WEBVTT 00:01.730 --> 00:03.740 ALEXIS CHRISTOFOROUS: Welcome back to Yahoo Finance Live. 00:03.740 --> 00:07.340 The amount of outstanding student debt in the US 00:07.340 --> 00:09.800 has nearly doubled over the past decade 00:09.800 --> 00:12.890 to more than $1.7 billion. 00:12.890 --> 00:16.280 But what does all that debt mean for our economy? 00:16.280 --> 00:18.440 Here to help us sort it out is Kevin Miller. 00:18.440 --> 00:20.690 He is Associate Director of Higher Education at 00:20.690 --> 00:22.070 the Bipartisan Policy Center. 00:22.070 --> 00:23.420 We're also joined by our education 00:23.420 --> 00:25.460 reporter, Aarthi Swaminathan. 00:25.460 --> 00:27.980 Thanks so much for joining us, Kevin. 00:27.980 --> 00:30.930 I want to start out with talking a little bit about student 00:30.930 --> 00:32.570 default rates, because I'm wondering 00:32.570 --> 00:33.860 what that looks like right now. 00:33.860 --> 00:37.010 Because if you think that these students are able to pay back 00:37.010 --> 00:39.230 their loans with interest, you wonder 00:39.230 --> 00:44.117 how is that adversely impacting the federal government? 00:44.117 --> 00:46.050 KEVIN MILLER: Well, it's adding up to quite a bit of money 00:46.050 --> 00:46.850 at this point. 00:46.850 --> 00:50.580 So before the pandemic pause on student loan payments, 00:50.580 --> 00:52.380 we had millions of students who were defaulting. 00:52.380 --> 00:54.210 Now, we expect that to drop a little because 00:54.210 --> 00:55.740 of the pause on repayments. 00:55.740 --> 00:58.200 But that adds up to billions of dollars that are not 00:58.200 --> 00:59.640 flowing back into the federal government 00:59.640 --> 01:01.090 where they're supposed to be. 01:01.090 --> 01:03.900 So as a result, there are, you know, 01:03.900 --> 01:05.190 at this point, probably something 01:05.190 --> 01:09.003 like tens of billions, maybe $50 billion a year costs 01:09.003 --> 01:10.470 that are accruing to the federal government. 01:10.470 --> 01:12.930 And of course, over time, that adds up to even more money. 01:16.437 --> 01:18.470 AARTHI SWAMINATHAN: Kevin, I'm curious because in the report, 01:18.470 --> 01:21.480 you said one in five borrowers were in default. 01:21.480 --> 01:23.210 And that's a pretty sizable number. 01:23.210 --> 01:26.720 And as we expect repayment to basically resume, 01:26.720 --> 01:28.370 we're going to see in your report, 01:28.370 --> 01:30.440 you basically said it was parents, 01:30.440 --> 01:32.120 it was student loan borrowers, it could even 01:32.120 --> 01:34.910 be grandparents who are all eligible to sort 01:34.910 --> 01:36.490 of restart this payment. 01:36.490 --> 01:39.230 So are you expecting a spike in default, 01:39.230 --> 01:42.880 can you tell at all from the research? 01:42.880 --> 01:44.380 KEVIN MILLER: It's hard to say at this point. 01:44.380 --> 01:47.190 Obviously, the pandemic has been really difficult 01:47.190 --> 01:48.720 on a lot of people's finances. 01:48.720 --> 01:51.300 We would expect probably that there are going to be people 01:51.300 --> 01:53.820 who are going to struggle to repay when they enter repayment 01:53.820 --> 01:55.620 in February when the federal government restarts 01:55.620 --> 01:56.710 that process. 01:56.710 --> 01:58.590 So what we want to see, actually, 01:58.590 --> 02:01.590 is the Department of Education do a more active job 02:01.590 --> 02:02.970 of getting people into what we call 02:02.970 --> 02:04.930 income-driven repayment plans. 02:04.930 --> 02:07.470 Those are plans where if you have a really low income, 02:07.470 --> 02:10.800 your repayment rate per month can be as low as zero dollars. 02:10.800 --> 02:13.650 So at that point, you won't default on the loan. 02:13.650 --> 02:15.870 Essentially, if you have a very low income, 02:15.870 --> 02:17.940 essentially it's a sort of permanent pause 02:17.940 --> 02:20.410 for people who really can't afford or repay their loans. 02:20.410 --> 02:23.260 So they can avoid the worst case scenario of default, 02:23.260 --> 02:24.390 which ruins their credit. 02:24.390 --> 02:27.120 And, of course, the federal government often 02:27.120 --> 02:30.340 never fully recovers the value of defaulted loans. 02:30.340 --> 02:32.340 AARTHI SWAMINATHAN: It's really interesting, because there's 02:32.340 --> 02:34.650 so many plans to reform the many different types 02:34.650 --> 02:36.600 of income-driven repayment plans that we have. 02:36.600 --> 02:40.080 But I'm curious, specifically on the topic of parent plus loans 02:40.080 --> 02:43.410 and graduate loans, very big sums 02:43.410 --> 02:46.000 of money that are being borrowed in these two categories. 02:46.000 --> 02:48.300 So do you think that the government 02:48.300 --> 02:50.250 is moving towards introducing a cap 02:50.250 --> 02:51.900 maybe on these type of loans? 02:51.900 --> 02:54.773 And what did the research sort of show you? 02:54.773 --> 02:56.540 KEVIN MILLER: I don't think there's any imminent plan 02:56.540 --> 02:59.150 to introduce a cap, but we would like to see some more research 02:59.150 --> 03:01.490 on that and some real consideration 03:01.490 --> 03:05.180 around whether these huge loans that graduate students 03:05.180 --> 03:06.500 and parents who are borrowing for 03:06.500 --> 03:08.480 their undergraduate children-- 03:08.480 --> 03:11.210 these loans can be hundreds of thousands of dollars. 03:11.210 --> 03:14.740 And there are minimal checks on that process. 03:14.740 --> 03:18.920 And so you have in some cases really low income parents who 03:18.920 --> 03:20.570 want their children to succeed in college, which 03:20.570 --> 03:23.270 is a great impulse, but they can take on tens of thousands 03:23.270 --> 03:27.380 or even more in debt and then end up unable to pay it. 03:27.380 --> 03:31.090 And because these are student loans, legally speaking, 03:31.090 --> 03:33.460 they're almost impossible, very difficult to discharge 03:33.460 --> 03:34.260 in bankruptcy. 03:34.260 --> 03:35.780 So people end up with permanent debt. 03:35.780 --> 03:40.027 And what we want is a system that, first, discourages that 03:40.027 --> 03:41.160 from happening in the first place, 03:41.160 --> 03:43.670 but then if people do end up with unpayable debt, 03:43.670 --> 03:45.830 gives them the flexibility and options 03:45.830 --> 03:49.470 they need so they don't end up defaulting on those loans. 03:49.470 --> 03:51.370 AARTHI SWAMINATHAN: One thing I'm curious about your take 03:51.370 --> 03:52.810 on is bankruptcy. 03:52.810 --> 03:54.430 There have been some conversations 03:54.430 --> 03:56.260 about maybe easing the standards, 03:56.260 --> 03:59.140 allowing some people to get rid of this debt that 03:59.140 --> 04:03.280 was previously thought of as non-dischargeable. 04:03.280 --> 04:05.630 So I'm curious, like, where do you stand on this? 04:05.630 --> 04:07.840 And do you think that the federal government could 04:07.840 --> 04:10.660 actually get rid of all this non-payable debt 04:10.660 --> 04:12.430 by simply loosening that one valve? 04:12.430 --> 04:18.343 Or is it too much of a moral hazard if they do that? 04:18.343 --> 04:19.610 KEVIN MILLER: That's a great question. 04:19.610 --> 04:20.630 I think it's complicated. 04:20.630 --> 04:22.300 I think at this point, one of the things 04:22.300 --> 04:26.140 we need to keep in mind is that unpayable student debt 04:26.140 --> 04:28.630 is essentially going to be on the federal government's 04:28.630 --> 04:29.990 balance sheet. 04:29.990 --> 04:34.000 So when an individual or family can't repay student loans, 04:34.000 --> 04:36.700 it's obviously really difficult and stressful for them. 04:36.700 --> 04:39.490 But someone, and in that case here, 04:39.490 --> 04:40.870 the federal government, the taxpayer, 04:40.870 --> 04:42.570 ends up bearing that cost. 04:42.570 --> 04:44.620 And so one of the things we need to think 04:44.620 --> 04:47.200 about really broadly as a society 04:47.200 --> 04:49.240 is how we finance college. 04:49.240 --> 04:51.850 Are we letting people access college 04:51.850 --> 04:53.380 in a way that is affordable? 04:53.380 --> 04:55.810 Can people get a bachelor's degree without going 04:55.810 --> 04:57.340 into tens of thousands of debt? 04:57.340 --> 05:00.200 And the reality right now is that for most people, 05:00.200 --> 05:01.240 the answer is, no. 05:01.240 --> 05:02.530 That's a very common-- 05:02.530 --> 05:05.050 in fact, almost the normal way to approach college 05:05.050 --> 05:06.980 is to take on a large amount of debt. 05:06.980 --> 05:09.520 And for people who struggle to repay afterwards 05:09.520 --> 05:12.490 for various reasons, maybe the program they entered 05:12.490 --> 05:16.480 was low quality, maybe they had a personal tragedy, 05:16.480 --> 05:19.460 maybe they became disabled and are unable to work-- 05:19.460 --> 05:21.790 there are a lot of circumstances under which people can end up 05:21.790 --> 05:25.930 with this debt, and we need to continue to have sort of what I 05:25.930 --> 05:28.180 think of as off-ramps-- ways for those people 05:28.180 --> 05:29.800 to move out of repayments so that they 05:29.800 --> 05:31.810 aren't permanently stuck in debt that they'll 05:31.810 --> 05:33.070 never be able to repay. 05:33.070 --> 05:35.580 Ultimately, that's going to be the responsibility 05:35.580 --> 05:37.480 of the federal government, because the federal government 05:37.480 --> 05:39.160 holds these debts. 05:39.160 --> 05:41.980 But we need to think about building a system that's 05:41.980 --> 05:44.200 fair to borrowers, but also is going 05:44.200 --> 05:48.190 to rein in some of these costs over the long-term. 05:48.190 --> 05:50.340 AARTHI SWAMINATHAN: And then for many low income students who 05:50.340 --> 05:53.790 depend on Pell grants, curious about where do you think 05:53.790 --> 05:55.170 that number should be, because there's so 05:55.170 --> 05:57.160 many discussions on expanding it, 05:57.160 --> 05:59.550 so many discussions of free community college. 05:59.550 --> 06:03.390 So where do you sort of stand, and where do you see how much 06:03.390 --> 06:08.077 could Pell Grant increase if you were to take a guess? 06:08.077 --> 06:09.210 KEVIN MILLER: Well, at this point, 06:09.210 --> 06:12.800 as you may know, in the last draft of the bill 06:12.800 --> 06:14.640 that the Democrats are working on in reconciliation, 06:14.640 --> 06:17.480 there was a relatively small increase about-- $550 06:17.480 --> 06:19.460 in the maximum Pell had been proposed. 06:19.460 --> 06:20.610 That's not moving yet. 06:20.610 --> 06:22.700 We don't know where that number is going to end up. 06:22.700 --> 06:24.350 In general, the Bipartisan Policy Center 06:24.350 --> 06:27.110 would like to see larger Pell grants go to low income 06:27.110 --> 06:29.930 students, because we want those students to be paying 06:29.930 --> 06:32.030 for their education with grants that they 06:32.030 --> 06:35.570 don't need to repay rather than taking on large loans. 06:35.570 --> 06:38.420 I think it's also important to think about the fact 06:38.420 --> 06:42.140 that there are currently people who 06:42.140 --> 06:45.390 are taking on loans that don't necessarily need that help. 06:45.390 --> 06:48.380 And so we want to make sure we sort of keep resources going 06:48.380 --> 06:49.580 to the lowest income people. 06:49.580 --> 06:51.980 We don't necessarily want large amounts of forgiveness 06:51.980 --> 06:55.520 for high income borrowers, but we do want larger grants 06:55.520 --> 06:56.720 for low income people and we also 06:56.720 --> 07:00.320 want repayment programs that serve those interests 07:00.320 --> 07:01.760 when they struggle. 07:01.760 --> 07:03.860 ALEXIS CHRISTOFOROUS: All right, we're going to leave it there. 07:03.860 --> 07:05.900 Kevin Miller of the Bipartisan Policy Center, 07:05.900 --> 07:09.160 thanks so much for being with us.