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Speaker 1: It's all about hard work down here. The stuff you've

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Speaker 1: heard about Sydney being a lifestyle bureau, don't believe it

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Speaker 1: for a second. This episode is brought to you by Nadex,

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Speaker 1: the Binary Options Exchange. Binary Options let you limit your

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Speaker 1: regulated exchange with transparency, free market data, and fairness guaranteed.

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Speaker 1: The future of trading is here now at n A

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Speaker 1: d e x dot com, futures, options and spots. Trading

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Speaker 1: involves risk and may not be appropriate for all investors. Hi,

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Speaker 1: and welcome back to Bloomberg Benchmark, a podcast about the

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Speaker 1: global economy. It is Thursday, November nineteen. I'm Tori Stillwell

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Speaker 1: and economics reporter with Bloomberg News in d C. And

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Speaker 1: I'm joined this week by my co host, Dan Moss,

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Speaker 1: our executive editor for International Economics Coverage, who is a

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Speaker 1: very early to join us from Sydney this week, and Ako,

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Speaker 1: our editor for Benchmark in San Francisco. Hey everyone, it's

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Speaker 1: great to be here. Dan. When are you going to

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Speaker 1: move me to the Sydney bureau. I've been asking for

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Speaker 1: this for years. You know, those requests might just have

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Speaker 1: escaped my attention, Tori. It's all about hard work down here.

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Speaker 1: The stuff you've heard about Sydney being a lifestyle bureau,

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Speaker 1: don't believe it for a second. Okay, that's great to know, Tori.

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Speaker 1: I have a two announcements before we start the show today. One,

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Speaker 1: there have been a lot of really cool people tweeting

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Speaker 1: with at us with feedback about our show. Special shout

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Speaker 1: out here to Mike Lamp from South Carolina and Dan

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Speaker 1: Levine and San Francisco, So please keep writing to us.

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Speaker 1: We love to hear from you. And second of all,

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Speaker 1: we are throwing a swanky cocktail party on December one

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Speaker 1: in d C, U celebrating both this podcast and also

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Speaker 1: the print section of Schmark, which you can find on

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Speaker 1: Bloomberg dot com. And it's going to be a bunch

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Speaker 1: of economists and policy experts, DC journalists. And we're also

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Speaker 1: holding a couple of free tickets to our loyal listeners.

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Speaker 1: So if you live in d C and you'd like

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Speaker 1: to come, send us a tweet with what you think

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Speaker 1: of the show and we'll hold a ticket for you.

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Speaker 1: We'll be announcing our Twitter handles at the end of

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Speaker 1: the show. So first off, we want to offer our

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Speaker 1: sympathy to the people of Paris and Beiru and other

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Speaker 1: cities that have seen terrorists attacks in the past week.

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Speaker 1: What took place there was both horrendous and tragic, and

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Speaker 1: often when events like this unfold, concern starts to percolate

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Speaker 1: that an economy will also be harmed up. Colleague Simon

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Speaker 1: Kennedy wrote about this this week, and the people he

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Speaker 1: spoke to concluded that in a large, diversified economy like France,

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Speaker 1: it's very, very tough to find any kind of significant

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Speaker 1: medium to long term economic consequence from these events. It

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Speaker 1: doesn't mean they're not tragic, it doesn't mean there are

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Speaker 1: long term policy consequences. There may well be, But for

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Speaker 1: those of us who are concerned that on top of

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Speaker 1: the human tragedy there will be economic damage, at least

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Speaker 1: you won't have to worry about the latter. Gosh, seems

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Speaker 1: to be almost crassed to be talking about the monetary

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Speaker 1: impact of what's such a human tragedy here, But you know,

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Speaker 1: at the same time, if an economy worsens because of

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Speaker 1: these attacks, it's definitely a double punch to a country

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Speaker 1: that's already reeling from these human losses. So I'm really

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Speaker 1: glad to hear that even these attacks in Paris are

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Speaker 1: unlikely to harm the French economy as a whole. That's right,

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Speaker 1: Terrorists who want to disrupt modern economies often have a

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Speaker 1: pretty difficult task ahead of them. So, transitioning back to

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Speaker 1: the US, we want to take a look at an

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Speaker 1: issue that's been grabbing an increasing share of headlines lately,

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Speaker 1: and that is student debt. Presidential candidates are promising free

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Speaker 1: public college. Last week, you guys may have heard about it.

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Speaker 1: There is this event called the Million Student March, and

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Speaker 1: people are demanding tuition free public college, a cancelation of

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Speaker 1: all student debt, and also a fifteen dollar minimum wage

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Speaker 1: for all campus workers on top of that. So on

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Speaker 1: today's show, we want to talk about a couple of things.

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Speaker 1: We want to talk about just how big the student

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Speaker 1: debt burden is, and then we want to walk through

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Speaker 1: this idea of free college, whether it's actually possible here

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Speaker 1: in America now or in the near future, and could

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Speaker 1: we actually have a US without student debt at all?

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Speaker 1: And if not, what can we do to reduce the

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Speaker 1: student det burden. So let's start with the lay of

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Speaker 1: the land on US student debt, that we can understand

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Speaker 1: just what we're dealing with here and why this issue

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Speaker 1: has become such a hated one, with some even calling

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Speaker 1: it a cross tory. You have a couple of numbers

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Speaker 1: for us here, right, For those of us who don't

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Speaker 1: know student that really well, can you give us a

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Speaker 1: brief overview of how they work? Yes, so there are

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Speaker 1: private sector loans that you can use, of course, but

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Speaker 1: also most student loans in the US are federally guaranteed

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Speaker 1: or are direct loans made by the Department of Education.

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Speaker 1: You know, some are based on financial needs, with some

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Speaker 1: interests or cruise while you're in school, with others it doesn't.

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Speaker 1: Some are available to the parents of students, so there's

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Speaker 1: sort of a variety of loans to choose from. With

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Speaker 1: most loans, repayment begins after about a six month grace period,

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Speaker 1: and people generally have like a ten year window to

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Speaker 1: pay them back, but that can be pushed out, especially

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Speaker 1: when when the debt that you have is especially large.

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Speaker 1: So let's zoom out a little far. There is one

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Speaker 1: point two trillion dollars abo outstanding student loaned it that's

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Speaker 1: as of June, and so there's more student loaned it

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Speaker 1: than any other type of household debt except mortgages, and

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Speaker 1: the level of student loaned it has more than tripled

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Speaker 1: over the past decade. Has a quality of education multiplied

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Speaker 1: by the same factor over the same period, um, I

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Speaker 1: would say that's a that's a lot harder to quantify,

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Speaker 1: but certainly tuition has been going up. A lot of

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Speaker 1: that is because on a per student basis, states have

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Speaker 1: been cutting back their funding of higher education for quite

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Speaker 1: a while. You know, they don't have a lot of

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Speaker 1: extra money floating around, So a lot of public schools

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Speaker 1: especially have been using increased tuition revenues to replace declining

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Speaker 1: state funding. But with private schools, a lot of them

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Speaker 1: lost a ton of money in the crash, and they're

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Speaker 1: also spending more on things they didn't used to, more programs, facilities, research,

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Speaker 1: all types of stuff, and they're also giving a lot

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Speaker 1: more financial aid. This issue of student debt, it does

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Speaker 1: seem in its scale to be somewhat unique to the US.

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Speaker 1: In Australia, for example, for a couple of decades we

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Speaker 1: had free f R double a tertiary education. Students now

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Speaker 1: pay some of the cost of that, but it's nothing

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Speaker 1: like the figures bandied around for the US. How did

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Speaker 1: it get to be this way? We do know a

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Speaker 1: couple of things. We can tell you a little bit

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Speaker 1: more about who's borrowing, who's doing the borrowing. We know

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Speaker 1: that low income households often are the ones that have

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Speaker 1: to borrow the most um. But when we look at

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Speaker 1: the real increase over the last couple of years, that's

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Speaker 1: been driven by higher income families borrowing a lot as well. UM.

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Speaker 1: We know that the bulk of increased borrowing in the

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Speaker 1: past few years has been driven by students who went

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Speaker 1: to for profit or two year colleges like community schools UM.

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Speaker 1: And I think we should also put some parameters around this.

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Speaker 1: I feel like, and a lot of the conversations I

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Speaker 1: hear about student debt, it just feels like everybody has

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Speaker 1: student debt and everyone's rocking like two hundred thousand dollars

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Speaker 1: worth of student debt um and that's just not the case.

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Speaker 1: We know that when we look at young households, households

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Speaker 1: under the age of forty or so, about of those

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Speaker 1: households have education debt that's as of according to the

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Speaker 1: Federal Reserve. And among those young households. The median debt

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Speaker 1: was about seventeen thousand dollars, so that's much lower than

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Speaker 1: I think what a lot of people think about. Now,

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Speaker 1: does that depend on the type of tertiary institution people

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Speaker 1: have been to? I mean, would your average Harvard, Yale,

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Speaker 1: m I T, Stanford, Cornell grad be carrying that kind

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Speaker 1: of number or is it exponentially high? Is that just

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Speaker 1: an average? Well, definitely depends on what school you go

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Speaker 1: to and also what level of education in that you're at.

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Speaker 1: Grad students are going to be borrowing a lot more

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Speaker 1: money than um someone getting an undergraduate degree. So to

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Speaker 1: help us with our second goal of this show, which

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Speaker 1: is to determine the feasibility of free public college, could

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Speaker 1: we actually have a US without student debt? We're going

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Speaker 1: to bring on one of our colleagues who's been covering

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Speaker 1: higher education at Bloomberg since two thousand and eight. But first,

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Speaker 1: dot com futures options and swaps trading involves risk and

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Speaker 1: may not be appropriate for all investors. We have Janet

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Speaker 1: Lauren with us, a colleague in New York who covers

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Speaker 1: higher education, and Janet actually won a George Polk Award

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Speaker 1: for her reporting on student loans a couple of years back,

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Speaker 1: so super excited to have her with us. Hey, Janet, Hi,

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Speaker 1: thank you very much for having me. So, Janet, let's

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Speaker 1: run through some of these ideas that people are tossing around. Um,

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Speaker 1: the amount of student debt out there is more than

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Speaker 1: a trillion dollars higher than ever and that's sparking a

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Speaker 1: lot of these conversations right now. Can you talk about

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Speaker 1: some of the other countries that have actually been able

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Speaker 1: to make college free. Well, we heard from Dan in

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Speaker 1: Australia about his experience there where it had been free.

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Speaker 1: And Australia has also done something that the US has

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Speaker 1: been trying to do in its repayment plan called income

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Speaker 1: based repayment and student repay their loans based on their income.

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Speaker 1: And more students have been taking the government's offer up

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Speaker 1: here to do that because they've been struggling. But there's

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Speaker 1: one very important distinction between programs in Australia and New Zealand,

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Speaker 1: and that is there are price controls on the front end.

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Speaker 1: In the US. We don't have that, and uh, the

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Speaker 1: cost to attend college has really skyrocketed. It's increased faster

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Speaker 1: than inflation for decades. The problem starts with the price.

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Speaker 1: And to give you a little bit of perspective to

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Speaker 1: add what Torre had mentioned before, each year the Education

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Speaker 1: Department disperses about one hundred billion dollars in education loans,

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Speaker 1: mostly to students but also to parents. So you're talking

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Speaker 1: about a lot of money that people borrow to go

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Speaker 1: to school. So this idea of free college, um, the

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Speaker 1: question is, well, if the students aren't taking it out

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Speaker 1: in loans, where does it come from. And we've heard

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Speaker 1: two plans this year from the Democrats Bernie Sanders, the

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Speaker 1: Vermont Senator, has talked about eliminating undergraduate tuition and fees

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Speaker 1: and all public colleges and universities, with the government putting

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Speaker 1: in about two thirds of the funding and one third

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Speaker 1: coming from the state. And Hillary Clinton, who has her

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Speaker 1: own proposal, has criticized that, saying that even someone like

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Speaker 1: Donald Trump's kids would pay nothing for college, and he

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Speaker 1: could certainly afford to pay something. And Hillary Clinton has

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Speaker 1: offered her own proposal, and that would cost about three

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Speaker 1: hundred billion dollars over a decade, and it would encourage

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Speaker 1: students to spend their own money on public higher education,

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Speaker 1: and the government would help with some grants. So it's

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Speaker 1: basic level. Though, are we gonna have to for free

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Speaker 1: tuition to public colleges and universities to actually happen? That

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Speaker 1: seems like it would require massive tax increases. Well, we're

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Speaker 1: not really sure where the money would come from. You know,

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Speaker 1: that's the beauty of proposing grand ideas. And certainly the

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Speaker 1: states were able and willing to put more money um

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Speaker 1: towards higher education, sure it would would likely have to

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Speaker 1: come from another place. Both candidates have proposed that the

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Speaker 1: federal government could spend more right, Right, So, if we

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Speaker 1: as a society are deciding that we just want to

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Speaker 1: publicly fund higher education, that's going to have to come

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Speaker 1: at the expense of some other things though that would

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Speaker 1: be funded by the federal government. Well, the federal government already,

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Speaker 1: you know, funds a lot of money in terms of

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Speaker 1: higher education in terms of grants, and also the loans

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Speaker 1: haveing uh cost money to the government as well in

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Speaker 1: terms of there are subsidies you've mentioned the government picks

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Speaker 1: up the interest for some student loans during school Janet,

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Speaker 1: people all around the world, despite everything that you've just said,

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Speaker 1: lining up and killing themselves to get into US colleges.

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Speaker 1: And global rankings that have done at least once a

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Speaker 1: year show that the top universities in the world still

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Speaker 1: buy and large mainly US schools. Shouldn't we pay for

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Speaker 1: the best? Well, those schools are mostly in the private sector,

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Speaker 1: which is not the sector we're talking about a few

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Speaker 1: minutes ago, and the cost of some of those top

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Speaker 1: schools for an undergraduate is in you know, the sixty

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Speaker 1: dollar range. Now, the wealthiest schools like Harvard and Yale

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Speaker 1: and Princeton and m I T have a very large endowment.

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Speaker 1: So they're able to subsidize lower income students. So if

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Speaker 1: you fall within a threshold, say sixty dollars or lower

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Speaker 1: a place like Harvard, the school pace for everything. And

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Speaker 1: isn't that the case with community colleges to and and

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Speaker 1: really low income students around the board, if you're really

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Speaker 1: needy it is. Isn't it pretty cheap for you to

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Speaker 1: go to college in many cases to a community college? Yes, um,

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Speaker 1: there there's the Pell grant which funds about per year

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Speaker 1: and that generally will cover your tuition at a community college.

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Speaker 1: And those community colleges are two years. And in fact,

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Speaker 1: we heard a proposal from President Obama earlier this year

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Speaker 1: to make community college free and one criticism has been,

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Speaker 1: well already is free for lower income students. And the

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Speaker 1: challenge with community colleges is getting those students to complete

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Speaker 1: because often if you're attending a community college, you're older,

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Speaker 1: you may have children, and you need the support to

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Speaker 1: help you get through college. It's not just the tuition

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Speaker 1: um that that is a difficulty, and especially if you're

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Speaker 1: able to get a Pell grant, it's the support to

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Speaker 1: make sure you get the classes you need to graduate

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Speaker 1: on time and to finish your program and to get

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Speaker 1: help when you know you can't get that class or

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Speaker 1: you have this struggle, and there's there's somebody who can

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Speaker 1: support you to make sure you're finishing. And we know

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Speaker 1: if you don't complete college, that's when debt becomes a huge,

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Speaker 1: huge problem because you you not only don't have this degree,

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Speaker 1: so you're not going to get be able to get

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Speaker 1: a job that would enable you to earn more, but

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Speaker 1: now you also have the debt, and then the absence

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Speaker 1: of that extra credential could sort of like reduce your

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Speaker 1: motivation even to pay back these loans. So Dan and Torry,

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Speaker 1: let's put our economists caps on, and let's say this

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Speaker 1: actually happened, that public college actually became free in America.

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Speaker 1: From an economic angle, could we say that that would

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Speaker 1: be a great thing that all the student debt money

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Speaker 1: could be applied to other things. What people were paying

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Speaker 1: maybe four hundred dollars per month, Let's say they could

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Speaker 1: instead spend on mortgages, or on fancy new bikes, or

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Speaker 1: even retirement. If you're not putting that four hundred dollars

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Speaker 1: to your student loan payment, you're not able to take

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Speaker 1: advantage of putting money away towards retirement. Pew came out

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Speaker 1: with a store study about a year ago that looked

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Speaker 1: at the growing divergence between those who have student loans

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Speaker 1: and those who don't. And if you're making that four

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Speaker 1: payment every month towards your payments, you're not able to

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Speaker 1: save for retirement. And you know how much that can

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Speaker 1: grow over over time when you're ready to retire. So

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Speaker 1: that's something else. In addition to mortgages, you may be

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Speaker 1: seeing a big difference between those who have debt and

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Speaker 1: those who don't. But it's not really fair to look

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Speaker 1: at that just in a vacuum. Right If we if

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Speaker 1: we do think that free college is possible in the US,

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Speaker 1: and we and we use that hypothetical that money has

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Speaker 1: got to come from somewhere, and it does come from

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Speaker 1: tax increases. That is going to be money that's that's

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Speaker 1: out of your pocket that wasn't before, unless you're taxing

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Speaker 1: someone else and not yourself. Let's answer the question, though,

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Speaker 1: could this actually happen here in the US? Is are

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Speaker 1: we just talking pure hypothetical here? Is this something that

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Speaker 1: could happen? Well? Bernie Sanders proposal, I believe is setting

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Speaker 1: a fifty cent tax on every of stock trades on

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Speaker 1: stock sales and lesser amounts. So that's one way to

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Speaker 1: do it. Um. I'll give you another example. Elizabeth Warren

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Speaker 1: proposed twice to allow students to refinance their student loans

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Speaker 1: to a lower rate, and that was turned down twice

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Speaker 1: by Congress. So I don't know that you're going to

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Speaker 1: have that kind of support. Um. And you get into

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Speaker 1: the argument that Hillary Clinton has has pushed that if

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Speaker 1: there's free public school tuition for everybody, why should you

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Speaker 1: be subsidizing the wealthiest of students? Right, do we really

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Speaker 1: want to forgive the one thousand dead of a bunch

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Speaker 1: of lawyers who already have nice condas and cars. Probably not, um, So,

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Speaker 1: I mean, it doesn't sound like this is It sounds

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Speaker 1: like we could do it, certainly, but it doesn't really

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Speaker 1: sound like it's very practical. Well, and that's you know,

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Speaker 1: looking at the undergraduate degrees, and certainly we know that, um,

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Speaker 1: if you have a undergraduate degree, your earning power is increasing.

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Speaker 1: And that was sort of the whole idea of the

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Speaker 1: federal student loans when when the program was started fifty

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Speaker 1: years ago to give young people a little bit of

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Speaker 1: liquidity to pay for college because they would be repaying

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Speaker 1: that with the lifetime of higher earnings. Now, we haven't

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Speaker 1: really talked about graduate school too much. College can be

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Speaker 1: subsidized with with aid, you know, grants from colleges, but

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Speaker 1: you don't see that kind of financial aid with graduate schools.

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Speaker 1: And they are much costlier and students are often expected

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Speaker 1: to bear the entire cost. And if you're going to

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Speaker 1: say law school, it could be eight dollars total, and

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Speaker 1: because of the laws that are in place, you can

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Speaker 1: borrow up to the cost of attendance, and that includes

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Speaker 1: living expenses. So when you see that um some students

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Speaker 1: have a lot of student debt, it's likely not just

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Speaker 1: for college, it's likely graduate school as well. Right right, Well,

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Speaker 1: I want to leave our listeners with some suggestions. You know,

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Speaker 1: if we're not going to have free public college, what

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Speaker 1: can we actually do to reduce the student that burned? Now?

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Speaker 1: One of them is just to make sure that more

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Speaker 1: people know about income based or payment that we've been

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Speaker 1: talking about. It's been far under utilized historically, although that

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Speaker 1: is starting to change. Also, no federal loans for you

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Speaker 1: if you go to a school where it's shown that

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Speaker 1: your outcomes aren't going to be that great. You know,

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Speaker 1: a lot of for profit institutions have high rates of

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Speaker 1: non repayment student debt. If that's the case, maybe we

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Speaker 1: should stop paying for people to go to those schools.

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Speaker 1: It's it's just something to think about. And also, like

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Speaker 1: we mentioned, really really focusing on this completion of college,

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Speaker 1: making sure that if people are taking out debt to

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Speaker 1: go to college, they need to be getting that degree.

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Speaker 1: And with that we are going to wrap up. Thank

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Speaker 1: you so much Janet for joining us. It's great to

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Speaker 1: be able to have such an expert on this stuff

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Speaker 1: with us, and thanks to you all for listening to

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Speaker 1: Bloomberg Benchmark. We'll be back next week and until then,

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