The Progressive Ensign

insights and analytics to build an economy that works for all

Category: Student Debt

Consumers Squeezed Between Debt and Stagnant Wages

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab.)

Image: americanprogress.org

The Federal Reserve just reported that consumer debt related to auto and student loans are at the highest level they have ever been since 1970 (2nd chart).  As we have noted wages have stagnated since the Great Recession with 90 % of the income gains going to the top 10 % in income.  The middle class has been left out of the mainstream of the economic recovery over the past 10 years.

Sources: The Federal Reserve Bank – St. Louis, The Wall Street Journal, The Daily Shot – 5/8/18

While revolving debt from credit cards has fallen (top chart) since the recession, non revolving debt for autos and student loans has soared.   Consumers are caught in a squeeze between debt and flat wages.  The Commerce Department reported on 1st Quarter GDP noted that consumer spending had decelerated during the quarter.  Sentiment surveys have also shown a reduction in buying plans due to trade issues and any benefit from the tax cuts being lost due to rising prices from tariffs.  Banks have posted 7 straight months of an increasing percentage of charge offs on bad loans where consumers are not making payments on non-mortgage debt.

As interest rates go up, payments grow larger per month, with the added tightening of increased prices.  The middle class is caught trying to maintain their standard of living by borrowing money to mitigate flat wages.

Next Steps –

There are two sides to the squeeze – increasing wages and reducing loan payment size and principal.

We have endorsed Sen. Cory Booker’s bill called the Worker Dividend Act to share billions of dollars in stock buyback dollars 50/50 with employees.  We see a need for incentives for employers to share management extreme wealth now at 300 times average worker salary with the line staff.  Or if they can’t do it with incentives we like the City of Portland’s plan to require corporations share their funding above the 150 times level with employees. In our blog about why Wages Are Stuck we outline a series of steps including: placing workers on Boards, ending outsourcing overseas, end H1-B low wage visas, allow repatriated funds be brought back to the US only for wages, productivity or training investments, end stock buybacks and raise employee wages with the funds, breakup anti-competitive oligarchies of huge corporations to create more competition and jobs, balance the recruiting and hiring process for candidates, and offer incentives for employee training and development.

On the loan side, we recommend that student loan rates be brought back to reasonably fair rates as a percentage of the Fed Funds rate, and offer a series of forgiveness programs for universal service, community teaching and caregiving.  For auto loans, we request that the Consumer Finance Protection Bureau evaluate major bank auto loans to ensure they are fair and do not have hidden fees or unusual interest rate riders.

At Last Some Relief On Student Debt

 

image: seiu668.org

Student loan debt continues to mount as the Federal Reserve reported a major increase to $1.49 trillion in February of this year. But, a partial solution is coming.

Image: The Federal Reserve Bank,  St. Louis – 2/8/18

As part of the spending bill that Congress passed last month, $350 million was allocated for a fix it forgiveness program for some types of student loans.  Senator Elizabeth Warren has been surveying the issue and individuals trying to take advantage of the provisions where she found that it was quite complex, answers were in complete from the Department of Education and work still needed to be done to setup the process. She found many firefighters and teachers having a difficult time getting into the program.  Prior to passage of the spending bill Senators Whitehouse and Kaine wrote a bill to setup a student debt forgiveness program and get it funded, their bill set the stage for Democrats to push for provisions of the bill to be included in the omnibus spending bill.

This solution is still not enough compared to the huge issue of $1.49 trillion outstanding placing an anchor of debt on our young people when they need to be investing in starting their families and careers and buying homes. In blog of February 16th in our archives, we review an idea to cancel all student debt.  We like the idea moving forward, yet recommend that forgiveness be done in stages, by reducing interest rates, offering Heartland Service,  providing a universal national service option and corporate sponsorship of an internship by the student.

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