Tortured logic. "Pausing student loans" not only paused payments but also interest accrual for several years. While their nominal student debt is the same, any individual's increases in salary/wages over that time mean that their "real" debt is on average probably 6-15% lower than it was at the beginning of the pause.
Sure, they may have taken on other debt in the meantime but this article does nothing to disprove that debt would have been taken on anyways. It's not an article in good faith - they try to make it sound like the growth in debt was student-loan debt but it was other things. The article also uses a shotgun approach to list all the ways that pausing student loan debt could have 'made' people take on more debt than the would have otherwise -- but they never state what that new debt is or attempt to do any analysis of the driving factors that led to taking on that debt.
With the rise of "afterpay", "klarna", etc...it might mostly be 0% interest debt, which is even a potentially financially responsible choice. It also might not be, but this article does no investigation whatsoever. My real guess though is it's likely driven primarily by sharply rising vehicle prices. In no way would the student debt pause increase the need for a frugal, but very expensive, vehicle purchase in the past 2 years.
"You still owe the same amount of money but now everything is more expensive so technically the debt is lower" is a hell of a take.
Real wages went up briefly but then inflation caught up and brought real wages back down to pre-covid levels.
So I guess real wages are the same but went up nominally so the debt is lower but displaced with new debt.
In my experience the inflation numbers are way off. For instance, take food:
> The food-at-home (grocery store or supermarket food purchases) CPI increased 0.1 percent from March 2023 to April 2023 and was 7.1 percent higher than April 2022; [1]
Does anyone believe that 7% YoY number? It's not like I was buying ground beef for $4 a pound and now its $4.28 a pound. It's more like prices went up from $4 to $5.50 a pound
I’ve never dug into the methodology but it makes no intuitive sense and seems far too low. Almost everything I buy is 40-50% more expensive than pre pandemic.
What I've noticed in my town is that the cheap employee-owned grocery store on that side of the tracks has had the same prices for years. But the stores on the other have increased their prices significantly, charging what the market will bear.
This is extremely non-generous to my post. I was very careful to say that it would be different for each individual, and tied to their personal earnings. We might disagree on whether the average student-loan borrower's earnings probably went up or probably went down, but it's not "a hell of a take".
I'd like to see numbers on the distribution of wage increases.
Economists love to point to wage increases as if they're inevitable, but I suspect that is not most people's experience.
Anecdotally it feels like there is a small class of white collar workers who can reasonably expect guaranteed wage increases, and there's everyone else who's wages are basically flat for the majority of their working years.
If many people's wage increases are flat, it kind of ruins a lot of these economic arguments like, "Pay your house off as slowly as possible because inflation eats into the debt" or "Student loans are cheaper because inflation reduced the debt".
Inflation doesn't magically reduce anything, it just makes everything more expensive.
It's the wage increases that make things cheaper, and unlike inflation, the Fed doesn't guarantee that those are going to happen. Just the opposite in fact.
> By the end of 2021, borrowers who saw their student loan payments paused increased their credit card, mortgage, and car-loan debt by $1,800 on average and even took on an additional $1,500 in student loan debt compared to those whose loan payments were not paused by the moratorium.
It’s pretty cut and dry that they are worse off. We can argue about the whys, but people asking for a pause should not have been taken even more student debts.
> adding people asking for a pause should not have been taken even more student debts.
Even if those borrowers were freshmen and sophomores, or decided to go to grad school in a down-cycle? 7% of student loan borrowers are still in school.
To make the math more obvious, let's say 10% of debtors are still in school. If each of those took on, on average, $15,000 of additional debt for the next school year, that means the entire population of debtors has increased their debt by an average of $1,500.
This article is misleading. After a quick glance at the paper, I don't think the increased student debt was from them getting more loans, it was because they didn't have to pay their loans. So obviously that's going to go up compared to those who are paying their loans.
And to me the data on other types of debt reads that they were in fact doing better then those with payments. It shows those without student loan payments were more likely to be able to afford a house or a car.
> A new working paper finds that borrowers whose loan payments were paused actually had more debt at the end of 2021 than those whose loans were never paused.
Yes, my student loans are the same as they were the day of the paid. Why on earth would I pay money toward a 0% interest loan in a high-inflation environment? My pay has jumped more than 50% since the start of the pandemic and the dollar’s value has decreased, I am guessing, by 20%. So, yes, the nominal value of my loans is the same, but the government has been kind enough to inflate a large amount of it away. Very bad conclusion drawn.
Setting aside whether the actual calculations and data in the paper are accurate, the overall conclusions in "Discussion", i.e. linking current liquidity to propension to take new debt, seems to make sense:
>Further, the finding that the increased consumption (through borrowing) is concentrated among never delinquent borrowers, whose creditworthiness hardly changes, highlights an important interaction between liquidity and credit.
>The policy serves as a liquidity shock that induces increased use of credit.
>The effects do not appear to be driven by the subset of borrowers who saw an improvement in their credit scores. This raises the question of why such credit was not previouslybeing used.
>We speculate that using credit requires a certain level of liquidity for making down payments or making the first due monthly payments. This interaction between liquidity and credit is important for policy design and highlights that policymakers should consider them jointly.
Though the real (troubling) conclusion seems to me that the more educated people are not (in large numbers/statistically) particularly good at managing their finances, which might indirectly mean that the less educated are really terrible at it.
> By the end of 2021, borrowers who saw their student loan payments paused increased their credit card, mortgage, and car-loan debt by $1,800 on average
Aren't mortgages good debt? And being able to afford a car isn't a sign that someone is worse off, either. Plus, it's good for the economy.
> and even took on an additional $1,500 in student loan debt compared to those whose loan payments were not paused by the moratorium.
Again, is this supposed to be a bad thing? It seems to imply that these borrowers are still in school.
Don't take on debt you can't payoff. Student loans should never be offered by the federal government as that is taxpayer's money. Those with the loans need to pay them back with interest.
Sure, they may have taken on other debt in the meantime but this article does nothing to disprove that debt would have been taken on anyways. It's not an article in good faith - they try to make it sound like the growth in debt was student-loan debt but it was other things. The article also uses a shotgun approach to list all the ways that pausing student loan debt could have 'made' people take on more debt than the would have otherwise -- but they never state what that new debt is or attempt to do any analysis of the driving factors that led to taking on that debt.
With the rise of "afterpay", "klarna", etc...it might mostly be 0% interest debt, which is even a potentially financially responsible choice. It also might not be, but this article does no investigation whatsoever. My real guess though is it's likely driven primarily by sharply rising vehicle prices. In no way would the student debt pause increase the need for a frugal, but very expensive, vehicle purchase in the past 2 years.