Joshua Mitchell, The Wall Street Journal Reporter and Author of 'The Debt Trap: How Student Loans Became a National Catastrophe', discusses the nation's student loan debt crisis.
AKIKO FUJITA: The Department of Education has canceled more than $9 billion in student debt under the Biden administration. But with Americans owing roughly $1.7 trillion in debt, our next guest says the student debt issue isn't just a crisis, but a catastrophe.
Let's bring in Josh Mitchell. He is a reporter at "The Wall Street Journal." He's out with a new book, The Debt Trap-- How Student Loans Became a National Catastrophe." We've also got Yahoo Finance's Aarthi Swaminathan joining in on the conversation.
Josh, this is certainly a very important issue I know Aarthi has covered extensively. But we've often referred to this as a crisis. What elevates it to a catastrophe?
JOSHUA MITCHELL: Sure. Well, let's just offer a point of comparison. At the height of the housing crisis, roughly 9% of mortgage debt was three months behind. If you take a look at where student debt stood in terms of how much was three months behind as of January 2020 before the pandemic, it was about 20% or more. This is according to the New York Fed.
So even in a good economy, one in five people with student debt in the repayment cycle are consistently behind. There are about 8 million people or so who have defaulted on their loans, which is a very high threshold. You have to go a year without making a payment. That's roughly in the same ballpark of the number of people who lost their homes to foreclosure during the housing crisis.
If you look at how much debt is what I would call toxic debt, meaning it's never going to get repaid, anywhere from a 1/3 or more of the debt is not going to get repaid, according to a report that took place under the Trump administration. That's approaching the amount of toxic debt that was on private lenders' books during the housing crash. If you look at how many senior citizens are having their social security checks reduced because of unpaid student debt, that's hundreds of thousands a year, according to a GAO study. So there are a number of ways to look at how many people are struggling to repay their debt. And any way you look at it, these are very high numbers of people.
AARTHI SWAMINATHAN: Josh, you have spent a lot more time than me looking into this issue. But in your book, you take us back to a time when this sort of just got started. And what struck me was that in many points, there were red flags that kind of arose. But why was no one strong enough to be able to say, look, I think there's something wrong, be it the universities or officials? I mean, why were accountability measures not introduced earlier in the phase before this became a full-blown crisis?
JOSHUA MITCHELL: Well, I think that's a good point. And there were good intentions along the way. You know, the program really started to get ramped up in the 1960s when, just as now, there was this big push to reduce inequality, to help poor people move into the middle class. This came in the thick of the civil rights movement.
And so there was this good intention to give everyone the opportunity to go to college. And college was seen as the surefire investment. And so, you know, at every step along the way, Congress was very reluctant to cut off anyone's access to college. And it just became the path of least resistance to give people loans. And it became very easy to ignore the fact that a lot of people were defaulting on their loans and a lot of people lied to themselves about the fact that people would repay this debt.
Congress just applied rosy-colored glasses to this program throughout the years and said, you know, look, we need to give our constituents access to student loans. This is a good investment. And now there are also a lot of interests that fought against any changes to this program. We can't ignore that, whether it was Sallie Mae, whether it was banks, whether it was other higher education groups.
I quote then Vice President George HW Bush saying every time the Reagan administration talked about putting in place changes to this program to really hold colleges' feet to the fire, president would visit him in his office and say, no, you can't cut off the student loan program. That's our economic lifeblood. So every time someone talked about this, there were people banging on lawmakers' doors saying, you can't do this because then there will be another type of economic catastrophe, which is that people won't have access to this golden ticket to the middle class.
ZACK GUZMAN: Yeah. And Josh, I mean, when we look at maybe what pressure is now facing the Biden administration to get this done, I mean, they did also cancel loans for students who had gone to ITT and other kind of considerations, but progressives keep pushing for kind of wider blanket student debt cancellations. The moratorium, once that lifts in January, people are going to be repaying this debt. So I mean, what's the likelihood-- we had heard some promises that a lot would get canceled when you listen to progressives. What's the likelihood that that ever actually happens?
JOSHUA MITCHELL: It doesn't look like it's going to happen. President Biden has consistently said this is something Congress likely has to do and that the White House can't do by executive action. Congress keeps on pointing to the White House saying, no, you should do this through executive action. Of course you have the legal authority to do it.
So they're just pointing fingers at each other. And I think that that is evidence in and of itself that this is not likely to happen, this blanket forgiveness. I think we could just look at the statements from the administration. They have raised doubts about doing that. So what they're doing is a piecemeal approach, where they are arguing that they do have these measures in place already under the law to help specific groups, but not through blanket forgiveness.
AARTHI SWAMINATHAN: Josh, I'm curious about what you found about bankruptcy and basically how it evolves through the years. Do you think there is more consensus now that maybe we can do bankruptcy reform instead of pursuing the forgiveness route, which is kind of a little bit more of a sensitive solution?
JOSHUA MITCHELL: Yeah, I think that's a great point. There is a bipartisan consensus. The Trump administration had concerns about the lack of bankruptcy protection for students, as did the Obama administration, members of Congress have said that. You know, the big obstacle I've always thought stood in the way of bankruptcy changes is it will ultimately show up as a cost in the government's budget.
If you say all of a sudden a lot more students than currently can file for bankruptcy, ultimately, if they do file for bankruptcy, taxpayers are going to have to absorb those losses. And so that will show up as a cost. And as you've seen over the years, you know, Congress fights a lot over spending. That being said, I do think there's a consensus here.
I think the other issue that we have to keep in mind is that bankruptcy happens at the end of the process. What about the start of the process? And so a lot of the measures that are in place to address student debt, or some of the problems I lay out in my book, a lot of them, again, are coming at the back end. There isn't as much talk about what happens at the front end. If you just keep on issuing student debt in the same fashion, which is basically giving families a blank check, you're just going to have more and more families end up in unrepayable debt over the years, and it doesn't really solve the underlying issue.
AKIKO FUJITA: Josh, what do you think the calculation has been on the side of colleges and universities? We've obviously seen declining enrollment. There are concerns about how they sort of make up the losses a lot of these universities felt during the pandemic too. But I wonder if you've seen a shift in the way they think about the value of that tuition at a time where students are clearly rethinking the value?
JOSHUA MITCHELL: Yeah, one of the more interesting shifts that's happened over the past 5 or 10 years has been that inflation and tuition has gone down. It's still rising-- tuition is still rising, but not at the pace that it had been rising. And I think that's partly reflective of the market forces that you just described.
Enrollment has gone down since 2010. I do think that families are becoming more cost conscious. Polls show that the share of families who say college is worth it, that share among the public has gone down. So I think-- in just a few years.
And we also see that consumers, families, students are becoming more aware, just through the availability of data put out by the Education Department, of what you can expect to earn when you go into a certain program at a certain college. So, you know, I think in some ways these shifts are positive for families. And I think colleges are increasingly-- they're under pressure to rein in their tuition increases. So that's one positive development I think we've seen.
AKIKO FUJITA: The issue of student debt, certainly something a lot of our viewers can relate to. Josh, it's great to talk to you today. Josh Mitchell joining us from "The Wall Street Journal."