We should note that PBS Wisconsin
is a part of UW-Madison.
Trying to make college more
affordable could help the problem
of student loan defaults.
Thousands of people across Wisconsin
are not keeping up with repayment
of student loans.
According to Wisconsin Watch, more
than 100,000 or 15%
of borrowers in the state carry
loans that are in default,
having not made a payment in 360
days.
What kind of a bellwether is this
for the overall economy, and
what's the consequence?
We turn to J.
Michael Collins, a consumer finance
expert and professor at the
LaFollette School of Public Affairs.
And thanks very much for being here.
Thanks for having me.
So what kind of a marker are student
loan defaults for larger economic
struggles?
I mean, it is a little bit of a
canary in the coal mine, because if
you think about it, many people who
have student loans also have credit
card loans, they might have
mortgages, auto loans.
These are the loans that they
probably have delayed on making
payments on. So once they get behind
on these loans, there could be a
cascade where they fall behind on
their credit card loan and other
kinds of loans.
So it is something that's very
concerning.
How predictable is it that
people who hold potentially hefty
student loans wouldn't be able to
repay them once the Biden era
help kind of phased out?
There's a lot of different things
going on. I mean, the Biden era help
was also with the pandemic.
And so there was this long period
where no payments were required
almost three years.
So now borrowers have to get back in
the habit of making payments again.
Simultaneously, though, we change
the rules, meaning the federal
government changed the rules.
And so it's even a conscientious
borrower is going to have a hard
time when the payment plans are
changing, when they're getting
opting into plans, if they don't
take an action.
So that's made it really hard, I
think, for people to try to keep up
with what the current rules and
regulations are.
What's an example of how payments
might have ballooned when these
favorable repayment
plans went away?
I mean, one of the examples is we
had at one point in time, we had
probably too many different
repayment plans that people could
opt into, but the
sort of standard plan today would
result in borrowers who were in a
repayment plan before seeing their
payments go up at least $500 a
month. So that's a big, big shift,
especially when they were maybe
paying very little during the COVID
period.
Other plans you actually have to
take action to step up and
get to your servicer.
That means standing in a
virtual line for the phone or
otherwise trying to get reach of
them. It's been really hard.
There's a big backlog to try to get
access to that help that you need.
What is the consequence for people
who actually go into default
on these loans?
The the big issue with student
loans and like almost all our forms
of debt as these are unsecured loans
And they don't go away in bankruptcy
So you have to pay them
back if you don't your
wages will be garnished even your
Social Security could be garnered as
you get Older so there really
is no recourse but to pay these
loans back Most of the new payment
plans are actually stretching
payments now over 30 years So
that's quite a long time to have
that burden of payments that you're
going to take care of
Meanwhile, consumer spending
ticked down this summer and
job numbers were revised down.
How is the weight of inflation,
the higher cost of things, dragging
down the economy amidst all
of the rest of what we've done?
The surveys of consumer
sentiment that the University of
Michigan and other places do are all
ticking downwards.
People seem troubled.
I think if you look at the inflation
numbers, it's not terrible outside
of particularly oil, but what
people really feel like is that
their wages aren't keeping up.
In other words, the paycheck is not
going up as much as prices for
everything else. And so in lots of
surveys, people think that they
will. Actually, their budget will be
worse off this year because their
raises and their income won't match
their cost of living.
And so that's really that squeeze
that people are feeling and making
it hard to keep up with everything,
including student loans.
And meanwhile, you also say that
September 4 is a day
that people will be looking at too
wide.
Right now the information that we
have, the data we have is pretty
mixed.
So consumer sentiment seems kind of
weak, inflation
numbers, like a lot of the numbers
are just kind of very middling.
And so it's hard to look at the
numbers and draw any conclusions.
But the last jobs report, as you
mentioned, was pretty negative.
And so this next jobs report will
really tell us if this is a trend.
If we see another really weak jobs
report that suggests that places
aren't hiring, maybe places
are even letting people go.
We worry about what this fall might
look like in terms of higher
unemployment as well.
Speaking of that, the economy polls
as a key election issue, as it
always does.
What is it like out there for the
average voter in Wisconsin kind
of heading into the midterm?
Yeah, I mean, this anxiety
that people feel, this worry that
people feel, they take it out in
lots of different ways.
And so one of those ways is the
government isn't doing it for me.
And so I think this will
particularly be hard for any
incumbent, particularly anybody
who's associated with the current
administration is going to have to
sort of make an argument that they
didn't contribute to the problems.
It's not clear that what any
politician can do in the light of
the current economic economic
situation.
But it certainly is making voters
very anxious and perhaps a
little bit rebellious in their votes
this year.
And your crystal ball would suggest
that potentially it won't
get better before November?
The numbers have shown us,
if anything, more negative
signals than positive signals, so
maybe things won't be getting as
worse as the worst case
scenario, but it looks very unlikely
it's going to get a lot better.
Well, thank you for your insights,
J. Michael Collins.
Yeah, it was great.
Thanks. I love that.