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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 bell weather 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 La Follette
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's a little bit of a scenario 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 get fall behind on
their credit card loans 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 changes 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 opt 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 the 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 win a repayment plan before seeing their payments go up at
least five hundred dollars 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 reach 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 big issue with student loans unlike almost all our friends of debt is these are unsecured
loans and they don't go away in bankruptcy so you have to pay them back if your wages
will be garnished even your Social Security could be garnished 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 talked about?
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 pulls 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
midterms?
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 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 just not 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.
All right.
Well, thank you for your insights.
James Michael Collins.