WEBVTT 00:00:00.000 --> 00:00:01.879 Okay, let's unpack this. We're doing a deep dive 00:00:01.879 --> 00:00:07.120 into this enormous, structurally complex, and 00:00:07.120 --> 00:00:11.080 let's be honest, often anxiety -inducing financial 00:00:11.080 --> 00:00:13.439 world of student loans. It really is a world 00:00:13.439 --> 00:00:15.880 unto itself. Right. This is debt that's designed 00:00:15.880 --> 00:00:18.839 specifically for, you know, university or college 00:00:18.839 --> 00:00:22.179 tuition, books, living expenses, and right away 00:00:22.179 --> 00:00:24.660 it's just... It's a unique beast. Completely 00:00:24.660 --> 00:00:26.640 different. It's not like a standard consumer 00:00:26.640 --> 00:00:29.120 loan or a mortgage. Exactly. They often have 00:00:29.120 --> 00:00:31.059 these lower interest rates at the start, and 00:00:31.059 --> 00:00:34.280 this is the big one deferred repayment while 00:00:34.280 --> 00:00:36.899 you are still in school, while you're actually 00:00:36.899 --> 00:00:39.600 learning. And that sounds so consumer friendly 00:00:39.600 --> 00:00:41.780 on the surface, doesn't it? It really does. It 00:00:41.780 --> 00:00:44.520 does. But those borrower friendly features, they 00:00:44.520 --> 00:00:46.859 kind of mask the fundamental distinction that 00:00:46.859 --> 00:00:50.359 makes this debt so different and so risky across 00:00:50.359 --> 00:00:52.780 the globe. OK, what's that? We're talking about 00:00:52.780 --> 00:00:55.079 the really strict legal protection that these 00:00:55.079 --> 00:00:57.899 loans get specifically around renegotiation and. 00:00:58.359 --> 00:01:00.899 And bankruptcy. Once you sign for a student loan 00:01:00.899 --> 00:01:04.000 in many places, it is incredibly difficult. I 00:01:04.000 --> 00:01:06.560 mean, almost impossible to get rid of that debt, 00:01:06.620 --> 00:01:09.620 even if you face, you know, genuine dire financial 00:01:09.620 --> 00:01:12.299 trouble later in life. So that legal shield, 00:01:12.400 --> 00:01:15.629 it just it. shifts all the financial risk. It 00:01:15.629 --> 00:01:18.230 does. And what's so fascinating is seeing how 00:01:18.230 --> 00:01:20.829 different countries manage that risk. In some 00:01:20.829 --> 00:01:23.150 places, the risk is carried by the state or, 00:01:23.290 --> 00:01:25.709 and this is surprising, sometimes even the universities 00:01:25.709 --> 00:01:29.010 themselves. So our mission today is to be your 00:01:29.010 --> 00:01:32.329 guides through this global financial maze. We've 00:01:32.329 --> 00:01:34.250 got sources that compare systems all over the 00:01:34.250 --> 00:01:36.829 world and others that take a... you know, a razor 00:01:36.829 --> 00:01:38.890 sharp look at the behemoth that is the United 00:01:38.890 --> 00:01:40.730 States system. We're going to dissect everything 00:01:40.730 --> 00:01:42.790 from countries where, you know, debt collection 00:01:42.790 --> 00:01:45.170 is handled like a supplementary tax. All the 00:01:45.170 --> 00:01:47.409 way to places offering zero interest incentives. 00:01:47.590 --> 00:01:50.069 And we have to grapple with the sheer, just daunting 00:01:50.069 --> 00:01:52.569 size of the U .S. system, that $1 .6 trillion 00:01:52.569 --> 00:01:55.530 debt load from 2020. Exactly. We need to understand 00:01:55.530 --> 00:01:57.969 the policy choices that decide whether this investment 00:01:57.969 --> 00:02:01.250 is, for you, a path to financial freedom or if 00:02:01.250 --> 00:02:03.680 it becomes a decades -long ball and chain. We're 00:02:03.680 --> 00:02:06.200 looking for those aha moments in how these policies 00:02:06.200 --> 00:02:08.199 are designed. You know, how do different governments 00:02:08.199 --> 00:02:11.979 structure this to encourage access but also try 00:02:11.979 --> 00:02:14.620 to avoid massive default risk? Precisely. And 00:02:14.620 --> 00:02:16.719 I think we should start with what are, to me, 00:02:16.800 --> 00:02:18.960 some of the most radical and efficient approaches. 00:02:19.740 --> 00:02:23.039 Systems where repayment is just, it's built right 00:02:23.039 --> 00:02:25.699 into the national income and tax structure. Making 00:02:25.699 --> 00:02:27.680 it almost automatic. And totally conditional 00:02:27.680 --> 00:02:30.319 on you earning a living wage. When you look at 00:02:30.319 --> 00:02:33.210 countries like... Australia, New Zealand, the 00:02:33.210 --> 00:02:37.530 UK, they seem to have recognized that education 00:02:37.530 --> 00:02:40.590 is this kind of conditional public investment. 00:02:40.770 --> 00:02:42.250 That's a great way to put it. The government 00:02:42.250 --> 00:02:44.830 invests in your education and you pay that investment 00:02:44.830 --> 00:02:47.210 back when and if you get a direct financial benefit 00:02:47.210 --> 00:02:49.449 from it. It's a complete philosophical pivot. 00:02:49.530 --> 00:02:52.009 It's moving away from treating education debt 00:02:52.009 --> 00:02:55.150 like a normal commercial contract. Let's start 00:02:55.150 --> 00:02:57.250 with Australia's system, the Higher Education 00:02:57.250 --> 00:03:02.129 Contribution Scheme, or HECSHLP. Okay. The key 00:03:02.129 --> 00:03:04.270 insight here, and this is so crucial, is that 00:03:04.270 --> 00:03:07.810 the student funding from HECS HLP is legally 00:03:07.810 --> 00:03:10.349 and functionally not considered a normal commercial 00:03:10.349 --> 00:03:14.169 debt. OK, let's unpack that. If it's not a normal 00:03:14.169 --> 00:03:16.860 debt. Yeah. What does that mean in like practical 00:03:16.860 --> 00:03:19.120 terms for someone who just graduated? It means 00:03:19.120 --> 00:03:21.879 the whole collection process is completely separate 00:03:21.879 --> 00:03:24.120 from traditional banking or credit enforcement. 00:03:25.099 --> 00:03:27.680 Repayment happens through a supplementary tax. 00:03:27.919 --> 00:03:30.419 No tax. Yes. And it's on a sliding scale that's 00:03:30.419 --> 00:03:32.620 directly tied to your annual taxable income. 00:03:33.120 --> 00:03:35.219 This makes sure that repayments are only made 00:03:35.219 --> 00:03:37.860 when you, the former student, cross a specific 00:03:37.860 --> 00:03:40.340 income threshold that can actually support those 00:03:40.340 --> 00:03:42.400 payments. So if you're unemployed. Or you're 00:03:42.400 --> 00:03:44.780 earning below that line. You owe nothing. The 00:03:44.780 --> 00:03:47.340 debt just sits there patiently waiting for your 00:03:47.340 --> 00:03:50.729 income to rise. It creates this powerful. built 00:03:50.729 --> 00:03:53.770 in safety net. It protects borrowers from financial 00:03:53.770 --> 00:03:56.650 ruin during, you know, low earning periods or 00:03:56.650 --> 00:03:59.629 career changes. Sounds incredibly fair. But our 00:03:59.629 --> 00:04:01.550 sources flagged a really interesting behavioral 00:04:01.550 --> 00:04:04.430 response to this. A big policy consequence. Yeah. 00:04:04.469 --> 00:04:07.330 If repayment is tied to filing an Australian 00:04:07.330 --> 00:04:10.990 tax return, what happens if I graduate as a highly 00:04:10.990 --> 00:04:13.689 skilled engineer and I decide to take my skills 00:04:13.689 --> 00:04:16.930 and my high salary to London or Silicon Valley 00:04:16.930 --> 00:04:19.360 for the next decade? That is the critical flaw. 00:04:19.579 --> 00:04:22.420 Or maybe, you know, the unintentional incentive 00:04:22.420 --> 00:04:26.079 that the HECS HLLP scheme has been criticized 00:04:26.079 --> 00:04:28.819 for. Right. Because they tied repayment exclusively 00:04:28.819 --> 00:04:32.079 to their own internal tax system, any highly 00:04:32.079 --> 00:04:34.699 educated person who moves overseas and stops 00:04:34.699 --> 00:04:38.220 filing an Australian tax return, well, they effectively 00:04:38.220 --> 00:04:40.420 stop making repayments. So Australia educated 00:04:40.420 --> 00:04:42.920 you. You have all this human capital, but they 00:04:42.920 --> 00:04:44.899 lose the financial return on that investment. 00:04:45.399 --> 00:04:48.759 It's a perfect real world example of policy design 00:04:48.759 --> 00:04:51.500 accidentally creating an incentive for a brain 00:04:51.500 --> 00:04:54.779 drain. The country invests in talent only to 00:04:54.779 --> 00:04:57.160 lose it to global competitors who didn't pay 00:04:57.160 --> 00:05:00.120 that initial cost. And the economic cost of educating 00:05:00.120 --> 00:05:02.240 and then losing those higher earning graduates 00:05:02.240 --> 00:05:04.720 has to be huge. You're losing both the tax revenue 00:05:04.720 --> 00:05:08.069 and the. productivity of that worker. Absolutely. 00:05:08.290 --> 00:05:10.509 They actually had to bring in new laws recently 00:05:10.509 --> 00:05:13.329 to try and track and compel people overseas to 00:05:13.329 --> 00:05:15.990 repay, which just goes to show how serious that 00:05:15.990 --> 00:05:18.009 leakage problem became. Okay, so now let's look 00:05:18.009 --> 00:05:20.250 at New Zealand. They take this conditional repayment 00:05:20.250 --> 00:05:22.930 idea and add another layer, an even more aggressive 00:05:22.930 --> 00:05:25.300 incentive to keep their talent at home. Zero 00:05:25.300 --> 00:05:27.620 interest for residents? That's a huge deal. New 00:05:27.620 --> 00:05:30.699 Zealand system is a masterclass in incentivizing 00:05:30.699 --> 00:05:33.079 residency. The loans are pretty comprehensive. 00:05:33.399 --> 00:05:35.639 They cover fees and living costs for full -time 00:05:35.639 --> 00:05:38.360 students. Part -time students just get fees covered. 00:05:38.939 --> 00:05:42.480 But the core mechanism, this zero interest rule, 00:05:42.759 --> 00:05:47.040 it changes the entire equation. How so? As long 00:05:47.040 --> 00:05:49.779 as you are a resident of New Zealand, no interest 00:05:49.779 --> 00:05:52.899 is charged on your loan balance, period. So the 00:05:52.899 --> 00:05:55.529 debt doesn't grow? You're only ever paying back 00:05:55.529 --> 00:05:57.810 the principal, the money you actually borrowed 00:05:57.810 --> 00:06:00.329 in the first place. That completely changes the 00:06:00.329 --> 00:06:02.449 math for long term financial planning. It makes 00:06:02.449 --> 00:06:05.410 the debt so much more manageable. And like Australia, 00:06:05.610 --> 00:06:07.610 they've automated the collection process beautifully. 00:06:08.230 --> 00:06:10.509 Repayment kicks in when your income goes over 00:06:10.509 --> 00:06:12.569 a minimum threshold. And the employer just takes 00:06:12.569 --> 00:06:15.089 it out. Yep. Employers automatically deduct the 00:06:15.089 --> 00:06:17.350 repayment from your salary. It's a fixed rate, 00:06:17.490 --> 00:06:20.149 12 cents on the dollar. And it's collected directly 00:06:20.149 --> 00:06:23.490 by New Zealand's tax authority, the IRD. It's 00:06:23.490 --> 00:06:26.189 integrated, it's efficient, and because the principle 00:06:26.189 --> 00:06:28.610 isn't ballooning, it really feels more like a 00:06:28.610 --> 00:06:30.930 public service arrangement than a crushing financial 00:06:30.930 --> 00:06:33.129 burden. All right, let's pivot to the United 00:06:33.129 --> 00:06:35.129 Kingdom. We're moving across the Tasman Sea. 00:06:35.370 --> 00:06:38.449 The UK uses that tax collection mechanism too, 00:06:38.589 --> 00:06:40.870 but they handle the interest part very differently. 00:06:41.839 --> 00:06:43.699 This is where we start to see a bit of a compromise. 00:06:43.879 --> 00:06:46.560 Yeah, a compromise between, say, consumer protection 00:06:46.560 --> 00:06:50.160 and fiscal reality. The UK system, which is run 00:06:50.160 --> 00:06:52.459 mostly by the state -owned student loans company 00:06:52.459 --> 00:06:55.939 or SLC, is famously complex. It's evolved through 00:06:55.939 --> 00:06:58.399 all these different plans, Plan 1, Plan 2, now 00:06:58.399 --> 00:07:00.680 Plan 5. And unlike New Zealand, the interest 00:07:00.680 --> 00:07:03.399 starts ticking right away. Immediately. Interest 00:07:03.399 --> 00:07:05.379 begins to accumulate as soon as you get the loan 00:07:05.379 --> 00:07:08.180 funds. However, like Australia, repayment is 00:07:08.180 --> 00:07:10.500 deferred until the tax year after you finish 00:07:10.500 --> 00:07:12.579 or, you know, drop out of your education. So 00:07:12.579 --> 00:07:15.040 the debt is growing from day one, but the actual 00:07:15.040 --> 00:07:17.720 obligation to pay is paused until you're theoretically 00:07:17.720 --> 00:07:20.420 out there earning an income. And since 98, they've 00:07:20.420 --> 00:07:22.879 also used the HMRC tax system for collection, 00:07:23.120 --> 00:07:26.399 just like their Commonwealth neighbors. Precisely. 00:07:26.399 --> 00:07:29.060 Repayments are collected by HMRC and are calculated 00:07:29.060 --> 00:07:31.579 based on your current income. If your income 00:07:31.579 --> 00:07:34.500 falls below a certain threshold and that threshold 00:07:34.500 --> 00:07:37.500 changes depending on your loan plan, you don't 00:07:37.500 --> 00:07:39.480 have to make any repayments. Could you give an 00:07:39.480 --> 00:07:41.980 example? Sure. For loans taken out in the 2012 00:07:41.980 --> 00:07:46.160 -2013 tax year, the threshold was £21 ,000. So 00:07:46.160 --> 00:07:50.680 if you earned £20 ,999, you paid nothing, but 00:07:50.680 --> 00:07:54.040 the interest kept on accruing. That accumulating 00:07:54.040 --> 00:07:56.019 interest is the critical difference, isn't it? 00:07:56.079 --> 00:07:58.220 It means the loan balance is constantly getting 00:07:58.220 --> 00:08:00.540 bigger, which could be devastating if you spend 00:08:00.540 --> 00:08:02.980 years in a lower paying field. It can be. But 00:08:02.980 --> 00:08:05.360 the U .K. system offers the ultimate safety valve 00:08:05.360 --> 00:08:08.079 forgiveness. The long term safety net. Exactly. 00:08:08.300 --> 00:08:10.160 It's built right into the structure. Loans are 00:08:10.160 --> 00:08:12.139 always canceled if the borrower dies or becomes 00:08:12.139 --> 00:08:14.180 permanently unable to work. And they're also 00:08:14.180 --> 00:08:16.819 canceled after a specific amount of time. Traditionally, 00:08:16.819 --> 00:08:19.220 this was 30 years. But our sources flagged a 00:08:19.220 --> 00:08:21.639 huge policy shift here. It seems to reflect the 00:08:21.639 --> 00:08:24.019 rising cost of education and the government trying 00:08:24.019 --> 00:08:25.959 to get more of its investment back. This is a 00:08:25.959 --> 00:08:28.819 major area of controversy right now. It's the 00:08:28.819 --> 00:08:30.779 shift to what they're calling Repayment Plan 00:08:30.779 --> 00:08:34.100 5. For this newest group of students, starting 00:08:34.100 --> 00:08:37.840 from January 2025, the cancellation period is 00:08:37.840 --> 00:08:40.980 being extended from 30 years to a staggering 00:08:40.980 --> 00:08:44.240 40 years. 40 years. Let's just pause there and 00:08:44.240 --> 00:08:46.740 process that. If you start making payments at, 00:08:46.840 --> 00:08:50.700 say, 22. you will be on the hook for that student 00:08:50.700 --> 00:08:53.500 loan until you are 62 years old. Potentially 00:08:53.500 --> 00:08:55.700 well into your retirement years. It basically 00:08:55.700 --> 00:08:58.360 converts the debt into a lifetime obligation 00:08:58.360 --> 00:09:01.019 for anyone who doesn't earn enough to pay it 00:09:01.019 --> 00:09:03.580 off faster. It creates enormous financial uncertainty 00:09:03.580 --> 00:09:06.399 that can span an entire career. It really raises 00:09:06.399 --> 00:09:08.259 questions about whether that's a safety net or 00:09:08.259 --> 00:09:10.809 just a prolonged commitment. And speaking of 00:09:10.809 --> 00:09:14.029 prolonged commitments, the UK also has this fascinating, 00:09:14.190 --> 00:09:17.309 complicated history with its early 1990s loan 00:09:17.309 --> 00:09:19.809 portfolio. Right. This highlights the administrative 00:09:19.809 --> 00:09:21.669 nightmare that can happen when you try to move 00:09:21.669 --> 00:09:24.009 debt collection away from that central tax system. 00:09:24.210 --> 00:09:27.129 Exactly. Loans that were issued between 1990 00:09:27.129 --> 00:09:29.710 and 1998 were not collected through the seamless 00:09:29.710 --> 00:09:32.669 tax system. Instead, the student was totally 00:09:32.669 --> 00:09:35.230 responsible for proving their own financial distress. 00:09:35.649 --> 00:09:39.120 So the burden was on you, the borrower. The onus 00:09:39.120 --> 00:09:42.200 was entirely on the loan holder to actively prove, 00:09:42.419 --> 00:09:45.220 usually every year, that their income fell below 00:09:45.220 --> 00:09:47.340 the deferment threshold if they wanted to pause 00:09:47.340 --> 00:09:49.620 their payments. That sounds like a constant bureaucratic 00:09:49.620 --> 00:09:53.320 headache. It was. And then, in 2013, this specific 00:09:53.320 --> 00:09:56.279 portfolio of early loans was sold by the government 00:09:56.279 --> 00:09:59.429 to a private company called Erudio. So suddenly 00:09:59.429 --> 00:10:00.990 you're not dealing with the government anymore. 00:10:01.230 --> 00:10:03.409 Nope. Suddenly, graduates who signed up for a 00:10:03.409 --> 00:10:05.309 government -managed plan were dealing with a 00:10:05.309 --> 00:10:07.929 private entity where they had to constantly prove 00:10:07.929 --> 00:10:10.789 their poverty to avoid having to make repayments. 00:10:10.929 --> 00:10:12.389 And what happened? What were the consequences 00:10:12.389 --> 00:10:15.090 of that? Collection issues just soared. We saw 00:10:15.090 --> 00:10:17.029 complaints that even graduates who had fully 00:10:17.029 --> 00:10:19.710 repaid their loans or who were properly deferred 00:10:19.710 --> 00:10:21.909 were still having large amounts. We're talking 00:10:21.909 --> 00:10:24.649 up to 300 pounds a month. taken from their accounts 00:10:24.649 --> 00:10:27.129 without reason. And I imagine getting that money 00:10:27.129 --> 00:10:30.049 back was a nightmare. Oh, an immense administrative 00:10:30.049 --> 00:10:32.710 labyrinth to get those deductions stopped and 00:10:32.710 --> 00:10:34.950 get the money refunded. It goes to show that 00:10:34.950 --> 00:10:37.850 even in a highly centralized system, selling 00:10:37.850 --> 00:10:40.750 off debt portfolios carries huge risks for the 00:10:40.750 --> 00:10:42.850 borrower. So we've seen that tax -based collection 00:10:42.850 --> 00:10:46.610 is a really powerful global model. But if we 00:10:46.610 --> 00:10:49.980 expand our view, we see countries... using these 00:10:49.980 --> 00:10:52.679 unique, sometimes surprising enforcement tools 00:10:52.679 --> 00:10:55.720 that go way beyond just tax collection. Absolutely. 00:10:56.000 --> 00:10:58.759 The contrast between these systems and, you know, 00:10:58.759 --> 00:11:01.259 the U .S. system we're about to get into really 00:11:01.259 --> 00:11:04.059 emphasizes the sheer range of solutions out there. 00:11:04.139 --> 00:11:06.600 Let's look at Canada, specifically British Columbia. 00:11:06.740 --> 00:11:09.480 They introduced a non -financial penalty that's 00:11:09.480 --> 00:11:11.720 a really powerful compliance tool. What's so 00:11:11.720 --> 00:11:13.419 interesting here is that the penalty doesn't 00:11:13.419 --> 00:11:15.139 hit your bank account or your credit score in 00:11:15.139 --> 00:11:17.580 the usual way. It hits your mobility. That's 00:11:17.580 --> 00:11:19.899 exactly right. In British Columbia, the Insurance 00:11:19.899 --> 00:11:22.659 Corporation of British Columbia, the ICBC, which 00:11:22.659 --> 00:11:25.059 manages all driver's licensing in the province, 00:11:25.299 --> 00:11:28.559 they can actually withhold the issuance or renewal 00:11:28.559 --> 00:11:30.700 of your driver's license if you're delinquent 00:11:30.700 --> 00:11:33.159 on student loan repayments. They enforce it alongside 00:11:33.159 --> 00:11:36.620 other debts like unpaid court fines or child 00:11:36.620 --> 00:11:39.460 support. I have to stop there. Just imagine that 00:11:39.460 --> 00:11:42.399 for a second you can't drive to your job, which 00:11:42.399 --> 00:11:44.519 is how you earn the money to pay the loan because 00:11:44.519 --> 00:11:46.679 you haven't paid the loan. That's a textbook 00:11:46.679 --> 00:11:50.240 debt trap. It's a drastic measure for sure, but 00:11:50.240 --> 00:11:52.580 it highlights the immense policy control the 00:11:52.580 --> 00:11:55.240 government has over the system. And it's all 00:11:55.240 --> 00:11:57.620 directly government controlled, which lets them 00:11:57.620 --> 00:12:00.820 use these really specific non -traditional enforcement 00:12:00.820 --> 00:12:03.100 tools like a driver's license freeze to make 00:12:03.100 --> 00:12:05.799 sure people comply. Okay, moving over to Asia. 00:12:05.919 --> 00:12:08.820 South Korea adds this incredibly nuanced layer 00:12:08.820 --> 00:12:11.860 to the discussion that links financial risk directly 00:12:11.860 --> 00:12:14.620 to... your academic choices. This is one of the 00:12:14.620 --> 00:12:17.240 most compelling bits of data we found. South 00:12:17.240 --> 00:12:19.259 Korea's loans are managed by the Korea Student 00:12:19.259 --> 00:12:23.000 Aid Foundation, or COSAF. It was set up in 2009 00:12:23.000 --> 00:12:25.860 with this very ambitious philosophy. No student 00:12:25.860 --> 00:12:27.679 should quit studying due to financial reasons. 00:12:27.940 --> 00:12:30.559 A noble goal. Very. They see their role as helping 00:12:30.559 --> 00:12:32.600 students grow into talents that will serve the 00:12:32.600 --> 00:12:35.159 nation. But the market reality seems to clash 00:12:35.159 --> 00:12:37.500 with that idealism when it comes time for repayment. 00:12:37.639 --> 00:12:40.720 How so? It absolutely does. COSAF found that 00:12:40.720 --> 00:12:43.639 the default rate is direct correlated to a student's 00:12:43.639 --> 00:12:46.399 academic major when you compare them to other 00:12:46.399 --> 00:12:49.279 fields students in for example fine arts and 00:12:49.279 --> 00:12:51.980 physics have a statistically higher default rate 00:12:51.980 --> 00:12:54.779 that is counterintuitive I would expect maybe 00:12:54.779 --> 00:12:57.960 some vocational degrees but physics it suggests 00:12:57.960 --> 00:13:00.279 that while the ultimate payoff from a physics 00:13:00.279 --> 00:13:02.940 or fine arts degree might be immense you know 00:13:02.940 --> 00:13:04.899 in research or teaching or cultural contributions 00:13:06.159 --> 00:13:08.399 The immediate job market and the predictable 00:13:08.399 --> 00:13:11.519 salary trajectory are riskier. This leads to 00:13:11.519 --> 00:13:14.480 higher rates of initial unemployment or underemployment. 00:13:14.600 --> 00:13:16.899 Which in turn makes it harder to repay the debt. 00:13:17.039 --> 00:13:18.940 Exactly. So the data is telling the government 00:13:18.940 --> 00:13:21.000 that an investment in certain fields carries 00:13:21.000 --> 00:13:23.379 a higher financial risk of not being paid back. 00:13:23.679 --> 00:13:26.539 And COSAF recognizes a broader implication here. 00:13:26.679 --> 00:13:28.480 What's that? They acknowledge that a long period 00:13:28.480 --> 00:13:30.779 of unemployment right after graduation tends 00:13:30.779 --> 00:13:33.620 to lead to an inferior quality of human capital. 00:13:33.940 --> 00:13:36.100 This means the default is... isn't just a number 00:13:36.100 --> 00:13:38.919 on a ledger, it's a social and economic problem 00:13:38.919 --> 00:13:41.200 where your educated workforce isn't being used 00:13:41.200 --> 00:13:44.740 efficiently. It forces the question, if the government 00:13:44.740 --> 00:13:47.480 values those fields, shouldn't the financial 00:13:47.480 --> 00:13:49.539 risk be shared differently? That's the heart 00:13:49.539 --> 00:13:52.019 of it. That kind of data makes the decision of 00:13:52.019 --> 00:13:54.460 what you study an immediate, potentially punitive 00:13:54.460 --> 00:13:57.059 financial calculation, not just an academic one. 00:13:57.200 --> 00:13:59.710 Now switching gears to India. We see a focus 00:13:59.710 --> 00:14:02.669 not on enforcement, but on this massive rapid 00:14:02.669 --> 00:14:05.370 scaling by the government to manage the sheer 00:14:05.370 --> 00:14:07.750 volume of student financing they need. India 00:14:07.750 --> 00:14:10.090 had an enormous logistical challenge. I mean, 00:14:10.090 --> 00:14:13.029 how do you coordinate loan access for that massive 00:14:13.029 --> 00:14:16.389 student population? So to deal with it, the government 00:14:16.389 --> 00:14:19.730 launched the Vidya Lakshmi portal in 2015. A 00:14:19.730 --> 00:14:22.820 central hub. Exactly. A single centralized hub 00:14:22.820 --> 00:14:25.519 for any student looking for an educational loan. 00:14:25.659 --> 00:14:28.000 It streamlines the whole discovery and application 00:14:28.000 --> 00:14:29.960 process. To pull something like that off in a 00:14:29.960 --> 00:14:31.980 country the size of India must have taken incredible 00:14:31.980 --> 00:14:34.919 cooperation. It was a huge undertaking. The portal 00:14:34.919 --> 00:14:37.120 was developed under three major government forces, 00:14:37.480 --> 00:14:40.000 the Department of Financial Services, the Department 00:14:40.000 --> 00:14:42.559 of Higher Education, and the Indian Banks Association. 00:14:43.320 --> 00:14:46.820 And the adoption was lightning fast. By August 00:14:46.820 --> 00:14:50.279 2020, just five years after launch, 37 different 00:14:50.279 --> 00:14:53.220 banks were on the portal, offering 137 different 00:14:53.220 --> 00:14:56.259 loan schemes. That level of centralization is 00:14:56.259 --> 00:14:58.639 about efficiency, but it also reflects the massive 00:14:58.639 --> 00:15:00.860 growth they were expecting in that sector. Oh, 00:15:00.899 --> 00:15:02.759 the projected growth rates were astronomical. 00:15:03.100 --> 00:15:05.899 It shows a huge reliance on debt financing. The 00:15:05.899 --> 00:15:08.759 sector was expected to grow by over 32 % in 2009 00:15:08.759 --> 00:15:12.200 -2010, then almost 40 % in the next two years, 00:15:12.340 --> 00:15:15.559 and peaking at a projected 44 .8 % between 2020 00:15:15.559 --> 00:15:17.899 -2022. 12, and 2015. So a big government pivot 00:15:17.899 --> 00:15:20.279 toward access through loans. Yes, rather than 00:15:20.279 --> 00:15:22.460 just public funding alone. It's also important 00:15:22.460 --> 00:15:24.759 to note they did launch a countermeasure, the 00:15:24.759 --> 00:15:26.860 Vidya Sarathi portal, which was specifically 00:15:26.860 --> 00:15:29.120 to help students find scholarships, trying to 00:15:29.120 --> 00:15:31.320 balance the loan -heavy growth with grant aid. 00:15:31.519 --> 00:15:33.720 And lastly, let's briefly touch on Hong Kong, 00:15:33.799 --> 00:15:35.559 which is an interesting case study in a more 00:15:35.559 --> 00:15:38.460 historical geographical rollout. Hong Kong gives 00:15:38.460 --> 00:15:41.139 us a clear example of a phased, risk -managed 00:15:41.139 --> 00:15:44.100 implementation. The original loan scheme was 00:15:44.100 --> 00:15:47.600 introduced pretty early, back in 1969, but it 00:15:47.600 --> 00:15:49.500 was initially restricted to students at just 00:15:49.500 --> 00:15:52.620 two major universities, the Chinese University 00:15:52.620 --> 00:15:55.379 of Hong Kong and Hong Kong University. So they 00:15:55.379 --> 00:15:57.419 could test the model in a limited way. Exactly. 00:15:57.700 --> 00:16:00.240 And as the scheme proved it was viable, they 00:16:00.240 --> 00:16:03.100 expanded it institution by institution over the 00:16:03.100 --> 00:16:05.419 next two decades. So they rolled it out slowly. 00:16:05.740 --> 00:16:08.500 Very deliberately. to the Hong Kong Polytechnic 00:16:08.500 --> 00:16:11.000 in 76, then the Hong Kong Baptist College in 00:16:11.000 --> 00:16:14.860 82, and finally the City Polytechnic in 84. This 00:16:14.860 --> 00:16:17.759 slow approach minimized systemic risk. They also 00:16:17.759 --> 00:16:20.480 had a strict residency requirement. Applicants 00:16:20.480 --> 00:16:22.259 had to have lived in Hong Kong for three years 00:16:22.259 --> 00:16:24.259 right before applying to make sure the public 00:16:24.259 --> 00:16:26.519 investment benefited long -term residents. All 00:16:26.519 --> 00:16:28.820 right, we've seen integrated tax models, driver's 00:16:28.820 --> 00:16:30.799 license penalties, even risk based on what you 00:16:30.799 --> 00:16:34.019 study. Now we pivot to the system that is arguably 00:16:34.019 --> 00:16:36.960 the most confusing, complex, and financially 00:16:36.960 --> 00:16:40.100 burdensome for the average borrower, the United 00:16:40.100 --> 00:16:42.480 States. And if we connect this to the bigger 00:16:42.480 --> 00:16:45.620 picture, the U .S. system is really defined by 00:16:45.620 --> 00:16:48.200 its massive scale, its unique public -private 00:16:48.200 --> 00:16:51.559 structure, and its very specific rules about 00:16:51.559 --> 00:16:53.960 risk. Or a lack thereof in some cases. Well, 00:16:53.960 --> 00:16:56.620 exactly. The U .S. system is this complex landscape. 00:16:56.860 --> 00:16:59.159 You have federal loans, which are either subsidized 00:16:59.159 --> 00:17:00.740 or backed by the government, and then you have 00:17:00.740 --> 00:17:03.659 private loans. The distinction is so important 00:17:03.659 --> 00:17:06.480 because the overwhelming majority, a staggering 00:17:06.480 --> 00:17:10.460 92 % of all student debt, is federal. And that 00:17:10.460 --> 00:17:13.319 92 % figure is why we have to focus so heavily 00:17:13.319 --> 00:17:16.059 on federal policy. Within that federal category, 00:17:16.099 --> 00:17:19.099 you have subsidized versus unsubsidized, which 00:17:19.099 --> 00:17:21.059 is all about how the interest works while you're 00:17:21.059 --> 00:17:23.440 still in school. That's the first hurdle for 00:17:23.440 --> 00:17:25.640 any borrower to understand. Subsidized loans 00:17:25.640 --> 00:17:27.660 are the gold standard. The interest does not 00:17:27.660 --> 00:17:29.700 accrue while you're enrolled in school at least 00:17:29.700 --> 00:17:32.039 half time. Which is a huge benefit. A massive 00:17:32.039 --> 00:17:34.259 benefit, but it's restricted. They're only available 00:17:34.259 --> 00:17:36.180 to undergraduate students who can demonstrate 00:17:36.180 --> 00:17:39.130 financial need. Unsubsidized loans, on the other 00:17:39.130 --> 00:17:41.609 hand, start accruing interest immediately from 00:17:41.609 --> 00:17:43.529 the moment the money is sent out, regardless 00:17:43.529 --> 00:17:46.230 of your financial need or academic status. So 00:17:46.230 --> 00:17:48.950 even while I'm in school, that unsubsidized loan 00:17:48.950 --> 00:17:51.789 balance is already growing before I've even earned 00:17:51.789 --> 00:17:54.450 my first paycheck. It's also really important 00:17:54.450 --> 00:17:57.190 to understand the big structural change that 00:17:57.190 --> 00:17:59.670 happened in 2010 about who was actually lending 00:17:59.670 --> 00:18:02.619 the money. That 2010 change was a major restructuring. 00:18:02.759 --> 00:18:04.940 Before then, federal loans were split between 00:18:04.940 --> 00:18:07.519 direct loans, which were funded and originated 00:18:07.519 --> 00:18:10.700 by the government, and guaranteed loans. Which 00:18:10.700 --> 00:18:13.400 came from private lenders. Right. They were originated 00:18:13.400 --> 00:18:16.180 by private lenders, but the government guaranteed 00:18:16.180 --> 00:18:19.460 repayment if the student defaulted. That guaranteed 00:18:19.460 --> 00:18:22.359 lending program was eliminated in 2010. Why? 00:18:22.759 --> 00:18:25.140 Why was government guaranteeing private loans 00:18:25.140 --> 00:18:28.049 to begin with, and why did they stop? The initial 00:18:28.049 --> 00:18:30.730 idea was, you know, to leverage private sector 00:18:30.730 --> 00:18:33.569 efficiency. But the system came under heavy criticism 00:18:33.569 --> 00:18:35.589 because the government guarantee essentially 00:18:35.589 --> 00:18:37.990 removed all the risk for the private lenders. 00:18:38.009 --> 00:18:41.160 So they couldn't lose. Exactly. Critics argued 00:18:41.160 --> 00:18:43.720 this just boosted the profits of private student 00:18:43.720 --> 00:18:46.640 lending companies without actually reducing costs 00:18:46.640 --> 00:18:49.259 for students. It created a perverse incentive. 00:18:49.680 --> 00:18:52.119 The private lenders made money whether the loan 00:18:52.119 --> 00:18:54.160 was repaid by the student or by the taxpayer. 00:18:54.460 --> 00:18:57.259 Getting rid of that brought all federal lending 00:18:57.259 --> 00:19:00.299 into the direct loan program, consolidating both 00:19:00.299 --> 00:19:03.759 risk and control within the government. And if 00:19:03.759 --> 00:19:08.309 a borrower has multiple federal loans. From different 00:19:08.309 --> 00:19:10.150 years. There's a way to simplify that, right? 00:19:10.309 --> 00:19:12.990 Yes. The federal government offers direct consolidation 00:19:12.990 --> 00:19:15.750 loans. The new interest rate for the consolidated 00:19:15.750 --> 00:19:18.210 loan is based on a weighted average of your previous 00:19:18.210 --> 00:19:20.650 loan rates. It's generally straightforward and 00:19:20.650 --> 00:19:23.569 designed to make repayments simpler. But, and 00:19:23.569 --> 00:19:26.289 this is key, private loans are completely excluded 00:19:26.289 --> 00:19:28.549 from this. And private loans have totally different 00:19:28.549 --> 00:19:30.410 interest rate dynamics anyway. That's right. 00:19:30.509 --> 00:19:33.480 Federal rates are set by law, by statute. But 00:19:33.480 --> 00:19:35.119 the interest rate for a consolidated private 00:19:35.119 --> 00:19:37.720 loan depends on external market factors, usually 00:19:37.720 --> 00:19:40.279 the London Interbank Offered Rate or LIBOR or 00:19:40.279 --> 00:19:42.759 its reporsement. It just highlights the fundamental 00:19:42.759 --> 00:19:45.480 difference. One is a regulated government product. 00:19:45.559 --> 00:19:47.859 The other is a market product. This brings us 00:19:47.859 --> 00:19:49.799 to what I think is the most unique part of the 00:19:49.799 --> 00:19:54.220 U .S. system, the qualification paradox. In normal 00:19:54.220 --> 00:19:57.079 lending, I qualify for a loan based on my assets, 00:19:57.240 --> 00:20:00.400 my credit history, my ability to repay. Federal 00:20:00.400 --> 00:20:02.819 student loans just... Throw that model out the 00:20:02.819 --> 00:20:05.700 window. They completely turn traditional underwriting 00:20:05.700 --> 00:20:08.819 on its head. Here's the key takeaway. Most U 00:20:08.819 --> 00:20:11.079 .S. college students qualify for federal loans, 00:20:11.200 --> 00:20:13.460 period. They can borrow the same amount of money 00:20:13.460 --> 00:20:15.799 at the same price, regardless of their own income, 00:20:15.960 --> 00:20:18.000 their parents' income, their expected future 00:20:18.000 --> 00:20:21.200 income, or their credit history. Wait, so we're 00:20:21.200 --> 00:20:24.779 just, we're giving out loans blindly, assuming 00:20:24.779 --> 00:20:27.099 an ability to repay later. That sounds incredibly 00:20:27.099 --> 00:20:29.539 reckless from a financial perspective. It is 00:20:29.539 --> 00:20:31.829 from a traditional perspective. But it's an explicit 00:20:31.829 --> 00:20:34.210 policy decision. It's designed to ensure universal 00:20:34.210 --> 00:20:37.009 access to education. It's a deliberate choice 00:20:37.009 --> 00:20:39.210 to decouple the investment in education from 00:20:39.210 --> 00:20:41.190 personal credit risk. Which is great for access. 00:20:41.490 --> 00:20:43.349 But it transfers all the risk of that loan not 00:20:43.349 --> 00:20:45.269 being repaid onto the government and therefore 00:20:45.269 --> 00:20:48.109 the taxpayer later on. The exclusions for who 00:20:48.109 --> 00:20:50.509 can't get a loan are minimal and very targeted. 00:20:50.769 --> 00:20:53.769 So who actually gets excluded from federal loans? 00:20:54.220 --> 00:20:57.119 It's a very short list. Generally, only students 00:20:57.119 --> 00:20:59.440 who have previously defaulted on a federal loan 00:20:59.440 --> 00:21:01.700 or those who have been convicted of a drug offense 00:21:01.700 --> 00:21:04.960 and haven't completed a rehab program are excluded. 00:21:05.119 --> 00:21:07.660 For the vast majority of people, the federal 00:21:07.660 --> 00:21:09.980 money is available. And the amount you can borrow 00:21:09.980 --> 00:21:13.039 is capped each year based on your academic status. 00:21:13.299 --> 00:21:15.740 Correct. The borrowing limits depend on your 00:21:15.740 --> 00:21:18.480 education level, undergrad versus grad, and your 00:21:18.480 --> 00:21:21.440 dependent or independent status. Graduate students 00:21:21.440 --> 00:21:23.920 can borrow a lot more per year, and that's a 00:21:23.920 --> 00:21:25.599 point we'll come back to, because it makes those 00:21:25.599 --> 00:21:27.799 loans particularly profitable for the federal 00:21:27.799 --> 00:21:30.299 government. So if I'm a student and I need more 00:21:30.299 --> 00:21:33.460 money than the federal limits allow, say my private 00:21:33.460 --> 00:21:36.539 university tuition is sky high, that's when the 00:21:36.539 --> 00:21:38.700 traditional credit -based private lender comes 00:21:38.700 --> 00:21:41.900 in. That's exactly when. Private lenders are 00:21:41.900 --> 00:21:44.579 the source of funds only when a student has maxed 00:21:44.579 --> 00:21:46.859 out their federal borrowing limits. And they 00:21:46.859 --> 00:21:49.559 use traditional underwriting criteria. They're 00:21:49.559 --> 00:21:51.539 looking at your credit rating, your income levels. 00:21:51.819 --> 00:21:54.259 The system essentially funnels the students with 00:21:54.259 --> 00:21:56.900 the greatest need for more money into the hands 00:21:56.900 --> 00:21:59.460 of traditional lenders who charge higher REITs 00:21:59.460 --> 00:22:02.000 based on that risk. Some scholars we looked at 00:22:02.000 --> 00:22:04.859 argue for just eliminating the federal borrowing 00:22:04.859 --> 00:22:07.359 limit entirely. Why would they suggest that? 00:22:07.500 --> 00:22:10.170 The argument is purely pragmatic. If the government 00:22:10.170 --> 00:22:12.170 allowed students to borrow according to their 00:22:12.170 --> 00:22:15.250 full need covering tuition plus reasonable living 00:22:15.250 --> 00:22:18.269 expenses, they would eliminate the reliance on 00:22:18.269 --> 00:22:21.410 these high cost private loans. If you can get 00:22:21.410 --> 00:22:24.490 enough lower interest federal aid, the need to 00:22:24.490 --> 00:22:27.549 go to a high interest risk assessed private lender 00:22:27.549 --> 00:22:30.329 just disappears. It would, in theory, make financing 00:22:30.329 --> 00:22:32.450 cheaper and safer for the neediest students. 00:22:32.690 --> 00:22:34.750 That's the argument. Now let's talk about the 00:22:34.750 --> 00:22:37.009 financial dynamics of the federal system. because 00:22:37.009 --> 00:22:39.289 this is where politics and budgeting really intersect. 00:22:39.730 --> 00:22:41.809 Federal interest rates are not market rates. 00:22:41.990 --> 00:22:44.990 They are set by Congress. That's the key structural 00:22:44.990 --> 00:22:47.710 difference. Federal student loan interest rates 00:22:47.710 --> 00:22:50.230 are set explicitly by congressional statute. 00:22:50.589 --> 00:22:53.109 And because the rate is dictated by a political 00:22:53.109 --> 00:22:55.809 body and influenced by budgetary goals, it has 00:22:55.809 --> 00:22:58.430 historically resulted in a profit for the federal 00:22:58.430 --> 00:23:01.250 government. That sounds incredibly problematic. 00:23:01.670 --> 00:23:04.230 The government is making money off its citizens 00:23:04.230 --> 00:23:06.579 who are investing in their own education. It 00:23:06.579 --> 00:23:10.000 is a major, major point of criticism. In 2010, 00:23:10.259 --> 00:23:12.720 the federal student loan program generated what 00:23:12.720 --> 00:23:15.440 is officially called a multibillion dollar negative 00:23:15.440 --> 00:23:17.839 subsidy. Which is just government speak for profit. 00:23:18.059 --> 00:23:20.799 Exactly. The profit comes from the difference 00:23:20.799 --> 00:23:22.640 between the government's low cost of borrowing 00:23:22.640 --> 00:23:25.539 money and the higher interest rates that students 00:23:25.539 --> 00:23:28.420 are required by law to pay. It raises a serious 00:23:28.420 --> 00:23:31.180 policy question. Should a government entity be 00:23:31.180 --> 00:23:34.700 designed to profit from education debt? And compounding 00:23:34.700 --> 00:23:37.140 this is the tax disadvantage. If I take out a 00:23:37.140 --> 00:23:39.240 loan for a business, the interest is tax deductible. 00:23:39.299 --> 00:23:41.539 But for my education, it generally isn't. This 00:23:41.539 --> 00:23:44.339 is a major structural criticism from economists. 00:23:45.460 --> 00:23:48.079 Interest on most business investments is tax 00:23:48.079 --> 00:23:51.259 deductible to incentivize growth. By contrast, 00:23:51.680 --> 00:23:53.700 student loan interest isn't treated the same 00:23:53.700 --> 00:23:56.599 way. Critics argue that this tax disadvantage 00:23:56.599 --> 00:24:00.059 effectively penalizes investing in human capital. 00:24:00.460 --> 00:24:03.160 By making it financially harder to service education 00:24:03.160 --> 00:24:05.819 debt, the system contributes to a shortage of 00:24:05.819 --> 00:24:08.779 educated labor and slower economic growth. It 00:24:08.779 --> 00:24:10.640 sends the message that investing in equipment 00:24:10.640 --> 00:24:13.019 is a better financial move than investing in 00:24:13.019 --> 00:24:15.319 people. Precisely. And this leads back to that 00:24:15.319 --> 00:24:17.140 idea of societal returns we mentioned earlier. 00:24:17.420 --> 00:24:19.500 If the government is profiting but the student's 00:24:19.500 --> 00:24:22.059 degree provides immense public benefit, why should 00:24:22.059 --> 00:24:23.759 the student carry all the financial risks? So 00:24:23.759 --> 00:24:26.259 this is proposal. Yes, this fascinating proposal 00:24:26.259 --> 00:24:28.500 that federal loan rates should be adjusted based 00:24:28.500 --> 00:24:31.140 on the specific course of study relative to its 00:24:31.140 --> 00:24:33.339 rate of risk and the societal returns it generates. 00:24:33.680 --> 00:24:36.380 A societal return calculation would look beyond 00:24:36.380 --> 00:24:38.839 just your personal salary. It would consider 00:24:38.839 --> 00:24:41.259 things like reducing stress on public services, 00:24:41.579 --> 00:24:43.299 think health care professionals or teachers, 00:24:43.539 --> 00:24:46.640 or promoting general employment rates. It shifts 00:24:46.640 --> 00:24:48.799 the financial calculus from how much will this 00:24:48.799 --> 00:24:51.059 person make to how much public good will this 00:24:51.059 --> 00:24:53.480 field generate and then adjust the loan rate. 00:24:53.900 --> 00:24:57.079 The U .S. system, with its wide access and minimal 00:24:57.079 --> 00:24:59.680 underwriting, absolutely needs a strong safety 00:24:59.680 --> 00:25:02.039 net for when students actually start repaying. 00:25:02.400 --> 00:25:04.539 This brings us to the core mechanism for that. 00:25:04.980 --> 00:25:08.700 Income -based repayment, or IBR. IBR is a lifeline, 00:25:08.819 --> 00:25:11.299 but it is complicated. It's an alternative repayment 00:25:11.299 --> 00:25:13.180 plan and it's only for federal student loans, 00:25:13.299 --> 00:25:15.180 which is a major distinction from private debt. 00:25:15.380 --> 00:25:18.480 Its fundamental function is crucial. It lets 00:25:18.480 --> 00:25:20.740 you base your monthly payments on your current 00:25:20.740 --> 00:25:23.299 income, not on the massive amount of money you 00:25:23.299 --> 00:25:25.200 actually owe. So it's kind of like the income 00:25:25.200 --> 00:25:27.819 link tax systems we saw in the UK and Australia. 00:25:28.240 --> 00:25:31.079 The payment is proportional to what you can afford. 00:25:31.420 --> 00:25:34.339 How is it calculated? IVR plans generally cap 00:25:34.339 --> 00:25:36.940 your loan payments at 10 % of your discretionary 00:25:36.940 --> 00:25:39.619 income. This means if your income is low, your 00:25:39.619 --> 00:25:42.680 payment will be low, sometimes as low as $0. 00:25:43.980 --> 00:25:47.339 But... And here is the crucial complication, 00:25:47.559 --> 00:25:50.599 the source of immense anxiety for millions of 00:25:50.599 --> 00:25:53.619 borrowers. While your payments are capped, deferred 00:25:53.619 --> 00:25:56.619 interest still accrues. So you could be making 00:25:56.619 --> 00:25:58.839 your 10 % payment every single month. feeling 00:25:58.839 --> 00:26:00.619 responsible. But because that payment doesn't 00:26:00.619 --> 00:26:02.619 cover all the interest that's adding up, you 00:26:02.619 --> 00:26:04.880 look up after five years and realize you owe 00:26:04.880 --> 00:26:07.160 way more than you did when you graduated. The 00:26:07.160 --> 00:26:09.480 principal is growing even while you are faithfully 00:26:09.480 --> 00:26:11.880 paying. That's the growing balance problems like 00:26:11.880 --> 00:26:13.680 only make the minimum payment on a high interest 00:26:13.680 --> 00:26:16.259 credit card. Your debt just compounds. But this 00:26:16.259 --> 00:26:18.440 growing balance is eventually dealt with through 00:26:18.440 --> 00:26:20.400 loan forgiveness, which is the big incentive 00:26:20.400 --> 00:26:22.920 to stay in the program. And the timeline for 00:26:22.920 --> 00:26:25.279 that forgiveness is different depending on where 00:26:25.279 --> 00:26:27.450 you work. which is a clear government attempt 00:26:27.450 --> 00:26:30.210 to incentivize public service. Exactly. It's 00:26:30.210 --> 00:26:32.289 split between public and for -profit sectors. 00:26:32.609 --> 00:26:35.109 If you work in the public sector for the government 00:26:35.109 --> 00:26:37.869 or a nonprofit, forgiveness is granted after 00:26:37.869 --> 00:26:41.000 only 10 years of qualifying payments. And this 00:26:41.000 --> 00:26:43.640 is vital. Loans forgiven through the Public Service 00:26:43.640 --> 00:26:46.839 Loan Forgiveness Program, PSLF, are not considered 00:26:46.839 --> 00:26:49.940 taxable income. Which makes PSLF a really powerful 00:26:49.940 --> 00:26:52.660 financial benefit. It's huge. But if you work 00:26:52.660 --> 00:26:54.819 in the for -profit sector, the forgiveness period 00:26:54.819 --> 00:26:58.160 is much longer. It extends out to 25 years. And 00:26:58.160 --> 00:27:00.599 those 25 -year cases come with the huge risk 00:27:00.599 --> 00:27:03.140 of the tax bomb. They absolutely do. Under standard 00:27:03.140 --> 00:27:05.440 IBR forgiveness, the forgiven debt is currently 00:27:05.440 --> 00:27:08.539 treated as taxable income by the IRS, unless 00:27:08.539 --> 00:27:11.289 you're bankrupt or insolvent. at the time. So 00:27:11.289 --> 00:27:14.250 imagine getting a tax bill in year 25 based on, 00:27:14.309 --> 00:27:17.990 say, $100 ,000 or $200 ,000 of forgiven debt. 00:27:18.069 --> 00:27:20.130 That one massive tax bill could be financially 00:27:20.130 --> 00:27:22.769 ruinous. It could. It leaves borrowers wondering 00:27:22.769 --> 00:27:24.589 whether to celebrate the end of their debt or 00:27:24.589 --> 00:27:27.130 panic about the immediate tax hit. Let's zoom 00:27:27.130 --> 00:27:29.029 out now to the scale of this problem. We're talking 00:27:29.029 --> 00:27:32.450 about $1 .6 trillion in debt. This crisis is 00:27:32.450 --> 00:27:34.769 tied directly to a fundamental policy shift over 00:27:34.769 --> 00:27:37.799 the last few decades. Yes. The rising debt crisis 00:27:37.799 --> 00:27:40.339 is tied directly to how federal aid policies 00:27:40.339 --> 00:27:43.140 evolved. The government expanded loan eligibility, 00:27:43.380 --> 00:27:45.519 making it easier to borrow, while at the same 00:27:45.519 --> 00:27:47.599 time shifting the emphasis dramatically away 00:27:47.599 --> 00:27:50.140 from grants money you don't have to repay and 00:27:50.140 --> 00:27:52.759 squarely toward loans. And you can see that shift 00:27:52.759 --> 00:27:55.279 just by looking at the Pell Grant, which is the 00:27:55.279 --> 00:27:57.519 main federal grant. The numbers show the gap 00:27:57.519 --> 00:28:01.220 perfectly. For the 2019 -2020 school year, the 00:28:01.220 --> 00:28:06.240 maximum federal Pell Grant was $6 ,195. That's 00:28:06.240 --> 00:28:08.380 the most free money available to the neediest 00:28:08.380 --> 00:28:10.460 students. Now contrast that with the average 00:28:10.460 --> 00:28:13.460 annual tuition for a four -year in -state public 00:28:13.460 --> 00:28:18.279 university for that same period, $26 ,590. That's 00:28:18.279 --> 00:28:20.779 a massive shortfall. That one comparison alone 00:28:20.779 --> 00:28:23.079 shows why students are forced to rely on loans. 00:28:23.220 --> 00:28:25.599 The gap between the max grant and the cost of 00:28:25.599 --> 00:28:28.019 school is just too wide to bridge with savings 00:28:28.019 --> 00:28:30.619 or income alone. Exactly. The government made 00:28:30.619 --> 00:28:33.099 access easier, but they drastically cut back 00:28:33.099 --> 00:28:35.500 on the free money, forcing students deeper and 00:28:35.500 --> 00:28:37.500 deeper into debt to make up the difference. And 00:28:37.500 --> 00:28:39.359 this was made so much worse by public spending 00:28:39.359 --> 00:28:41.240 cuts at the state level, which is where many 00:28:41.240 --> 00:28:43.579 public universities get their funding. Between 00:28:43.579 --> 00:28:48.000 2002 and 2012, public funding for education dropped 00:28:48.000 --> 00:28:51.319 a lot, while enrollment skyrocketed. That's a 00:28:51.319 --> 00:28:53.720 perfect storm for tuition hikes. It really was. 00:28:53.920 --> 00:28:57.000 Between 2002 and 2012, public spending on education 00:28:57.000 --> 00:29:00.380 dropped a massive 30 % per student. In that same 00:29:00.380 --> 00:29:02.880 time, total enrollment at public colleges jumped 00:29:02.880 --> 00:29:06.440 34%. More students, less public money per student. 00:29:06.619 --> 00:29:09.430 Meant the cost had to be shifted somewhere. It 00:29:09.430 --> 00:29:11.869 was shifted to student tuition, leading to drastically 00:29:11.869 --> 00:29:14.690 more debt. The burden of funding public education 00:29:14.690 --> 00:29:16.509 was transferred from the state budget to the 00:29:16.509 --> 00:29:19.109 individual student borrower. And we can't talk 00:29:19.109 --> 00:29:22.109 about rising debt without highlighting the disproportionate 00:29:22.109 --> 00:29:24.930 impact of for -profit universities. This data 00:29:24.930 --> 00:29:27.150 is so critical for understanding the risk here. 00:29:27.500 --> 00:29:29.640 For -profit universities enroll about 10 percent 00:29:29.640 --> 00:29:31.859 of active college students in the country, but 00:29:31.859 --> 00:29:34.200 they hold nearly double that share, almost 20 00:29:34.200 --> 00:29:36.279 percent of all federal student loan debt. So 00:29:36.279 --> 00:29:38.779 a huge concentration of debt. Yes. And it suggests 00:29:38.779 --> 00:29:40.980 that these institutions, which often have low 00:29:40.980 --> 00:29:43.500 graduation rates and high costs, are generating 00:29:43.500 --> 00:29:45.660 a lot of borrowing without delivering the positive 00:29:45.660 --> 00:29:47.720 income outcomes that you need for repayment. 00:29:47.880 --> 00:29:50.160 Let's focus now on the default crisis itself. 00:29:50.619 --> 00:29:54.059 Who is most likely to default? What are the demographic 00:29:54.059 --> 00:29:57.440 factors? The risk of default is not spread evenly. 00:29:58.000 --> 00:30:00.599 Data consistently shows that default rates are 00:30:00.599 --> 00:30:03.599 higher for women than for men. They're also much 00:30:03.599 --> 00:30:05.859 higher for borrowers from low income families, 00:30:05.980 --> 00:30:08.299 which you'd expect. But there's one factor that 00:30:08.299 --> 00:30:11.660 points directly to inefficient investment. Borrowers 00:30:11.660 --> 00:30:13.559 who enter repayment after only their sophomore 00:30:13.559 --> 00:30:17.240 year. So students who dropped out, they didn't 00:30:17.240 --> 00:30:18.900 get the degree that would dramatically increase 00:30:18.900 --> 00:30:21.220 their earning potential. But they still have 00:30:21.220 --> 00:30:23.579 the debt. Precisely. They took on the debt but 00:30:23.579 --> 00:30:26.160 got an insufficient return on their human capital, 00:30:26.359 --> 00:30:28.259 putting them in the highest risk category for 00:30:28.259 --> 00:30:31.200 default. On the flip side, some loans are considered 00:30:31.200 --> 00:30:33.279 exceptionally profitable for lenders. And those 00:30:33.279 --> 00:30:35.599 are the loans to grad students. Loans to graduate 00:30:35.599 --> 00:30:37.990 and professional students? Yes. They're especially 00:30:37.990 --> 00:30:40.130 profitable for both the federal government and 00:30:40.130 --> 00:30:42.990 private lenders. Why? Because they typically 00:30:42.990 --> 00:30:45.309 have high interest rates but are associated with 00:30:45.309 --> 00:30:47.950 the lowest default rates, given the generally 00:30:47.950 --> 00:30:50.289 higher and more stable earning potential that 00:30:50.289 --> 00:30:52.450 comes with an advanced degree, like from law 00:30:52.450 --> 00:30:55.849 or medical school. The Great Recession also had 00:30:55.849 --> 00:30:58.150 a big impact on student loan defaults, right? 00:30:58.289 --> 00:31:00.829 Right. It connected this debt crisis to the broader 00:31:00.829 --> 00:31:03.579 economy. The recession was a shockwave. Default 00:31:03.579 --> 00:31:06.140 rates grew to nearly 30 % during that period. 00:31:06.519 --> 00:31:08.440 Studies from that time show that the default 00:31:08.440 --> 00:31:10.519 rate is strongly related to non -traditional 00:31:10.519 --> 00:31:13.119 issuers and, critically, the price of tangible 00:31:13.119 --> 00:31:16.200 assets. There's an inverse correlation. Meaning? 00:31:16.339 --> 00:31:18.980 When tangible asset prices, like housing, fall 00:31:18.980 --> 00:31:21.839 rapidly, like they did in 2008, default rates 00:31:21.839 --> 00:31:24.500 tend to rise. The collapse of the housing market 00:31:24.500 --> 00:31:26.819 and the rise in unemployment directly linked 00:31:26.819 --> 00:31:29.180 the student debt crisis to the broader economic 00:31:29.180 --> 00:31:31.950 recession. And while we often focus on young 00:31:31.950 --> 00:31:34.710 graduates, the data on older generations carrying 00:31:34.710 --> 00:31:38.049 this debt is just sobering. It truly is. As of 00:31:38.049 --> 00:31:40.769 2013, we had data showing that for borrowers 00:31:40.769 --> 00:31:44.769 aged 65 to 74, a staggering 30 percent of their 00:31:44.769 --> 00:31:47.589 own education loans were in default. On top of 00:31:47.589 --> 00:31:51.130 that, around 17 percent of parent PLUS loans 00:31:51.130 --> 00:31:53.569 debt taken out by parents for their kids for 00:31:53.569 --> 00:31:55.970 that same age group were also in default. So 00:31:55.970 --> 00:31:58.329 the debt burden extends well into retirement. 00:31:58.779 --> 00:32:01.140 Yes. Impacting seniors who should be financially 00:32:01.140 --> 00:32:03.400 secure but are instead dealing with collections 00:32:03.400 --> 00:32:05.579 and wage garnishments. All right. Let's turn 00:32:05.579 --> 00:32:07.759 to the legal foundation that makes U .S. student 00:32:07.759 --> 00:32:10.400 debt such a financial prison. The Bankruptcy 00:32:10.400 --> 00:32:12.900 Shield. This protection is the single biggest 00:32:12.900 --> 00:32:15.359 factor that separates it from almost every other 00:32:15.359 --> 00:32:17.400 type of consumer debt you can take out. This 00:32:17.400 --> 00:32:19.359 is the legal cornerstone of the whole controversy. 00:32:19.680 --> 00:32:22.059 Student loans cannot be discharged in bankruptcy 00:32:22.059 --> 00:32:24.299 unless the borrower can prove that repaying the 00:32:24.299 --> 00:32:26.779 loan would create an undue hardship for them 00:32:26.779 --> 00:32:28.740 and their dependents. And that undue hardship 00:32:28.740 --> 00:32:31.500 standard is notoriously high. Incredibly high. 00:32:31.599 --> 00:32:34.319 It generally requires proving that you can't 00:32:34.319 --> 00:32:36.980 maintain a minimal standard of living, that this 00:32:36.980 --> 00:32:39.220 is likely to persist for most of the repayment 00:32:39.220 --> 00:32:42.059 period, and that you've made good faith efforts 00:32:42.059 --> 00:32:44.680 to repay the loan. It's a very difficult bar 00:32:44.680 --> 00:32:47.160 to clear. And it wasn't always this way for all 00:32:47.160 --> 00:32:50.900 student debt. A big law change in 2005 expanded 00:32:50.900 --> 00:32:53.400 this shield to cover private loans, too. That 00:32:53.400 --> 00:32:56.700 2005 change was transformative and highly controversial. 00:32:57.039 --> 00:32:59.319 It changed the bankruptcy laws to prevent even 00:32:59.319 --> 00:33:02.220 private educational loans from being easily discharged. 00:33:02.619 --> 00:33:05.640 Before this, private loans, which are often riskier 00:33:05.640 --> 00:33:07.619 and have higher interest rates, were treated 00:33:07.619 --> 00:33:10.519 more like regular unsecured consumer debt. And 00:33:10.519 --> 00:33:13.279 critics argued this created a, what was the term, 00:33:13.339 --> 00:33:16.119 a credit risk free loan for lenders. A credit 00:33:16.119 --> 00:33:18.700 risk free loan. Think about the financial incentive 00:33:18.700 --> 00:33:21.480 that created for the lender. It meant that lenders 00:33:21.480 --> 00:33:23.640 knew, no matter what happened to the borrower 00:33:23.640 --> 00:33:25.740 financially, that the debt would follow them 00:33:25.740 --> 00:33:27.960 forever. It couldn't be erased through bankruptcy. 00:33:28.579 --> 00:33:31.319 This certainty let lenders average returns of 00:33:31.319 --> 00:33:34.140 about 7 % a year because they no longer had to 00:33:34.140 --> 00:33:36.200 price in the risk of the loan being discharged. 00:33:36.619 --> 00:33:38.859 It fundamentally changed their risk profile. 00:33:39.160 --> 00:33:41.599 And did this change borrower behavior? There's 00:33:41.599 --> 00:33:43.839 evidence to suggest that since bankruptcy was 00:33:43.839 --> 00:33:46.420 no longer an option for these loans, it may have 00:33:46.420 --> 00:33:49.079 reduced a debtor's intention of trying to reduce 00:33:49.079 --> 00:33:52.339 costly defaults by declaring bankruptcy. If that 00:33:52.339 --> 00:33:54.740 ultimate safety valve is shut off, you're just 00:33:54.740 --> 00:33:56.900 left to deal with the consequences of default 00:33:56.900 --> 00:34:00.359 instead of seeking a managed legal reset of your 00:34:00.359 --> 00:34:02.480 finances. Now here's where it gets really interesting. 00:34:02.940 --> 00:34:05.519 We have concrete evidence of misconduct and anti 00:34:05.519 --> 00:34:07.579 -competitive practices within the industry itself, 00:34:07.759 --> 00:34:09.800 which led to some high profile legal battles. 00:34:09.980 --> 00:34:13.000 The most notable example is the 2007 investigation 00:34:13.000 --> 00:34:15.280 led by the New York attorney general at the time, 00:34:15.380 --> 00:34:18.500 Andrew Cuomo. This investigation targeted lending 00:34:18.500 --> 00:34:21.900 practices and these anti -competitive relationships 00:34:21.900 --> 00:34:24.500 between major lenders and universities. What 00:34:24.500 --> 00:34:27.199 exactly did they uncover? about these relationships. 00:34:27.480 --> 00:34:29.659 The investigation found that many universities 00:34:29.659 --> 00:34:32.019 were steering their students toward a select 00:34:32.019 --> 00:34:35.800 group of preferred lenders. And while these were 00:34:35.800 --> 00:34:38.480 advertised as being good for students, the preferred 00:34:38.480 --> 00:34:41.119 lenders often offered higher rates than other 00:34:41.119 --> 00:34:43.820 options on the market. And there was more. Yes. 00:34:44.079 --> 00:34:47.019 Here's the most concerning part. Some of these 00:34:47.019 --> 00:34:49.519 preferred lenders allegedly rewarded university 00:34:49.519 --> 00:34:52.559 financial aid staff with kickbacks, payments, 00:34:52.880 --> 00:34:55.719 gifts, other financial benefits for directing 00:34:55.719 --> 00:34:58.119 students toward their high -rate loans. That 00:34:58.119 --> 00:35:00.719 is a clear conflict of interest. The financial 00:35:00.719 --> 00:35:02.699 aid staff, who are supposed to be helping the 00:35:02.699 --> 00:35:05.840 student, are recommending expensive loans for 00:35:05.840 --> 00:35:08.260 personal gain. What was the fallout from that? 00:35:08.570 --> 00:35:11.030 The fallout was significant. It led to major 00:35:11.030 --> 00:35:13.389 policy changes and cleanups in lending practices 00:35:13.389 --> 00:35:16.530 at many American universities. And millions of 00:35:16.530 --> 00:35:18.929 dollars in fees and interest were rebated back 00:35:18.929 --> 00:35:21.369 to the students who were affected. It exposed 00:35:21.369 --> 00:35:24.389 a systemic effort to exploit students. And there 00:35:24.389 --> 00:35:26.369 was another major case, a whistleblower suit, 00:35:26.570 --> 00:35:28.730 from a former Department of Education researcher. 00:35:29.050 --> 00:35:32.329 That was the 2007 false claims lawsuit filed 00:35:32.329 --> 00:35:35.250 by John Oberg against major players like Sally 00:35:35.250 --> 00:35:38.739 Mae and Nelnet. Oberg alleged that these massive 00:35:38.739 --> 00:35:41.059 lenders had been knowingly overcharging the U 00:35:41.059 --> 00:35:43.559 .S. government on interest guarantees and administrative 00:35:43.559 --> 00:35:47.219 fees, defrauding taxpayers of millions. And that 00:35:47.219 --> 00:35:50.079 case was settled. It was. Nelnet settled the 00:35:50.079 --> 00:35:54.099 lawsuit in August 2010, paying $55 million. These 00:35:54.099 --> 00:35:56.380 cases just show that the complexity of the system 00:35:56.380 --> 00:35:58.800 created so many opportunities for misconduct 00:35:58.800 --> 00:36:02.099 aimed at both the student and the taxpayer. Despite 00:36:02.099 --> 00:36:05.639 the staggering $1 .6 trillion debt figure, the 00:36:05.639 --> 00:36:07.900 debate over whether this is an economic bubble 00:36:07.900 --> 00:36:10.639 is still going on with comparisons to the housing 00:36:10.639 --> 00:36:12.699 crisis. That's a common point of contention. 00:36:12.840 --> 00:36:15.340 As of 2013, some economists were predicting that 00:36:15.340 --> 00:36:17.760 this estimated $1 trillion of debt could trigger 00:36:17.760 --> 00:36:20.099 a new economic crisis by impacting the spending 00:36:20.099 --> 00:36:23.280 power of millions of graduates. But it's important 00:36:23.280 --> 00:36:25.219 to note that most economists and investors at 00:36:25.219 --> 00:36:27.539 the time believed there was no true student loan 00:36:27.539 --> 00:36:30.119 bubble in the same systemic sense as the housing 00:36:30.119 --> 00:36:32.659 market. Risk was high for individuals but not 00:36:32.659 --> 00:36:35.340 catastrophic for the whole system. Right. It 00:36:35.340 --> 00:36:38.019 was seen as high for individuals and certain 00:36:38.019 --> 00:36:40.340 parts of the economy, like car sales or home 00:36:40.340 --> 00:36:42.940 purchases by graduates, but not systemically 00:36:42.940 --> 00:36:45.159 catastrophic in the same way mortgage backed 00:36:45.159 --> 00:36:47.619 securities were. But regardless of what you call 00:36:47.619 --> 00:36:50.619 it, a systemic bubble or a humanitarian crisis, 00:36:50.960 --> 00:36:53.679 the debt burden has become a central political 00:36:53.679 --> 00:36:56.539 issue. Absolutely. The sheer size of the debt 00:36:56.539 --> 00:36:59.360 has forced a political response. During his 2020 00:36:59.360 --> 00:37:02.199 campaign, Joe Biden promised student loan forgiveness 00:37:02.199 --> 00:37:05.670 and that prom. was backed by a lot of public 00:37:05.670 --> 00:37:09.869 demand. A 2022 survey showed that 64 % of Americans 00:37:09.869 --> 00:37:12.550 supported $10 ,000 in student loan forgiveness 00:37:12.550 --> 00:37:16.329 for individuals earning up to $150 ,000 a year. 00:37:16.590 --> 00:37:18.590 It just highlights the widespread recognition 00:37:18.590 --> 00:37:20.929 that the current debt levels are financially 00:37:20.929 --> 00:37:23.550 unsustainable for a majority of borrowers and 00:37:23.550 --> 00:37:25.570 that some kind of policy intervention is needed. 00:37:25.809 --> 00:37:27.750 So what does this all mean for you, the person 00:37:27.750 --> 00:37:29.389 listening to this? We started by saying that 00:37:29.389 --> 00:37:31.489 student loans are a highly unique kind of debt. 00:37:31.820 --> 00:37:34.000 But this deep dive really shows just how radically 00:37:34.000 --> 00:37:36.139 different the policy choices are around the world. 00:37:36.199 --> 00:37:38.880 That's right. In Australia, the UK and New Zealand, 00:37:39.039 --> 00:37:42.340 repayment is tied to your income and collected 00:37:42.340 --> 00:37:44.920 like a tax. They've effectively built an income 00:37:44.920 --> 00:37:48.119 based safety net right into the system. And that 00:37:48.119 --> 00:37:51.079 stands in such stark contrast to the United States, 00:37:51.239 --> 00:37:53.539 where the debt is heavily shielded from bankruptcy. 00:37:53.719 --> 00:37:56.820 It creates a near permanent high risk financial 00:37:56.820 --> 00:38:00.659 obligation for you, the borrower. The U .S. system's 00:38:00.659 --> 00:38:03.039 fundamental failures really involved expanding 00:38:03.039 --> 00:38:06.199 eligibility while cutting back on grants, which 00:38:06.199 --> 00:38:08.440 led to the federal government actually profiting 00:38:08.440 --> 00:38:10.800 that negative subsidy from its own students. 00:38:10.940 --> 00:38:13.139 So income based repayment while it's a vital 00:38:13.139 --> 00:38:15.659 necessity. It's ultimately a reaction. It's a 00:38:15.659 --> 00:38:17.820 reaction to a debt that's almost impossible to 00:38:17.820 --> 00:38:19.860 discharge and that continues to balloon because 00:38:19.860 --> 00:38:22.099 of all that accruing interest. What's so fascinating 00:38:22.099 --> 00:38:24.719 here is this persistent global tension, this 00:38:24.719 --> 00:38:27.360 push and pull between public investment and private 00:38:27.360 --> 00:38:30.260 burden. We highlighted that proposal that federal 00:38:30.260 --> 00:38:32.519 loan rates should be adjusted based on the rate 00:38:32.519 --> 00:38:34.940 of risk and societal returns from different fields 00:38:34.940 --> 00:38:37.880 of study. And that raises the final provocative 00:38:37.880 --> 00:38:40.599 question that really defines this entire policy 00:38:40.599 --> 00:38:43.690 area. Let's go back to that South Korean example 00:38:43.690 --> 00:38:46.610 where students in fields like fine arts and physics 00:38:46.610 --> 00:38:50.369 face a demonstrably higher default risk, suggesting 00:38:50.369 --> 00:38:52.909 their fields have a poor immediate market outcome. 00:38:53.210 --> 00:38:56.530 If the financial burden in the U .S. or anywhere 00:38:56.530 --> 00:38:59.449 shifted away from the individual student's market 00:38:59.449 --> 00:39:02.849 capacity to repay and instead shifted toward 00:39:02.849 --> 00:39:05.690 the proven quantified societal value of their 00:39:05.690 --> 00:39:08.369 educational fields, say clean energy research 00:39:08.369 --> 00:39:11.440 or early childhood education, Would a physics 00:39:11.440 --> 00:39:14.139 or fine arts student still face that higher default 00:39:14.139 --> 00:39:16.500 risk? Or would the government, recognizing the 00:39:16.500 --> 00:39:18.920 long term non -monetary benefit their contribution 00:39:18.920 --> 00:39:22.280 provides to society, choose to heavily subsidize 00:39:22.280 --> 00:39:24.599 that field through lower or even zero interest 00:39:24.599 --> 00:39:26.860 rates? That is the ultimate policy decision. 00:39:27.119 --> 00:39:29.440 Is education treated merely as a consumer good 00:39:29.440 --> 00:39:31.800 or is it recognized as a fundamental public good 00:39:31.800 --> 00:39:33.739 worth protecting with our collective resources? 00:39:34.159 --> 00:39:36.179 That is the question we leave you to ponder.