yahoo Finance. “I’m absolutely serious because like his whole reputation, he’s the smart economist in the room … he just doesn’t get it. He misinterpreted the data. “
Steinbaum who wrote a new one report This shows that “student loan defaults are getting worse over time, especially for non-white borrowers,” and stressed that the student loan system “is inherently unsustainable” and that bold actions such as reducing some student debt are required .
“You are forever stuck in a debt overhang”
Outstanding student loan debt is $ 1.55 trillion in the third quarter of 2020, up $ 9 billion from the last quarter New York Fed reported this week. In particular, there are serious arrears due to the forbearance issued and extended from President Trump and the CARES Act stimulus amid coronavirus pandemic.
The average student borrower was about $ 7,200 in 2017, up 10% from 1995 The Budget Office of Congress was mentioned in a report recently. For PhD students, the average rose 47% to $ 25,700. Parents with PLUS loans borrowed an average of $ 16,600.
Summers is right about relatively higher-income Americans hold more student debt: The highest income 40% of households (i.e. those with incomes over $ 74,000) owe about 60% of all outstanding debt. At the same time, however, lower-income borrowers have a greater repayment burden, so debt relief would benefit those borrowers directly.
Using demographic and economic data from the American Community Survey, Steinbaum found that more than half of those who took out student loans in 2009 have not yet paid back everything. As he delved deeper into postal codes, he found that there were large racial differences: while more majority and minority neighborhoods had access to higher education through student loans, their share of student debt rose steadily.
“We already have a lot of unpaid student debt outstanding and it’s not going to be paid back,” Steinbaum wrote in the latest Jain Institute report. And while this debt jam will not cause a macroeconomic crisis, he added, “It just means you are forever in debt overhang.”
Given the circumstances, both in terms of student debt and moving to a Democratic President, 236 organizations wrote a letter To Biden and Vice President-elect Kamala Harris for advocating for executive action aimed at reducing some of the student loan debt.
President-elect Biden put up a campaign proposal Clear $ 10,000 for approximately 37 million Americans who owe federal government-sponsored student loan debt. Democratic leaders are request for The president-elect awards $ 50,000 to each borrower by order of the executive branch once they take office.
Natalia Abrams, Student Debt Crisis Advocate, said that “there is so much at stake” and stressed that “this is the most urgent opportunity to help the country heal from the health crisis, heal economic damage and history of curing racial differences. “
Summers acknowledged that the system clearly needs work and that some relief will be needed.
“There are clearly cases where relief is needed,” he said. “There are clearly cases when it is not possible to restructure student debt, and it should be.”