We recently wrote about a new Brookings Institution report which suggested that charges coming from various quarters, including the CFPB, that student loan debt is causing young adults to postpone home ownership are overblown. The report found that the typical household with debt is no worse off today than a generation ago, with increases in lifetime earnings more than offsetting increases in debt, and monthly payment burdens kept manageable by longer repayment periods.
In a blog post earlier this month, Matthew Chingos, one of the report’s authors, looked further at the data in an effort to explain why the rhetoric on student loans is so far removed from reality. More specifically, he posed the question “whether the recent surge in attention paid to student loans stem in part from increases in debt among affluent households, similar to the attention Congress paid to sequestration when federal budget cuts led to flight delays out of New York and other major cities?”
Having found from his analysis of relevant data that increases in debt have been concentrated among the affluent, Mr. Chingos observes that “[a]n era in which students from low-income families used loans to supplement grants has given way to a system dominated by the wealthiest Americans, many of whom were born to affluent parents.” According to Mr. Chingos, “[t]his trend supports the theory that the intensification of the public debate over student loans may be due in part to the increased prevalence of debt among more affluent households.”
He comments that since this trend is likely to continue, policymakers may face increasing political pressure to offer broad-based borrower relief, such as a reduction in interest rates. He suggests that “[a]bsent credible evidence that such a policy would have a large ‘trickle-down’ effect on the broader economy, policymakers should instead focus on the core mission of the federal loan program: promoting access to higher education on terms that are fair to both students and taxpayers.”