Bloomberg Businessweek - USA (2019-08-19)

◼ FINANCE Bloomberg Businessweek August19, 2019

26

● Aspeoplepostponeconsumption,interestratesaroundtheworldareplunging

awayloansheldbyteachers,firefighters,and

otherpublic-serviceworkersin 10 years.

Thepromotionofincome-basedrepayment

plansledtoa surgeinparticipation.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

BrookingsInstitution.

Sodoesa thirtysomethingChicagocouple,Jena

KehoeandWarrenWilliams.They’rewatchingthe

balanceoftheir$67,000infederalloansrisebyat

THEBOTTOMLINE Attherateborrowersarepayingdowntheir

studentloans,manywillseetheirbalanceslingerfora longtime.

Somecouldenduphavingtheirdebtsforgiven.

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

thefunctionsthatclothesserve.”

Writlarge,frugalitylikehersmaybeoneexpla-

nationthere’salmost$16trillion 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 than

least$40everymonth,evenwhileKehoeshellsout

therequired$200sheowes.

Williams, anepileptic,can’tmakehispay-

mentsandstillaffordpremiumsforhealthinsur-

ance.Kehoeborrowedfora bachelor’sdegreein

English.Williamsdroppedoutofa now-shuttered

for-profitcollegeaftertransferringfroma stateuni-

versity.Heworksasa filmeditor,sheasaneditorat

a publishingcompany.They’dliketostarta family,

butthey’redelayinghavingkidsinpartbecauseof

theirdebts.“It’sbecomesuchaninsurmountable

thing,”Kehoesays.

JamesKvaal,a seniorObamaadviserwhohelped

crafthighereducationpolicies,saysnooneknows

howthecountrywillnavigateitscurrentlevelof

educationborrowing.“Wearerunninga bigexperi-

menthere:Nogenerationbeforehascarriedstudent

debtburdensanythinglikewhattoday’sstudentsare

carrying,”saysKvaal,nowpresidentoftheInstitute

forCollegeAccess& Success,a nonprofiteducation

researchandadvocacygroup.“Therewillbesub-

stantialamountsofstudentdebtthatwillneverbe

repaid.”�ShahienNasiripour,withDavidIngold

$1.6t

0.8

0

2006 2018

● Outstanding student

debt, yearend

consume.Theyieldon30-yearU.S.Treasurybonds,

whilenotnegative,felltoa recordlowonAug.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 time

When Patience

Isn’t a Virtue