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Speaker 1: On this episode of Newts World. The student debt crisis

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Speaker 1: has been building for decades. I we now of an

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Speaker 1: entire generation of Americans owing a trillion, five hundred billion

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Speaker 1: dollars in student loan debt, a staggering amount. It's nearly

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Speaker 1: equal to the gross domestic product of Canada. But what

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Speaker 1: caused the student loan debt crisis? The spiraling cost of

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Speaker 1: college tuition, easy access to student loans, and what role

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Speaker 1: did the federal government play in this. There's no doubt

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Speaker 1: that the student debt crisis profoundly affects millennials and Gen

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Speaker 1: z and the debt they carry has had an impact

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Speaker 1: on their ability to buy homes. There have been catastrophic

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Speaker 1: consequences that student debt has head on families and the

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Speaker 1: nation's future. Here to talk more about the student debt crisis,

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Speaker 1: I'm really pleased to welcome my guest, Josh Mitchell. He

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Speaker 1: is a reporter in the Washington bureau of the Wall

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Speaker 1: Street Journal writing about the economy and higher education, and

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Speaker 1: he is the author of a new book, The Debt Trap.

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Speaker 1: How student loans became a national catastrophe. Josh, thank you

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Speaker 1: for joining me. You've done a great job of both

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Speaker 1: being general but also being very human and very specific,

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Speaker 1: and you open every chapter with a human story. Are

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Speaker 1: there one or two that you found particularly effective. The

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Speaker 1: main character of my book is a woman who grew

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Speaker 1: up in eastern Pennsylvania, and she was a secretary in

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Speaker 1: the nineties, and she felt that she really had to

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Speaker 1: go to college. She wanted to be a psychologist, and

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Speaker 1: so she went to her local college and then her

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Speaker 1: local graduate school. They were both private schools, but they weren't,

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Speaker 1: you know, fancy schools, and yet she had to take

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Speaker 1: on one hundred twenty five thousand dollars debt total by

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Speaker 1: the time she graduated to become a psychologist, and she

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Speaker 1: was a single mom with two kids, and she could

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Speaker 1: never get ahead of her bills. She would very responsibly

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Speaker 1: pay her student loan bill every month, and yet it

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Speaker 1: was such a big bill, you know it, seven hundred

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Speaker 1: dollars a month she was paying that it was taking

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Speaker 1: her thirty years to pay it off, and the balance

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Speaker 1: was barely going down, and she could never get a

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Speaker 1: hold of it, and a lot of other things went

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Speaker 1: wrong in her life, and she ended up declaring bankruptcy.

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Speaker 1: The most touching part of reporting this book was. I

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Speaker 1: sat down with her in her office and I was

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Speaker 1: interviewing her. She ended up paying more than what she

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Speaker 1: had borrowed, but she still had all this interest that

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Speaker 1: had accrued. So she's not one of those that never

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Speaker 1: sent a check. Quite the opposite. She paid a lot

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Speaker 1: of money back toward her college education. And she said

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Speaker 1: that her bankruptcy lawyer told her, you know, you're not

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Speaker 1: going to be able to get out of this debt

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Speaker 1: because Congress has made it so hard to declare bankruptcy,

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Speaker 1: and that it's almost impossible to get out of this debt.

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Speaker 1: We'll try it, but that it's very hard. And at

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Speaker 1: one point her lawyer said, if you want to get

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Speaker 1: out of this debt, you're going to have to convince

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Speaker 1: the judge that you're beyond all hope. She just cried.

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Speaker 1: And when I was interviewing her and said, you know,

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Speaker 1: I have spent my whole career counseling people to not

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Speaker 1: be suicidal. That's the main thing I do as a

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Speaker 1: psychologist is when someone is in desperate straits, you know,

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Speaker 1: I try to get them to be in a better headspace.

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Speaker 1: And here I have the government telling me the only

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Speaker 1: way I can get out is essentially if I'm suicidal,

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Speaker 1: and she said, they treated me like I'm a criminal.

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Speaker 1: And even though she had tried so hard year after

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Speaker 1: year to pay back her loans, she had a lot

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Speaker 1: of problems with the service or of her loans. She

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Speaker 1: was not getting adequate information about repayment plans, and that

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Speaker 1: was the most touching part. I raised her story without Lord,

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Speaker 1: the CEO of Sally May, which was her lender, and

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Speaker 1: he said, wow, it sounds like she did everything right,

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Speaker 1: and yet she still ended up in a really bad place.

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Speaker 1: And that was why I wrote this book, because the

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Speaker 1: discussion in Washington focuses on stats, it focuses on policy,

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Speaker 1: It doesn't focus enough on sort of the human experience here.

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Speaker 1: And when you talk to people like that, you realize

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Speaker 1: the system can be quite dysfunctional and really work against people.

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Speaker 1: I decided that there was an appetite for people to

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Speaker 1: read more about how we got into this mess covery

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Speaker 1: student debt. You're sort of you have a toe in

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Speaker 1: two worlds. You know, one world is academics and economists

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Speaker 1: and some policymakers and college presidents who say, you know,

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Speaker 1: this is not a problem. In fact, college is the

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Speaker 1: best thing you can do for yourself and student debt.

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Speaker 1: The crisis is overblown. But then you get emails from

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Speaker 1: people who are directly impacted, and they say, oh my god,

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Speaker 1: you have no idea. How much of a messist has

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Speaker 1: turned out. I never knew what I was getting myself into,

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Speaker 1: and I wanted to sort of reconcile the two worlds,

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Speaker 1: and I wanted to explain how we got here. According

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Speaker 1: to the US Census Bureau in nineteen forty, only four

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Speaker 1: point six percent of Americans age twenty five and over

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Speaker 1: had a college degree of some type. As of twenty twenty,

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Speaker 1: nearly ninety four million, or forty two percent of Americans

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Speaker 1: age twenty five and over have a college degree. That's

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Speaker 1: a tenfold increase in the share of the population with

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Speaker 1: a degree. Has that been all positive in your judgment?

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Speaker 1: For the most part, I think it's been a good thing.

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Speaker 1: I want to be clear about what I argued in

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Speaker 1: my book. I don't think that the student run program

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Speaker 1: is all bad. I think that it has led to

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Speaker 1: some good outcomes. It has expanded access, It has achieved

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Speaker 1: one of its main goals, which is that it has

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Speaker 1: said that regardless of how wealthy you are, how poor

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Speaker 1: you are. You can go to the college of your

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Speaker 1: choice as long as you can get in, So that's

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Speaker 1: the good part. But this has come at a tremendous cost.

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Speaker 1: I argue, it's like healthcare. We have the best hospitals

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Speaker 1: in the world, and our healthcare system has a lot

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Speaker 1: of great things about it, but it's an incredibly inefficient

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Speaker 1: and costlin I think higher education has become the same

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Speaker 1: way through this really common, volluted, opaque pricing system through

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Speaker 1: student loans. It's becoming way more expensive than it would

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Speaker 1: if there wasn't this open access to credit. Today, apparently

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Speaker 1: forty three million people owe a trillion, six hundred billion

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Speaker 1: dollars in student debt, and that amount has tripled since

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Speaker 1: two thousand and six. I mean, it's like we're on

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Speaker 1: a giant treadmill. As a conservative, I've always been very

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Speaker 1: dubious about a debt based system, and I've always assumed

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Speaker 1: that if the government got involved, the prices and costs

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Speaker 1: would go up. But what would you say has been

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Speaker 1: the effect of the student loan program on the cost

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Speaker 1: of going to school? Well, one of the main arguments

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Speaker 1: of my book is that it has contributed to tuition inflation.

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Speaker 1: I bring a lot of anecdotal evidence, a lot of

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Speaker 1: empirical evidence to this question. It's one of the most

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Speaker 1: hotly debated questions among economists and academics. The reason why

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Speaker 1: I argue this is because the very intent of the program,

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Speaker 1: if you back forty fifty years ago, was to enable

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Speaker 1: colleges to raise their tuition. So back then, schools were saying,

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Speaker 1: you know, look, we need to have a greater ability

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Speaker 1: to raise money through tuition, and the way to do

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Speaker 1: that is to give students access to more credit so

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Speaker 1: that they can afford the tuition increases and this will

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Speaker 1: all work out for everyone. So that was one of

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Speaker 1: the original arguments of the program. So when people tell

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Speaker 1: me these days, oh, there's not really a link, I say, well,

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Speaker 1: you know, that's interesting because back then a lot of

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Speaker 1: the schools were saying they needed this loan program money

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Speaker 1: to enable themselves to raise tuition. So I think that

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Speaker 1: there's a direct impact. Let's just put it this way.

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Speaker 1: The government essentially gives college students and graduate students a

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Speaker 1: blank check, literally a blank check to go to the

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Speaker 1: school or their choice. Now, undergraduates face a cap on

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Speaker 1: how much they can borrow, but their parents can pick

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Speaker 1: up any slack. If the undergraduate can't take out enough

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Speaker 1: to cover tuition, the parent can come in and borrow

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Speaker 1: whatever the balance is, so grad students can borrow whatever.

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Speaker 1: It has handed tremendous pricing power to these schools to

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Speaker 1: raise tuition. And so if you want to know why

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Speaker 1: tuition has increased to triple the rate of inflation over

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Speaker 1: the past thirty or four years, I really don't think

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Speaker 1: that's it's a surprise that that's happened. My impression is

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Speaker 1: that actually education costs have gone up faster than health costs,

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Speaker 1: but they're so buffered by the government loan program that

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Speaker 1: people haven't realized how much debt they're building up. And

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Speaker 1: you know, just to further answer your question, there's a

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Speaker 1: really dramatic chart that I wish I would have put

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Speaker 1: in my book. It's from the book of these two

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Speaker 1: Harvard economists, Larry Cats and Claudie Golden, where it shows

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Speaker 1: what tuition did since the forties. And you know, it

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Speaker 1: was roughly flat in the sixties and seventies, and then

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Speaker 1: starting in nineteen eighty, it just absolutely skyrockets in the

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Speaker 1: early nineteen eighties. Now, I think that there are several

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Speaker 1: reasons for that, including the recession that you have opened

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Speaker 1: up the college wage premium. But it was in the

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Speaker 1: early nineteen eighties and when this program really got off

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Speaker 1: the ground and colleges got access to this big pot

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Speaker 1: of taxpayer money. And so I think that there's been

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Speaker 1: a very close correlation between the expansion of credit for

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Speaker 1: students and tuition going on. So in a sense, and

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Speaker 1: if students had an interest, the parents had an interest,

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Speaker 1: the faculty had interest, and college administrators had an interest.

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Speaker 1: So you describe it in a sense as an ideal

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Speaker 1: example of chrony capitalism. I think people need to understand

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Speaker 1: that this there's also typical of defense and of a

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Speaker 1: lot of healthcare and everything else, the kind of relationships

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Speaker 1: where supposedly private institutions actually have cut it deal with

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Speaker 1: the government to get into your pocket from another direction. Right,

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Speaker 1: And when I used the phrase Karnie capitalism, you know,

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Speaker 1: Sally May was a very big part of my book.

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Speaker 1: I didn't realize how important they were to this story

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Speaker 1: until I started researching it, and Sally May was I

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Speaker 1: would argue the financial backbone of the higher education system

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Speaker 1: for years and years and years. Now they weren't the

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Speaker 1: only lender, and they weren't the only so called secondary market.

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Speaker 1: They were basically a machine that Congress created in nineteen

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Speaker 1: seventy two to ensure that banks had the money to

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Speaker 1: lend to students. So Congress is as responsible as any

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Speaker 1: entity here in creating this mess. They started with good intentions.

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Speaker 1: They wanted to make sure that you know, every student

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Speaker 1: who wanted to go to school but might not have

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Speaker 1: been able to afford it had access to loans so

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Speaker 1: that finances would not block them from going to college.

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Speaker 1: But they relied on banks, and this is where I

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Speaker 1: argue that higher education really started to become a commodity

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Speaker 1: when they introduced banks in the process. Now, I want

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Speaker 1: to be clear about the argument that I'm making here.

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Speaker 1: I'm not bashing capitalism. I'm not bashing banks. I'm actually

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Speaker 1: doing the opposite. What I'm arguing is, in the name

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Speaker 1: of fiscal restraint, Congress created a very good deal for

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Speaker 1: Sally May and banks to make loans to students, and

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Speaker 1: they did that by basically ensuring they would make a

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Speaker 1: profit every time they lent to a college student, regardless

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Speaker 1: of whether the student repaid. And so this was even

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Speaker 1: worse than the housing bubble, when Congress and homebuilders and

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Speaker 1: banks were really sort of in this ancestuous world of

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Speaker 1: taxpayers covering a lot of the subsidies for the mortgage industry. Well,

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Speaker 1: this was actually even worse because there was no underwriting

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Speaker 1: that the banks had to do for these loans, and

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Speaker 1: so Congress, in the name of fiscal restraint, was trying

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Speaker 1: to twist the arms of banks to make these loans,

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Speaker 1: and they did that by guaranteeing I'm a profit. And

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Speaker 1: that's what I mean by quoity capitalism. There was no

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Speaker 1: risk involved in a healthy capitalistic market. If you're a

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Speaker 1: bank and you lend to a student, you're supposed to

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Speaker 1: have skin in the game, where if the student goes

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Speaker 1: to a bad school, if the student doesn't make enough

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Speaker 1: money afterward, then the bank should suffer some losses. If

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Speaker 1: that's true capitalism. This was not true capitalism. Sally May

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Speaker 1: and banks were making money hand over fist, even though

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Speaker 1: for the past thirty or forty years students have been

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Speaker 1: defaulting in droves. That's default crisis that we have right

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Speaker 1: now is nothing new. It's been going on for years

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Speaker 1: and years and years, and yet Wall Street made a

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Speaker 1: ton of money off this program. Well, in a sense,

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Speaker 1: it meant that you could dramatically expand the pool of

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Speaker 1: potential students because you didn't care whether or not they

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Speaker 1: were fiscally responsible, you didn't care whether or not they

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Speaker 1: had any likelihood of repayment or also what they studied.

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Speaker 1: You know, you're not looking at what they study, You're

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Speaker 1: not looking at the quality of the school. I'm just

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Speaker 1: talking about Wall Street in it right now, Let's talk

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Speaker 1: about the schools. So I mean, that's a whole other issue.

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Speaker 1: The schools weren't on the hook for any losses either.

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Speaker 1: In that context, hasn't it also lengthened the amount of

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Speaker 1: time people are spending in school. Let's go back to

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Speaker 1: the fifties. As you mentioned, the rate of people going

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Speaker 1: into college was much lower than it is now. And

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Speaker 1: so then you have the fifties and sixties where the

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Speaker 1: focus is on getting people into college and the economy

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Speaker 1: was evolving really quickly though, and I think this is

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Speaker 1: a credit to American society. Americans are very ambitious, and

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Speaker 1: as soon as more and more people get college degrees,

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Speaker 1: you have workers that want an additional leg up. So

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Speaker 1: if college is now the new high school, then grad

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Speaker 1: school became the new college. And I think that that's

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Speaker 1: what's happened in the past twenty years, is you know,

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Speaker 1: you have a lot more people having gone to college,

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Speaker 1: and then you have a lot more ambitious workers saying,

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Speaker 1: wait a minute, I need an additional leg up, Let

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Speaker 1: me go to grad school. And now my newspaper currently

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Speaker 1: is doing a series this year looking at these elite

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Speaker 1: graduate schools that are creating these programs that don't necessarily

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Speaker 1: pay off. I mean, we had a story about students

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Speaker 1: going to this Ivy League school to study film a

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Speaker 1: master's degree in film. They come out making thirty thousand dollars,

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Speaker 1: but they owe over one hundred and fifty thousand dollars

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Speaker 1: in debt. So I think what you're describing is what

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Speaker 1: economists called degree inflation, and I certainly think that has happened.

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Speaker 1: I don't think that that's the entire picture here, but

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Speaker 1: I do think that that is one of the effects. Well.

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Speaker 1: I think because the students found the free money, or

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Speaker 1: at least in terms of their immediate circumstance, they didn't

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Speaker 1: feel the pressure to get through quickly. Yeah, I think

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Speaker 1: that there's some truth to that. I will tell you, though,

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Speaker 1: I frame it a little bit differently in my mind,

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Speaker 1: having spent a lot of time talking with families and

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Speaker 1: asking them what the motivation was for them to get

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Speaker 1: into a lot of debt. And I grew up in

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Speaker 1: the nineties and I went to college in the late

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Speaker 1: nineties early two thousands, and I just remember being told

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Speaker 1: by every corner of society, whether it was policymakers, whether

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Speaker 1: it was my family, whether it was college officials themselves.

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Speaker 1: If you read what they would say in the news,

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Speaker 1: is that college is not a choice. In fact, LBJ

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Speaker 1: if you get back to the sixties and one of

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Speaker 1: his addresses to Congress, he said college is no longer

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Speaker 1: a choice. It's now as mandatory. Basically, he was the

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Speaker 1: first president as far as I know that said you

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Speaker 1: have to go to college in order to succeed. And

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Speaker 1: I think families have been told that they have to

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Speaker 1: do this if they want to succeed, and that's why

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Speaker 1: they take on so much debt. And so when that's

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Speaker 1: drilled into your head from a very young age, you

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Speaker 1: think of this automatically as an investment. And I think

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Speaker 1: that's what families did from that perspective. Sally May is

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Speaker 1: sort of a fixed game and that they have no

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Speaker 1: real risk of losing money. They on the surface look

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Speaker 1: like they're private and I think that they got something

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Speaker 1: like eight hundred and eighty one million dollars in twenty

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Speaker 1: twenty in net income. I mean, what happens to that money, Well,

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Speaker 1: it goes to their shareholders. One of the people I

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Speaker 1: interviewed was our Lord. He was the CEO of Sally

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Speaker 1: May in the late nineties through much of the two thousands.

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Speaker 1: He made hundreds of millions of dollars. It was the

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Speaker 1: early two thousands off of the student loan market. And again,

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Speaker 1: this was sort of a Frankenstein that Congress had set

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Speaker 1: up to basically obscure the cost of the program. You know,

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Speaker 1: Congress wanted to provide universal access to college on the cheap,

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Speaker 1: and they wanted to keep this off the books. When

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Speaker 1: I sat in Crony Capitalism, I was referring to Sally May,

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Speaker 1: and I want to be careful because Sally May had

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Speaker 1: a mandate from Congress to make a profit. It was

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Speaker 1: created as a government sponsor an enterprise, and it was

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Speaker 1: a for profit corporation. So in some ways they were

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Speaker 1: just simply fulfilling their mandate. But I'm curious when you

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Speaker 1: were the speaker, what did you think of them, Because

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Speaker 1: there was a very big fight, obviously, as you know,

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Speaker 1: between Clinton who wanted to basically kill the guaranteed loan

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Speaker 1: program in Sally May or sever Sally May from the

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Speaker 1: whole process, and then there was Republicans at the time

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Speaker 1: who were saying, no, we need to rely on the

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Speaker 1: private set, that the Treasure Department can't handle such a

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Speaker 1: big loan program. We have to rely on the private

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Speaker 1: sector to do this. What was your thinking at the time.

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Speaker 1: I don't think we ever fully understood how much the

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Speaker 1: game was rigged, because our thought was that if you

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Speaker 1: had banks directly involved, and if banks had skin in

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Speaker 1: the game, that would be run much more tightly, and

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Speaker 1: that you would have much greater anti fraud provisions, and

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Speaker 1: that ultimately the taxpayer and the student would both pay less. Now,

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Speaker 1: as you point out in the book, which is part

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Speaker 1: of why I found this book so fascinating, is that

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Speaker 1: this is a gigantic problem which has grown up all

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Speaker 1: around us, and which affects virtually all of us, either

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Speaker 1: directly or through our children or grandchildren, and almost none

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Speaker 1: of us understand it. Even though I was speaker of

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Speaker 1: the house. I would say I didn't understand the complexities

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Speaker 1: and the kind of insider gimmicks that had been built

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Speaker 1: into us. In some ways, it was modeled on how

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Speaker 1: FDR had tried to build up housing in the thirties,

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Speaker 1: and as I remember it, because it led to a

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Speaker 1: crisis in the Reagan years, the savings and loan system

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Speaker 1: actually did involve risk and actually was run as a business.

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Speaker 1: They had certain tax advantages, but they did not have

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Speaker 1: any kind of government guarantee, which is why when they

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Speaker 1: did collapse, if became a real mess. For about I

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Speaker 1: guess thirty or forty years, they've been very successful in

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Speaker 1: dramatically expanding housing, and I suspect that the guys in

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Speaker 1: seventy two were trying to take that model and bring

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Speaker 1: it into paying for college, but without understanding that if

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Speaker 1: you took out all of the risk factors, what you're

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Speaker 1: really creating is just a mechanism for transferring cash, right,

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Speaker 1: And that's where I think housing is different from education.

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Speaker 1: You know, banks were basically saying, if you want us

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Speaker 1: to make these loans, you really have to take away

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Speaker 1: the risk, because students are risking, they don't have assets,

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Speaker 1: they're eighteen years old. They two years old. Now you know,

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Speaker 1: the academics are gonna yell at me because they're gonna say, oh, well,

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Speaker 1: there's a lot of older students these days, and you know,

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Speaker 1: there's a lot of people in their twenties and thirties.

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Speaker 1: But you know, education is a risky endeavor in the

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Speaker 1: sense that you don't really know what you're going to

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Speaker 1: earn afterwards. There's a lot of disparity of what a

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Speaker 1: college student earns based on what they study, and so

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Speaker 1: banks in the front end we're saying, you know, why

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Speaker 1: would we put our capital into college students when we

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Speaker 1: could put it in the housing market. And again Congress

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Speaker 1: kept on saying, okay, fine, tell us what you need

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Speaker 1: to make these loans and we'll do it. And they

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Speaker 1: basically said we need money and just to give people

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Speaker 1: a sense of how much money they were making. And

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Speaker 1: this is what o'l laura told me. He was this

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Speaker 1: swashbuckling CEO of the two thousands who made all this

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Speaker 1: money from Sally Nay when he joined the company as

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Speaker 1: its chief controller in the early eighties. He took the

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Speaker 1: documents him and he said, this is insane good. The

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Speaker 1: Congress is guaranteeing us at three point five percent spread

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Speaker 1: between how much we paid a borrow money from the

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Speaker 1: treasury and what college students actually pay us an interest.

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Speaker 1: This was like double with ivan lenders could earned on

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Speaker 1: other type of products. At least according to him, again,

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Speaker 1: it ended up being a huge profit center. It's interesting

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Speaker 1: too in terms of the national culture. Mike Rowe, who

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Speaker 1: has done the podcast with us, who you may know

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Speaker 1: from having done a whole series of things on work,

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Speaker 1: Row points out, and it's very adamant about this, that

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Speaker 1: if you go out and learn how to be a welder,

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Speaker 1: you can make one hundred and sixty thousand dollars a

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Speaker 1: year basically for the day you walk out of welding school,

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Speaker 1: but that you won't feel socially like you're in the

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Speaker 1: same class as somebody who graduated with a pottery degree

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Speaker 1: and is currently teaching in grammar school. And so he said,

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Speaker 1: the bias against just really profitable work is kind of amazing,

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Speaker 1: and he's sort of on a crusade to get people

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Speaker 1: to realize it, and that we may want to do

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Speaker 1: it for personal or psychological reasons, but as a matter

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Speaker 1: of economics, it's conceivable the college is not a very

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Speaker 1: good investment for a very large number of people. I'm

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Speaker 1: glad you bring that up, because so much of this

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Speaker 1: has to do with the trajectory of our economy over

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Speaker 1: the past thirty or forty years. And as I was

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Speaker 1: saying earlier, if you look at what happened in the eighties,

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Speaker 1: when these big companies like Microsoft and Apple started to

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Speaker 1: come online and computer started to become integrated with our economy,

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Speaker 1: and all of this technology was coming on board, and

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Speaker 1: then you had the global economy starting to open up,

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Speaker 1: and these other countries that were increasingly competing against the

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Speaker 1: United States. The college wage premium really started to widen,

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Speaker 1: in other words, demand for college workers in the early

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Speaker 1: eighties by rocket and big part because of the new

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Speaker 1: technology that was coming on board. Companies wanted more skilled

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Speaker 1: workers who could work with computers and software and really

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Speaker 1: help integrate these new technologies. Meanwhile, with the decline of

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Speaker 1: manufacturing and the increasingly global nature of the economy, blue

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Speaker 1: collar workers their wages started to go down after inflation.

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Speaker 1: So college educated workers wagers go up, blue collars workers

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Speaker 1: wages go down. And I showed this through characters in

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Speaker 1: my book. I profile a secretary. She was a perfect

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Speaker 1: example of this. She just felt like she was in

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Speaker 1: a dead end job and she said, if I'm going

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Speaker 1: to make it, I have to go to college. So

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Speaker 1: she took out one hundred thousand dollars plus to do so.

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Speaker 1: And so to your point, you know, a lot of

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Speaker 1: that social stigma of having a blue collar job, I

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Speaker 1: think is associated with the fact that the wages of

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Speaker 1: blue collar workers were going down. Now, I think what

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Speaker 1: happened is is that people paid too much to the average.

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Speaker 1: And it is true that on average, college graduates due

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Speaker 1: to pretty well in our economy. It's true that if

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Speaker 1: you have a graduate degree, on average, you're going to

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Speaker 1: be making much more than someone he has only a

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Speaker 1: bachelor's degree. However, there's a lot of differentiation and variation

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Speaker 1: underneath that average. The top twenty five percent of workers

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Speaker 1: with only a high school degree out earned the bottom

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Speaker 1: twenty five percent of workers who went to college. So

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Speaker 1: there are a lot of people where college does not

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Speaker 1: pay off. They're obscured by the average, and there are

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Speaker 1: a lot of people who are getting access to good

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Speaker 1: paying jobs that don't have a college degree. So I

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Speaker 1: agree with you that I think there was the stigma

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Speaker 1: attached to that. It's interesting many doctors are the most notorious.

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00:23:43,160 --> 00:23:46,000
Speaker 1: If you have to borrow money to get through college,

434
00:23:46,000 --> 00:23:49,000
Speaker 1: but then borrow money to get through med school, the

435
00:23:49,040 --> 00:23:52,639
Speaker 1: amount you may owe is astronomical. My brother spent about

436
00:23:52,680 --> 00:23:57,080
Speaker 1: ten years as the chief investigator in Pennsylvania. Pennsylvania had

437
00:23:57,119 --> 00:24:01,880
Speaker 1: its own student loan program for medical doctors and trying

438
00:24:01,880 --> 00:24:04,840
Speaker 1: to encourage them to come and practice, particularly in small

439
00:24:04,840 --> 00:24:08,040
Speaker 1: towns and rural areas well. His job was to track

440
00:24:08,119 --> 00:24:11,000
Speaker 1: down the doctors who had skipped. You come out of

441
00:24:11,119 --> 00:24:14,119
Speaker 1: medical school, you owe three hundred thousand dollars. There's a

442
00:24:14,119 --> 00:24:16,880
Speaker 1: certain invested interest in just figuring out can I get

443
00:24:16,920 --> 00:24:18,920
Speaker 1: out of here and not pay any of it. So

444
00:24:18,960 --> 00:24:21,520
Speaker 1: he would track down these guys, and the stories he

445
00:24:21,560 --> 00:24:25,240
Speaker 1: would tell about people were really well educated and actually

446
00:24:25,280 --> 00:24:29,280
Speaker 1: had a pretty good lifetime potential income, but just got

447
00:24:29,320 --> 00:24:32,360
Speaker 1: impatient and decided they would just rip the system off.

448
00:24:32,520 --> 00:24:35,040
Speaker 1: Now I'm curious, because you have immersed yourself and you've

449
00:24:35,040 --> 00:24:38,880
Speaker 1: done a really important service for the country in taking

450
00:24:38,880 --> 00:24:44,240
Speaker 1: the time to write the debt trap. What's your solution? Well,

451
00:24:44,280 --> 00:24:46,240
Speaker 1: I think history can be a guide here. You know,

452
00:24:46,320 --> 00:24:49,119
Speaker 1: before the government got into the business of student lending,

453
00:24:49,280 --> 00:24:53,440
Speaker 1: which started with Sputnik. Congress back then was really concerned

454
00:24:53,480 --> 00:24:56,359
Speaker 1: about the country falling behind the City Union, so they

455
00:24:56,359 --> 00:24:59,200
Speaker 1: wanted to get more scientists and engineers into college. That

456
00:24:59,240 --> 00:25:04,600
Speaker 1: was really dampathy. But before that, schools actually lend money

457
00:25:04,640 --> 00:25:07,840
Speaker 1: directly to students. Not every school, but there were colleges

458
00:25:07,920 --> 00:25:10,680
Speaker 1: that would use their own money to lend to students,

459
00:25:11,000 --> 00:25:13,280
Speaker 1: and the default rates were very low at some of

460
00:25:13,320 --> 00:25:15,840
Speaker 1: these schools, and that was actually one of the reasons

461
00:25:15,840 --> 00:25:18,679
Speaker 1: why Congress sort of gained the confidence to start a program,

462
00:25:18,760 --> 00:25:22,600
Speaker 1: was because they had these officials suessifying saying, you know, hey,

463
00:25:22,640 --> 00:25:25,400
Speaker 1: we lend our students, and students are good risk because

464
00:25:25,440 --> 00:25:28,520
Speaker 1: they pay back at very high rates. Now, my strong

465
00:25:28,600 --> 00:25:31,080
Speaker 1: hunch is the reason why they paid back at high

466
00:25:31,119 --> 00:25:34,160
Speaker 1: rates back then before the government got involved, was because

467
00:25:34,200 --> 00:25:37,760
Speaker 1: schools wouldn't just give loans to anyone. They really paid

468
00:25:37,800 --> 00:25:41,000
Speaker 1: attention to what the likelihood was that students would repay

469
00:25:41,119 --> 00:25:43,399
Speaker 1: for a range of reasons, you know, whether it's what

470
00:25:43,480 --> 00:25:46,040
Speaker 1: they're studying, whether it's how much they're going to borrow,

471
00:25:46,600 --> 00:25:49,600
Speaker 1: how much they're going to earn, what their academic ability is.

472
00:25:50,280 --> 00:25:53,040
Speaker 1: And so schools, when they had skin in the game

473
00:25:53,640 --> 00:25:55,920
Speaker 1: and had to worry about whether they would lose money.

474
00:25:56,160 --> 00:26:01,200
Speaker 1: Were very reluctant, it seems, to give loans that were

475
00:26:01,240 --> 00:26:04,479
Speaker 1: not likely to be repaid. There's this broad concept that

476
00:26:04,560 --> 00:26:07,439
Speaker 1: if schools have skin in the game, if there's the

477
00:26:07,520 --> 00:26:11,080
Speaker 1: threat of them losing money by making bad loans, they'll

478
00:26:11,119 --> 00:26:13,600
Speaker 1: be less likely to make those bad loans. And so

479
00:26:13,640 --> 00:26:16,120
Speaker 1: I think that that's a broad concept that really needs

480
00:26:16,119 --> 00:26:18,720
Speaker 1: to be part of the broader discussion. I think that's

481
00:26:18,720 --> 00:26:21,520
Speaker 1: an important issue. I think Mitch Daniel, who is the

482
00:26:22,320 --> 00:26:26,320
Speaker 1: former governor, former director of the budget in Washington and

483
00:26:26,400 --> 00:26:30,359
Speaker 1: now the president of Purdue, has been developing a relationship

484
00:26:30,400 --> 00:26:34,240
Speaker 1: where the student and Purdue are in partnership. There's a

485
00:26:34,320 --> 00:26:38,119
Speaker 1: variable payback based on what you go do. So if

486
00:26:38,119 --> 00:26:40,320
Speaker 1: you want to go be a kindergarten teacher, you're going

487
00:26:40,359 --> 00:26:42,160
Speaker 1: to have a lower income, you're gonna have a lower

488
00:26:42,240 --> 00:26:44,919
Speaker 1: rate of paying back. It's been a very interesting project.

489
00:26:44,960 --> 00:26:49,399
Speaker 1: He's also, I think, managed to manage Purdue so intensely

490
00:26:49,880 --> 00:26:52,000
Speaker 1: that I don't think they've had a tuition increase in

491
00:26:52,040 --> 00:26:56,320
Speaker 1: seven years. But he's obviously a very rare president of

492
00:26:56,440 --> 00:27:00,680
Speaker 1: modern higher education. Now you've said that you don't support

493
00:27:01,359 --> 00:27:03,720
Speaker 1: four years of college, but you do support one or

494
00:27:03,760 --> 00:27:07,560
Speaker 1: two years of free college. What's your reasoning. I guess

495
00:27:07,560 --> 00:27:10,120
Speaker 1: I would frame it a little differently, but I think yes.

496
00:27:10,359 --> 00:27:12,440
Speaker 1: In the conclusion of my book, you know, I say, look,

497
00:27:12,480 --> 00:27:14,960
Speaker 1: one of the things Congress would consider is making community

498
00:27:15,000 --> 00:27:17,959
Speaker 1: college truly free. I don't think people realize that. You know,

499
00:27:18,000 --> 00:27:21,640
Speaker 1: the cost of attendance on average per year just going

500
00:27:21,680 --> 00:27:23,560
Speaker 1: to a two year of public college, even when you

501
00:27:23,600 --> 00:27:27,200
Speaker 1: factor in grants and scholarships, is twelve or thirteen thousand

502
00:27:27,280 --> 00:27:30,159
Speaker 1: a year. The other point I think is important to

503
00:27:30,200 --> 00:27:34,080
Speaker 1: understand is some of the highest default rates or right

504
00:27:34,359 --> 00:27:36,359
Speaker 1: to your public colleges people who went to a to

505
00:27:36,440 --> 00:27:41,640
Speaker 1: year public college. When I started covering student debt, this

506
00:27:41,760 --> 00:27:45,119
Speaker 1: was right up to the financial crisis, and there was

507
00:27:45,119 --> 00:27:49,960
Speaker 1: this big discussion in the news, organizations in Congress about

508
00:27:50,440 --> 00:27:55,520
Speaker 1: why would Congress allow these mortgage lenders to make loans

509
00:27:55,600 --> 00:27:59,440
Speaker 1: to homeowners who were destined to fail? You know, this

510
00:27:59,600 --> 00:28:02,240
Speaker 1: is where or the phrase predatory lending became a big

511
00:28:02,280 --> 00:28:06,600
Speaker 1: part of the lesicon. Predatory lending is awful. It's awful

512
00:28:06,720 --> 00:28:09,840
Speaker 1: that for years mortgage lenders were giving loans to people

513
00:28:09,920 --> 00:28:12,439
Speaker 1: that they had no ability to repay, and yet this

514
00:28:12,520 --> 00:28:15,720
Speaker 1: happens every single day when it comes to the student

515
00:28:15,760 --> 00:28:19,639
Speaker 1: loan program, and one of the areas, it's not just

516
00:28:19,680 --> 00:28:23,480
Speaker 1: for profit colleges, it's people going to to your public colleges.

517
00:28:23,960 --> 00:28:28,040
Speaker 1: And so I found it really bizarre to observe this

518
00:28:28,119 --> 00:28:32,239
Speaker 1: discussion on the housing side about predatory lending being this

519
00:28:32,359 --> 00:28:35,000
Speaker 1: unethical thing. But then on the higher education side, I

520
00:28:35,000 --> 00:28:37,800
Speaker 1: would look at what our education policy is, and you

521
00:28:37,880 --> 00:28:42,120
Speaker 1: have people who literally need to take high school level courses. Again,

522
00:28:42,240 --> 00:28:46,000
Speaker 1: remedial education is a huge part of community college. Most students,

523
00:28:46,040 --> 00:28:48,520
Speaker 1: at least half need to take some type of remedial

524
00:28:48,560 --> 00:28:52,600
Speaker 1: course in order just to get on track to go

525
00:28:52,680 --> 00:28:56,800
Speaker 1: to college. There's data that shows these are at the

526
00:28:56,880 --> 00:28:59,920
Speaker 1: highest risk of dropping out into faulting on their loans.

527
00:29:00,080 --> 00:29:01,760
Speaker 1: And it just seemed really bizarre to me from a

528
00:29:01,840 --> 00:29:06,440
Speaker 1: public policy standpoint that the government continues to put loans

529
00:29:06,440 --> 00:29:09,480
Speaker 1: into students that it knows full well or going to default.

530
00:29:09,520 --> 00:29:12,760
Speaker 1: And then policymakers say, oh my god, how did this happen?

531
00:29:12,880 --> 00:29:14,640
Speaker 1: Like why do we have a default crisis on our hands?

532
00:29:14,680 --> 00:29:17,520
Speaker 1: And it's like, well, you know, it's very clear why

533
00:29:17,560 --> 00:29:19,880
Speaker 1: this is happening. It's because people are taking out loans

534
00:29:19,880 --> 00:29:21,720
Speaker 1: that they don't have an ability to repay. And so

535
00:29:21,840 --> 00:29:26,160
Speaker 1: my point with community college is this, if you want

536
00:29:26,160 --> 00:29:29,960
Speaker 1: to help people get an education, why would you give

537
00:29:30,000 --> 00:29:32,920
Speaker 1: a certain cohort of students loans that you know are

538
00:29:32,960 --> 00:29:35,200
Speaker 1: destined to not repay it? Like, how does that help

539
00:29:35,240 --> 00:29:37,760
Speaker 1: anyone in the long run? It doesn't help Congress because

540
00:29:37,760 --> 00:29:39,920
Speaker 1: Congress is going to lose money on those loans. It

541
00:29:39,960 --> 00:29:43,000
Speaker 1: doesn't help the student. And so I just wanted to

542
00:29:43,040 --> 00:29:46,560
Speaker 1: point that out and say, if people want to address

543
00:29:46,640 --> 00:29:48,960
Speaker 1: this default crisis, one of the areas has to be

544
00:29:49,000 --> 00:29:52,240
Speaker 1: at community college. But of course it does help the

545
00:29:52,440 --> 00:29:56,680
Speaker 1: community college faculty and administrators who are an interest group

546
00:29:56,680 --> 00:30:00,560
Speaker 1: who pressure there are members of Congress. I do think

547
00:30:00,760 --> 00:30:04,360
Speaker 1: broadly colleges have a very big role to play here. Now,

548
00:30:04,360 --> 00:30:07,000
Speaker 1: community colleges, to be fair to them, are not nearly

549
00:30:07,000 --> 00:30:09,160
Speaker 1: as well resourced as four year schools. But I do

550
00:30:09,280 --> 00:30:11,280
Speaker 1: say this to every school I talked to, I say,

551
00:30:11,280 --> 00:30:14,600
Speaker 1: I've talked to Ivy League presidents, I've talked to community

552
00:30:14,640 --> 00:30:19,560
Speaker 1: college leaders. No one thinks they're at fault here. No

553
00:30:19,640 --> 00:30:23,320
Speaker 1: one thinks they're to blame. And it doesn't matter how

554
00:30:23,360 --> 00:30:26,280
Speaker 1: much money schools have regardless of this school, They're always

555
00:30:26,320 --> 00:30:28,080
Speaker 1: going to feel like they need more money. They're always

556
00:30:28,120 --> 00:30:30,000
Speaker 1: going to feel justified to raise their tuition. So I

557
00:30:30,080 --> 00:30:32,160
Speaker 1: think you have a point there. Well, you know, Biden

558
00:30:32,280 --> 00:30:35,880
Speaker 1: is proposed in essence forgiving all the debt. What would

559
00:30:35,920 --> 00:30:38,200
Speaker 1: the effect of that be. I think it could have

560
00:30:38,240 --> 00:30:40,600
Speaker 1: a really big unintended consequence, which is the story of

561
00:30:40,640 --> 00:30:43,720
Speaker 1: my book good intentions that lead to unintended consequences and

562
00:30:43,800 --> 00:30:47,040
Speaker 1: oftentimes really bad consequences. You know what I see happening

563
00:30:47,200 --> 00:30:49,640
Speaker 1: is dead forgive this as a band aid. I'm not

564
00:30:49,760 --> 00:30:52,040
Speaker 1: going to come out and say whether Biden should do

565
00:30:52,440 --> 00:30:55,800
Speaker 1: this or that. I am a journal reporter for my

566
00:30:55,880 --> 00:30:59,280
Speaker 1: day job. I want to avoid being an activist here. However,

567
00:30:59,400 --> 00:31:01,400
Speaker 1: I do want to point out that if you forgive

568
00:31:01,440 --> 00:31:04,360
Speaker 1: a trillion dollars in student debt right now, the government

569
00:31:04,400 --> 00:31:06,600
Speaker 1: will be right back up to one point six training

570
00:31:06,640 --> 00:31:09,520
Speaker 1: within three or four or five years. The government issues

571
00:31:09,560 --> 00:31:11,440
Speaker 1: one hundred and twenty billion dollars a year and loans,

572
00:31:11,440 --> 00:31:15,120
Speaker 1: So like, if you forgive loans now, what happens to

573
00:31:15,160 --> 00:31:18,240
Speaker 1: the students who are in college this fall? And then

574
00:31:18,280 --> 00:31:21,480
Speaker 1: there is this issue of desensitizing everyone to debt you're

575
00:31:21,520 --> 00:31:25,600
Speaker 1: further desensitizing people to the price of their education, which

576
00:31:25,720 --> 00:31:29,440
Speaker 1: could further lead to tuition inflation. Schools have already been saying,

577
00:31:29,920 --> 00:31:32,120
Speaker 1: you know, look, if you go into public service, you'll

578
00:31:32,160 --> 00:31:33,680
Speaker 1: get your loans forgive, and so they don't worry about

579
00:31:33,680 --> 00:31:36,040
Speaker 1: the high tuition that we're charging. That's already happening, and

580
00:31:36,080 --> 00:31:38,800
Speaker 1: I could see that happen more if you just simply

581
00:31:38,800 --> 00:31:41,720
Speaker 1: forgive debt. I have to say, as an aside, when

582
00:31:41,760 --> 00:31:45,280
Speaker 1: I watch a place like Harvard that has I think

583
00:31:45,280 --> 00:31:51,280
Speaker 1: thirty six billion dollars in their resources and they charge tuition,

584
00:31:52,280 --> 00:31:54,280
Speaker 1: I sort of have to wonder what the whole game is,

585
00:31:54,320 --> 00:31:58,480
Speaker 1: and it's clearly not about education in the original sense

586
00:31:59,280 --> 00:32:01,560
Speaker 1: when they found it. Herbert Listen, I want to thank

587
00:32:01,600 --> 00:32:04,160
Speaker 1: you very much. I must say you are the first

588
00:32:04,160 --> 00:32:07,120
Speaker 1: person I've talked to who actually has slowed down enough

589
00:32:07,520 --> 00:32:11,480
Speaker 1: to begin to understand all the intricacies of the way

590
00:32:11,480 --> 00:32:13,680
Speaker 1: this thing has evolved. As you pointed out, I was

591
00:32:13,760 --> 00:32:15,720
Speaker 1: part of it, both as a member and then a speaker,

592
00:32:16,120 --> 00:32:18,680
Speaker 1: and we always thought it would become a mess. But

593
00:32:18,760 --> 00:32:21,720
Speaker 1: it has become a mess on a much bigger scale,

594
00:32:22,040 --> 00:32:24,160
Speaker 1: I think than we were ready for. We are going

595
00:32:24,200 --> 00:32:26,680
Speaker 1: to have a link to buy your book, The Debt Trap,

596
00:32:27,000 --> 00:32:30,320
Speaker 1: How student loans became a national catastrophe. They'll be on

597
00:32:30,360 --> 00:32:33,680
Speaker 1: our show page at Newtsworld dot com. And Josh, I

598
00:32:33,720 --> 00:32:36,160
Speaker 1: really want to thank you for taking the time to

599
00:32:36,360 --> 00:32:38,880
Speaker 1: share with our audience what you've been doing, and I

600
00:32:38,960 --> 00:32:42,680
Speaker 1: encourage you to continue your research and continue your writing.

601
00:32:43,200 --> 00:32:50,240
Speaker 1: Thank you. I enjoy talking to you about this. Thank

602
00:32:50,280 --> 00:32:53,040
Speaker 1: you to my guest Josh Mitchell. You can read more

603
00:32:53,080 --> 00:32:56,520
Speaker 1: about the student loan debt crisis in America on our

604
00:32:56,520 --> 00:33:00,479
Speaker 1: show page at newtsworld dot com. News World is produced

605
00:33:00,480 --> 00:33:05,920
Speaker 1: by Gingwish three sixty and iHeartMedia. Our executive producers Debbie Myers,

606
00:33:05,920 --> 00:33:10,040
Speaker 1: our producers Garnsey Sloan, and our researcher is Rachel Peterson.

607
00:33:10,560 --> 00:33:13,800
Speaker 1: The artwork for the show was created by Steve Penley.

608
00:33:14,360 --> 00:33:17,440
Speaker 1: Special thanks to the team at Gingwish three sixty. If

609
00:33:17,480 --> 00:33:20,320
Speaker 1: you've been enjoying Newtsworld, I hope you'll go to Apple

610
00:33:20,400 --> 00:33:23,840
Speaker 1: Podcast and both rate us with five stars and give

611
00:33:23,920 --> 00:33:26,800
Speaker 1: us a review so others can learn what it's all about.

612
00:33:27,440 --> 00:33:30,080
Speaker 1: Right now, listeners of news World can sign up from

613
00:33:30,080 --> 00:33:34,160
Speaker 1: my three free weekly columns at Gingwish three sixty dot

614
00:33:34,200 --> 00:33:39,120
Speaker 1: com slash newsletter. I'm newt gingwish. This is Newsworld