◼ FINANCE Bloomberg Businessweek August 19, 201926
● As people postpone consumption, interest rates around the world are plungingaway loans held by teachers, firefighters, and
other public-service workers in 10 years.
The promotion of income-based repayment
plans led to a surge in participation. About 8 mil-
lion people are in such arrangements. The average
borrower who enrolled in 2017 avoided payments
of $327 a month on $50,743 in debt. As more people
reduced their monthly payments, delinquencies and
defaults fell. These plans have contributed to slower
repayments and rising balances. (Many borrowers in
these plans may not end up having their debt erased
because of paperwork errors that can cause people
to drop out of the program. Others may get raises
that enable them to pay off their debt.)
Looney, the former Treasury economist, says
it’s particularly alarming that former students are
stretching out payments now. Although the recov-
ery from the 2008 financial crisis has been slow,
unemployment is at a 50-year low and the economy
is in its longest expansion in history. What happens
if times get tougher? “I find this all terrifying,” says
Looney, a senior fellow in economic studies at the
Brookings Institution.
So does a thirtysomething Chicago couple, Jena
Kehoe and Warren Williams. They’re watching the
balance of their $67,000 in federal loans rise by atTHE BOTTOM LINE At the rate borrowers are paying down their
student loans, many will see their balances linger for a long time.
Some could end up having their debts forgiven.Keyairra Wright, 32, of Bridgeport, Conn., is proud
of being frugal. “I have clothes since I was a first-
year teacher in 2008,” says Wright, who switched
careers this year from teaching math to developing
educational software. “There are no holes in them.
They may not be the latest fashion, but they serve
the functions that clothes serve.”
Writ large, frugality like hers may be one expla-
nation there’s almost $16 trillion of debt worldwide
with a yield of less than zero. Patience, thrift, and
caution might be too much of a good thing, contrib-
uting to a glut of savings. People no longer have to be
bribed with a high interest rate to save rather thanleast $40 every month, even while Kehoe shells out
the required $200 she owes.
Williams, an epileptic, can’t make his pay-
ments and still afford premiums for health insur-
ance. Kehoe borrowed for a bachelor’s degree in
English. Williams dropped out of a now-shuttered
for-profit college after transferring from a state uni-
versity. He works as a film editor, she as an editor at
a publishing company. They’d like to start a family,
but they’re delaying having kids in part because of
their debts. “It’s become such an insurmountable
thing,” Kehoe says.
James Kvaal, a senior Obama adviser who helped
craft higher education policies, says no one knows
how the country will navigate its current level of
education borrowing. “We are running a big experi-
ment here: No generation before has carried student
debt burdens anything like what today’s students are
carrying,” says Kvaal, now president of the Institute
for College Access & Success, a nonprofit education
research and advocacy group. “There will be sub-
stantial amounts of student debt that will never be
repaid.”�Shahien Nasiripour, with David Ingold$1.6t0.80
2006 2018● Outstanding student
debt, yearendconsume. The yield on 30-year U.S. Treasury bonds,
while not negative, fell to a record low on Aug. 14.
The question is what’s changed. Is it the people or
their circumstances? Negative interest rates are such
a new phenomenon that speculation on their cause
is wide-ranging. Former Federal Reserve Chairman
Alan Greenspan and Joachim Fels, global economic
adviser at Pacific Investment Management Co., a
large bond-fund manager, say they’re open to the
possibility that people’s core habits have changed,
making them value consumption in the future as
much as or more than consumption in the present.
Economic forces may have “altered people’s timeWhen Patience
Isn’t a Virtue