A student debt Band-Aid

by Ben Wright and Adrianna Gregory

BW: Student debt, a topic that’s near and dear to our hearts and wallets, is coming to the forefront of the campaign trail. Hillary Clinton just released her plan to start to take on this problem, and it’s part of her tech agenda.

clip_image002[1]The points most relevant to this discussion: Secretary Clinton proposes letting entrepreneurs and their first 10–20 employees defer student loans for three years while they get their businesses off the ground. Further, she proposes to let founders of companies that operate in distressed communities or create “measureable social impact” apply for loan forgiveness up to $17,500 after five years.

On the other side, Donald Trump acknowledges that he’s “going to really look into that,” and that we’ve “got to have something with extensions and lower interest rates.” Sign me up! I wonder if he feels the same about Trump University students.

Adrianna, your thoughts?

AG: I’m eagerly awaiting Trump’s proposed solution. We do know that Sam Clovis, the co-chair of his campaign, thinks colleges should have a bigger role in determining a prospective student’s loan eligibility, and that the factors in that decision should go beyond financial eligibility—like their intended major.

Clovis tries to be delicate about the value of a liberal arts education, saying it’s “the absolute foundation to success in life.” But he ultimately condemns the humanities: “If you are going to study 16th-century French art, more power to you. I support the arts. But you are not going to get a job.”

I get it. Colleges should prepare students for the real world. But there are better ways to do that than making literature and art history degrees available only to the people who can afford to pay out of pocket.

I loved my liberal arts education, loans and all: my comparative literature and Russian classes enriched my life, expanded my world view, and changed the way I approach problems and situations for the better. I wouldn’t trade my experience for a computer science or engineering degree. Besides, a lot of companies are looking for liberal arts grads. And hey, we both have good jobs.

BW: I couldn’t agree with you more. And as a holder of multiple liberal-arts degrees, I also object to Clovis’ reductive argument. But the fact that Secretary Clinton’s student debt solution is pinned (for now) to the tech sector worries me. Letting early employees defer is a good start at liberal arts inclusiveness—startups do need design and editorial work, after all. I suspect a world wholly dominated by STEM majors would be less beautiful, nuanced, and grammatically correct.

Don’t get me wrong. I think tech startups are great, and are constantly coming up with innovative solutions to evergreen problems. And research shows time and time again that student debt correlates with a decline in small business or startup foundation. Secretary Clinton’s plan does well to bridge that gap.

However, the majority of startups—especially tech startups—are doomed, a prognosis that existed even before the Great Recession and this massive debt issue. It’s hard to pin down exact numbers, but the headline-ready one is that 90% of startups fail.

The cynic in me sees this solution as a way for a majority of entrepreneurs to pour even more money into a failed venture (with more loans!), and emerge out of their deferment broke and out of a job, only deeper in the hole. Not to mention the issues with startup workplace culture—I doubt a lot of those early employees will be salaried with benefits.

At the same time, I applaud Secretary Clinton for addressing this huge problem with clarity and a minimum of hand-waving. The fact is that 40 million Americans are shouldering $1.3 trillion in student debt that is, in many cases, ruining lives and dimming our generation’s future, regardless of the looming hulks of Brexit and Donald Trump on the horizon.

AG: Did you see this investigative piece from Reveal about who profits from student debt? Anyone who has dealt with those high student-loan interest rates knows there’s something horrendously unfair about the system, but reading the saga of the privatization of Sallie Mae and seeing that picture of the CEO’s private golf course is a real bummer—especially when you look at the people on the receiving end of that loan. There are so many students who just didn’t know what they were getting into when they applied for a loan.

I remember going through a government-mandated counseling course about how to deal with my loans toward the end of my college career. It laid the facts out on the table, telling me what my salary would need to be in order to live comfortably and still make the minimum loan payments and calculating how much money I would save over the course of the repayment plan if I started paying the day I graduated instead of waiting for the first bill to come six months later. It was highly informative—and only offered to me for the first time about a month before graduation. Something like that would have been nice, say, when I applied for the loans as a freshman.

Lenders are setting students up to fail, then profiting from that failure. And it’s not just the private lenders that are making bank: according to the Reveal piece, the government can earn up to 20% on each loan.

BW: Talk about a bait and switch. I, too, was flying blind when I applied for loans and I’ll be paying the price for the foreseeable future. Aside from our personal experiences, we can rattle off some statistics: 45% of people with student loan debt say it wasn’t worth it. More than a quarter delayed buying a house because of debt. 12% delayed marriage. Or you can ask most any recent college grad for their, or their friends’, stories. It’s hard to quantify that feeling of hopelessness.

Down-and-out graduates who may be working dead-end jobs just to make loan payments need a fresh start. Secretary Clinton’s plan certainly appears to tiptoe in that direction. But I think there’s more to be done here (and her platform may very well expand in the coming months).

For instance, maybe she can adopt her new buddy Elizabeth Warren’s proposals to let students discharge student debt in bankruptcy (a proposal that has been blocked and time again), or to let the federal government, which has been profiting handsomely on student debt for decades, refinance loans.

AG: Something tells me that our—and the country’s—discussion about this is far from over.

Ben Wright supports global research studies for the Thought Leadership group. He has developed and supported projects on subjects including cloud computing, workforce development, risk management, and the future of money.

Adrianna Gregory is the Associate Editor for Technology at Oxford Economics.