economy

Forgiving Student Debt Would Boost Economy, Economists Say

Food For Thought, , ,

Presidential hopefuls Elizabeth Warren and Bernie Sanders want to tear up your student loans and set you financially free. That’s popular among voters – especially those struggling to pay off this debt.

Other Democratic candidates have more modest plans. But economists say the dramatic proposals from Sanders and Warren to free millions of Americans from the burden of student debt could boost the economy in significant ways and help combat income inequality.

Warren would forgive up to $50,000 for most people. Sanders would go further with total loan forgiveness. But with these plans having a price tag north of $1 trillion, such legislation would come with plenty of risks.

The reason debt forgiveness could have a big impact on the overall economy is that a generation of Americans is making major life decisions differently because of student loans.

“Children, it’s not about if you want them,” says Laura Greenwood in Montpelier, Vt. “It’s about can you afford them?”

Greenwood works for the state education agency. She’s 30 years old and makes $63,000 a year. “I make probably a better salary than a lot of my peers.”

But after paying for college and grad school, Greenwood owes $96,000 in student loans. And she says that’s got her and her partner feeling frozen. “Yeah. It’s always, we’re interested in having kids, but just cost of living and all our other bills and then the student loans, it’s just like the final straw.” She says it makes starting a family feel impossible.

So if people like Greenwood suddenly had this millstone of debt lifted from their necks, it stands to reason that would unleash pent-up desires and spending that would be good for the economy. A lot more people would have kids, or start businesses, or buy houses.

“In the short term, it would be very positive for the housing market,” says Lawrence Yun, the National Association of Realtors chief economist. He says his group’s surveys show that student debt has people delaying homeownership by five to seven years.

He’s not endorsing any particular plan, but he estimates that broad loan forgiveness would push up the number of home sales quite a bit. “Home sales could be, say, 300,000 higher annually if people were not saddled with large student debt.” Yun says that would be “a boost to the housing sector as well as the economy.”

The effects would go beyond the housing market. William Foster is a vice president with Moody’s, which just did a report on student debt forgiveness. “There’ve been some estimates that U.S. real GDP could be boosted on average by $86 billion to $108 billion per year,” which is “quite a bit,” he says. “That’s if you had total loan forgiveness.” Foster says it wouldn’t have to be total forgiveness to see significant results. And he says it could also help address rising income inequality.

“Student loans are now contributing to what’s perceived as lower economic prospects for younger Americans,” Foster says. After all — millions of people are delaying homeownership. And that’s the most powerful way for most working and middle class people to build wealth.

“A typical homeowner has net worth about $230,000, while a typical renter has only $5,000,” Yun says.

But while the idea of loan forgiveness is enticing, it would not be free. And this is a big reason plenty of politicians and policy experts are not on board. This would be expensive. Foster says Americans owe a lot of money on those student loans. “About 1.5 trillion. And that’s more than auto loans and credit cards. They’re the second-biggest debt item for households.”

Foster says most of these loans are from the federal government, and it could forgive them. But that would mean giving up the $85 billion in annual revenue it’s currently collecting on these loans. And, he says, “That would result in a wider fiscal deficit.”

Also, taxing people to make up the difference would be a drag on the economy. Economists say whether the boost from the stimulus of debt forgiveness was stronger than the drag from raising the revenue another way would depend on the details of the legislation should it come about.

And there are other issues. Many people would oppose a giveaway to, say, lawyers and doctors who stand to make a lot of money in the future but happen to have a lot of student loan debt. And you probably wouldn’t want to tax the working class to pay for higher-income college graduates’ loan forgiveness. That’s why presidential candidates are proposing to tax the wealthy to pay for it — which, by the way, Foster says would also create less drag on the economy from the taxes because wealthy people’s spending patterns are less influenced by such changes than people in lower income brackets.

Foster says there could also be what’s called a moral hazard factor here for future students. “Those students might expect future loan forgiveness and therefore they’ll take out even more money than they might have otherwise.”

That could create even greater levels of student debt. So there are plenty of potential pitfalls in all this. But policymakers who are pushing for loan forgiveness say they have plans to make it both fair and good for the economy and to do it in a way to make education more affordable for future students so they wouldn’t have to take on so much debt.

For Some Facebook Employees, Free Food Is Coming To An End

Food For Thought, , , ,

For years, tech employees of companies in Silicon Valley have enjoyed free meals around the clock. That’s changing — at least in Mountain View, Calif., where the city is banning the social media giant Facebook from offering free food in its newest office building.

Currently, Facebook’s main campus in Menlo Park, Calif., is the stuff of lore. The 430,000 square foot compound offers perks like an onsite cleaners, a dentist and free food — basically a smorgasbord of anything your heart desires — custom omelets, braised beef, handmade sushi and desserts often made to order by trained chefs.

For the company’s employees, you really never have to leave the office. It’s what lured Ben Werner to California all the way from France to get a tour of the campus. He wanted to see for himself all of the perks he’s read so much about.

“I’d like to have those things taken care of,” Werner says. “I guess it would mean I’d spend more time at work, but then I guess it’s a two-way street that benefits us both.”

But about 8 miles away, in Mountain View, Calif. — also the home of Google — free food, at least at the new Facebook campus — won’t be on the menu.

“We believe these companies are part of our community,” says Mountain View Mayor Lenny Siegel. “A growing number of their employees live in our community, and we want them to be a part of our community.”

Siegel, a Democrat, says that for years, restaurant owners have complained that employees of Google never come out to eat or shop. So when the city learned that Facebook would be opening a new office in the fall of 2018 at a building project known as the Village at San Antonio Center, the city passed a project-specific requirement that bars the company from providing free daily meals to employees at any in-house cafeteria. The company is also prevented from providing deeply discounted meals.

Along with the internal cafeterias, corporate catering companies have also come to rely on serving food to big tech companies.

Under the terms of Facebook’s lease, meals within Facebook offices can’t be subsidized by more than 50 percent on a regular basis. However, the company can fully subsidize meals if employees go to restaurants that are open to the public. Mayor Siegel acknowledges there are still a few kinks that need to be smoothed out.

“Facebook is a global company and some of their people work in the middle of the night,” Siegel says. “If all the restaurants are closed, maybe I would be open to considering food service in the middle of the night.”

Facebook spokesperson Jamil Walker says the company is still working out the details of what this new arrangement will look like. “We found the location attractive because of its proximity to public transportation, housing and public-serving amenities like shops and restaurants,” says Walker.

Siegel says Facebook has suggested ideas like turning the ground floor into a food court with local restaurants that are open to the public.

Erika Rasmussen, the manager of Milk Pail Market, an open air grocery store next to the new building, is looking forward to figuring out the best way to serve the 2,000 employees expected to converge on the area when the new office opens. “We don’t want Facebook to overwhelm this area, but we do want Facebook to support this area, because we will need their patronage to survive,” Rasmussen says.

Deepak Rao, a tech employee at a startup in Silicon Valley, says perks aren’t the defining reason he and his colleagues do the work that they do. But sometimes, he says, when you’re working long hours, perks like free food, feel like a necessity.

“To go out and drive, eat whatever, that could take an hour and a half, which you might not have,” says Rao. So for tech companies, it’s been worth it to keep employees at work, for as long as they can stay, by providing food in-house. These new laws will change what’s become a given in Silicon Valley work culture.

The city of San Francisco is also considering a similar measure that would ban cafeterias in all new office buildings, forcing tech employees to venture out and share a bit of the wealth outside of their walls.

ClarificationAug. 15, 2018

An earlier version of the Web story referred to changes in Facebook’s meal policies for employees as the result of an agreement between the company and the city of Mountain View, Calif. The terms are between Facebook and its office developer, which made the agreement with the city.