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Jen Mishory, Young Invincibles, The Future of Student Loans and Financing Higher Education

NOVEMBER 18, 2013

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view the conference agenda and presentation slides »

   Julie Stackhouse, Federal Reserve Bank of St. Louis (4:20)

   Rohit Chopra, Consumer Financial Protection Bureau (30:08)
   Keynote Q&A (8:06)
   Interview with Rohit Chopra (6:40)

Resources for Managing Student Loans
   Introductions (2:12)
   Paul Combe, American Student Assistance (7:02)
   Interview with Paul Combe (12:58)
   Vicki Jacobson, Center for Excellence in Financial Counseling (5:46)
   Marilyn Landrum, Missouri Department of Higher Education (3:58)

Resources for Economics and Personal Finance
   Mary C. Suiter, Federal Reserve Bank of St. Louis (3:10)

Research Panel:
What We Know About Student Loans in the Eighth District and Nationwide
   MODERATOR: William R. Emmons, Federal Reserve Bank of St. Louis (4:14)
   Bryan J. Noeth, Federal Reserve Bank of St. Louis (13:53)
   Kelly D. Edmiston, Federal Reserve Bank of Kansas City (9:17)
   Caroline Ratcliffe, Urban Institute (14:22)
   Research Panel Discussion (35:46)

The Future of Student Loans and Financing Higher Education
   MODERATOR: Ray Boshara, Federal Reserve Bank of St. Louis (7:32)
   Sandy Baum, Urban Institute and George Washington University (11:06)
   Interview with Sandy Baum (7:23)
   William Elliott III, University of Kansas (13:12)
now playing  Jen Mishory, Young Invincibles (8:37)
   Interview with Jen Mishory (8:01)
   Gary A. Ransdell, Western Kentucky University (11:35)
   Roundtable Discussion (40:21)


Below is a full transcript of this video presentation. It has not been edited or reviewed for accuracy or readability.

Jen Mishory: So, I actually wanted to start with a few stories. We interact with student debtors quite a bit, both when we’re out in states and talking to folks online. We even do really nerdy things like send out requests to our lists so that they can respond to Rohet’s [phonetic 00:00:32] request for comments about private loans. And we get thousands of people that come back and say, ‘Here’s how student debt is affecting me.’ So, I picked three of those.

The first was from a young couple. A young woman who said, “I was unemployed and both mine and my husband’s student loans went into repayment simultaneously. We were down one income and found ourselves strapped with nearly a thousand dollars per month in loans. It was terrifying. Its two years later. We’re employed with good salaries and now we’re just getting back on our feet. We’re grateful to have an education but never would have guessed that student loans would prevent us from being able to buy a home for a long, long time.”

The next is from a young woman in our network who earns about 30,000 dollars a year. And she owes about 40,000 dollars. She gave us a range so it was a little difficult to tell. She says, “All of my student loan payments take up about 40 percent of my monthly income. I cannot afford rent so I am a live-in caretaker as well.” She has put off buying a house. In fact she said she was denied a mortgage. She put off buying a car. And she says that she doesn’t expect to be able to start a family until she’s 39. Her interest rate for her loans are between nine and 12 percent. She’s not working in her field and she is working several jobs to try and pay down her debt.

The third is perhaps the most heart wrenching. When we asked this borrower how student debt has impact her she simply said, “My daughter has special needs and I’ve had to cut back on purchasing the nutritional supplement that she needs.”

So, we picked those stories because I thought they told a range of the types of distress that student debtors are facing. Some are doing okay. Some are making heart wrenching decisions. And some are struggling but they’re making it through. And they are getting ahead. And others who I didn’t share here are certainly paying down their loans. And they’re getting on with their lives. But these varying circumstances do raise the question of how complex a nuance is the student debt problem? And I think that there are a lot of nuances. And we’ve talked about several of them so far. You know, differences by race. Differences by wealth and income. I wanted to bring up a couple others.

The first was differences by sector and school. So, when you look at poor profit institutions, we see default rates in almost twice the national average. We talked about cohort default rates earlier. And for the three year cohort default rate we’re looking at 15 percent. But when you look at [unintelligible 00:03:02] profit institutions it’s 22 percent. And public schools are at 13 percent. It also depends on the program. There is about 265 schools in which the default rate is higher than the graduation rate.

I also wanted to underscore another difference which is the difference between private and federal loans. So, we know that there’s been a lot of talk about some of the repayment options available for federal loans which can really provide a lot of relief for borrowers. Those options are often not available for private loans. We also see that a lot of the other types of protections aren’t available for private loans. And often interest rates are higher for those loans. So again, a lot of differences.

And all of those differences, I think, lead us to questions that really impact our policy thinking when we’re thinking about solutions. The first is, how do we help borrowers who, maybe aren’t defaulting but they are facing these high payments every month? And we look at their balance sheets and we can see that it’s impacting their balance sheet. It’s impacting their ability to buy a home, buy a car, get ahead in life, save for retirement. For parents who either took out loans later in life to go to school or who took out loans for their kids, it’s also impacting their ability to retire at all. And also a potential to impact the economy as we’ve talked about briefly. And then for those who are truly, truly struggling, what are we going to do for them? How are we going to provide relief? Can we talk about ways we’re going to provide loan modification? Refinance. Bankruptcy protections for those so that they can actually have some sort of life.

So, those are the questions we ask when we’re looking at what policy solutions we want to pursue to help some of these debtors. And we really look at it as a twofold question. The first is, what are we going to do at the front end when borrowers are actually making the decision to go to school? They’re deciding where to go, what to study. And we look at several factors there. We say, first—and this has been talked about a lot so far today. How are we going to invest in our public schools again? And make sure that we’re seeing the type of investment per student that we were seeing 10, 20, 30 years ago.

The second, how are we going to provide information to students where they decide to school and what they decide to study? So right now can be pretty difficult to figure out. If I want to go and study engineering at a certain school, to know what their loan or payment rate might be. What the income might be at that school. Who’s hiring in that area? That kind of information is not typically that easy to find for the typical 17 year old who’s trying to figure out how to build a life for themselves.

Next is we, need to provide them with help. We can provide all the information in the world. But if we’re not providing these students who might be a first generation student going to college. So, their parents may not be able to help them or may not know how to help them. How are we providing that kind of counseling that we need so that students can actually get help making the right decisions?

And finally, how are we going to hold schools accountable when they don’t adequately serve students? How are we going to make sure that schools are actually ensuring that students complete, that they’re keeping costs down? And actually, one more.

How are we going to ensure that we’re continuing to invest in need based aid? So, things like, Pell Grant. State aid that’s based on need. And that’s very important for a lot of low income students trying to get ahead.

And then, what are we going to do on the back up? When the student leaves school and they have debt and perhaps they need help. The great recession has hit this generation harder than any other generation. And we’ve looked at a lot of options. Again, I think someone asked the question earlier about the default auto IBR enrollment. That’s’ something that we’re very interested in, and we actually think could be very helpful to students. Right now it can be difficult to get into IBR. A lot of students don’t know about it. Like, debtors don’t know about it. And I could go a long way to helping debtors who are struggling.

Ray Boshara: Can you just clarify what that is, IBR?

Jen Mishory: Absolutely. So, it’s the Income Based Repayment Plan. And we think there’s a lot of ways that you can alter that plan to make sure that it’s working for students. That students are paying down as fast as, you know, they want to be or should be. But can really provide that default backbone for students so that they don’t actually go into delinquency or default.

Next we want to make sure that we’re enforcing standards. And we need to require more of lenders and of servicers. A good example of this, the Institute for College Access and Success actually just submitted a letter to the CFPB asking them to research why there was an uptake in delinquencies in the last quarter due to a servicing platform change. I’m not sure if it was a borrower’s fault that there was a servicing platform change. But there was certainly an uptake in delinquencies because of it. And we want to know why and what happened. The servicers need to be making sure that they’re actually serving the consumer.

And finally we need to look at bankruptcy and forgiveness. We need to give borrowers a way out of they pay their dues and the system just hasn’t worked for them. We need to give them a light at the end of the tunnel, an ability to rebuild their lives, to buy their daughter’s medication, and to drop the third of their three jobs.