People who have followed my work over the years know that I have railed against the student loan debt crisis in this record-breaking expansion for many years.
I believe, like most political-economic stories, things get exaggerated. Again, dear chickens, it might be raining but please don’t confuse that with a falling sky.
That said, let’s look at the housing market and student loan debt.
To state the obvious, if the government wiped out all the student loan debt in this country and only the “Super Rich” has to pay the taxes for the hit, it is nothing but a positive for the housing market. This is because you just wiped out a debt payment and a debt balance to nothing.
However, the context is critical. Millennials are the biggest homebuyers in America.
What I don’t like about the reporting of housing in America is this:
On the one hand, people say the demand from Millennials is very healthy, and we need to build more homes. Then, next week you hear a story that we have an affordability crisis, and Millennials are not buying homes due to student loan debt. In a coherent world, these two statements can’t exist in the same cycle.
Since the start of the century, the clients I had that were under the age of 40 that had big nominal debt loads made good money. It didn’t prevent them from buying a home, but it did prevent them from buying a bigger house if they wanted one.
The income capacity you get from finishing college and working your butt off is a good thing, not a bad thing. Dual household college-educated houses, from my perspective, are doing well in this country.
The stress in the data, as you can see below, are those who never finished college.
Young Americans buy homes later in life, so don’t use the age group 25-29 as your sample group to prove student loan debt is preventing Millenials from buying. It’s much different now than in the past because more people go to college, finish college and get married later in life.
People, rent, date, get married and then 3.5 years after marriage, they have kids. Look at the data line from people or households 30-39, not 25-29.
Age demographics aside, let’s take a look at student loan debt more coherently.
The majority of student loan debt has a debt of $17,000 and below. Typically the more significant the student loan debt, the bigger the income capacity.
Did you know that the peak unemployment rate for college graduated Americans in the great recession with a Bachelor’s degree or higher was 5%?
You can see below that not only are college-educated Americans making more money than those that never finished college, they’re also the mostly employed, always.
College-educated Americans that finish school make at least $2 to $5 million in their lifetime through income, and they’re the group most likely that would have access to stock options.
College-educated Americans who finish school are in the upper economic food chain in America. We should be focusing our time and resources on those who don’t have any education, skillset training and are indeed income stressed.
All of that said, if I had to propose a plan that wouldn’t get bogged down on how are we going to pay for it or who are we going to raise taxes on, it would look like this.
1. A deficit-financed $17,000 write down on all student loan debt. No taxes raised. Call this a stimulus plan, even though I don’t believe the velocity would be tremendous. This plan will be a one time hit on the deficit. The key here is that the majority of Americans who have student loan debt and are struggling would have zero liability.
2. A national refinance plan where the government is on the hook, not the banks. Americans who finish school and work hard are the ones making money.
The plan would create better cash flow for those Americans who have a more significant debt load. This loan will be amortized in a fashion the student feels like that best suits their financial goals without going over 37 years.
3. Make student loan interest payments tax-deductible. This idea is similar to the Mortgage Interest Deduction we have for housing.
4. Also, allow student loan debt to be part of a bankruptcy.
5. I understand the frustration of Americans who worked so hard to pay off their student loan debt in a responsible way. Also, the more critical factor is that these Americans went to school and finished. I hear it all the time: “Why do college dropouts get assistance on debt and I don’t get anything for doing the correct thing?”
To that I say, you’re very accurate. This action is why I would create a commission to look into compensating Americans who not only worked hard to finish college but also paid back their student loan debt. Our American work ethic has always been our strength and pride.
I know, I know, some people will say this is more government subsidization that will in itself create more inflationary pressures on the growth of education. To that point, you’re correct.
However, if I had to create this student loan plan, this is less complicated in the sense that it wouldn’t hit so many roadblocks in the Senate, and it helps the majority of the Americans that have student loan debt and aren’t making $100,000-$500,000 a year.
The government is the monopoly player here in the student loan debt business, so they would take the hit on the books and lose future revenue that would collect.
This is a balanced approach that helps those that are for sure struggling with the student loan debt without giving a big write-down to Americans who will make $2 to $5 million dollars in their lifetime.
And as I stated from the start, if the government wiped out all student loan debt and only the “Super Rich” has to pay the taxes for the hit, it is nothing but a positive for the housing market.