{"id":33383,"date":"2016-07-20T01:41:08","date_gmt":"2016-07-20T06:41:08","guid":{"rendered":"http:\/\/prefblog.com\/?p=33383"},"modified":"2016-07-20T01:41:08","modified_gmt":"2016-07-20T06:41:08","slug":"july-19-2016","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=33383","title":{"rendered":"July 19, 2016"},"content":{"rendered":"<p>The White House has published a study <a href=\"http:\/\/blogs.wsj.com\/economics\/2016\/07\/19\/student-debt-helps-not-harms-the-u-s-economy-white-house-says\/?mod=e2fb\">pooh-poohing the theory that student debt has begun to harm the economy<\/a>:<\/p>\n<blockquote><p>The White House just released a big report on student debt that contains all the familiar horrors about for-profit schools, indebted dropouts and students defaulting on their loans. But it has an interesting conclusion: That growing stack of $1.3 trillion in student debt is helping, not hurting, the U.S. economy.<\/p>\n<p>That conclusion is sure to rankle the many student advocates and special-interest groups\u2014from real-estate agents to employers seeking new tax breaks for their young workers\u2014that argue student debt is a big \u201cdrag\u201d on the economy. (Hillary Clinton and Donald Trump have each decried the rise in student debt.) But the 77-page report from the White House Council of Economic Advisers backs up its claim with numerous charts and studies from economists and academics.<\/p><\/blockquote>\n<p>The report itself, titled <a href=\"https:\/\/www.whitehouse.gov\/sites\/default\/files\/page\/files\/20160718_cea_student_debt.pdf\">INVESTING IN HIGHER EDUCATION:<br \/>\nBENEFITS, CHALLENGES, AND THE STATE OF STUDENT DEBT<\/a>, rebuts my main concern:<\/p>\n<blockquote><p>The rise in student loan debt has created challenges for some borrowers with lower earnings, but has not been a major factor in the macroeconomy.<\/p>\n<ul>\n<li>\u2022 Despite its steady rise over the past decade, aggregate student loan debt remains small relative to aggregate income. In 2015, total student loan debt was 9 percent of aggregate income, up from 3 percent in 2003. By itself this is considerably smaller than the rise in mortgage debt prior to the crisis and it has also been accompanied by a reduction in other forms of consumer debt.\n<li>\u2022 Additional student debt, as an investment in education, is associated with additional income, putting many households in a better position to buy homes or start businesses. By age 26, households with student debt are more likely to buy a house than those that did not attend college. By age 34, college attendees with and without student debt are equally likely to buy a home, and both much more likely than those without a college education. Research studies have found that conditional on a given education, higher student debt explains, at most, a small fraction of the decline in homeownership among younger households.\n<li>\u2022 At the same time, the increase in defaults on student loans as well as the increase in high-loan balances for low earners can be real concerns at the individual level, potentially leading to compromised credit and reduced home buying for some individuals.<\/blockquote>\n<p>My problem with the paper is that it concentrates on proving that post-secondary education is still worth-while, even if it involves taking on debt, which isn&#8217;t quite the problem I have focussed on. Debt+Degree is better than nothing, sure, but Degree is better than Debt+Degree! And the paper does admit that yes, there is a measureable effect on home ownership rates:<\/p>\n<blockquote><p>Work by Mezza et al. (2016) tries to identify the causal relationship and finds a larger, negative estimate of student debt on homeownership.31 Using only the variation in student loan debt due to differences in home-state tuition, they estimate that a 10 percent increase in student loan debt leads to a 1 to 2 percentage point decline in homeownership rates for the borrower. Their estimated effect of student loan debt on homeownership is larger than the Cooper and Wang (2014) or Houle and Berger (2015) studies. It is important to note that all of these studies focus on younger households, so it is possible that rising student loans have delayed but not reduced lifetime homeownership. In addition, these studies hold constant the level of education such that they focus only on the impact of debt, not on the education that the debt helped to fund, thereby excluding the positive boost to homeownership from increased education-related earnings.<\/p><\/blockquote>\n<p>As discussed on <a href=\"http:\/\/prefblog.com\/?p=33125\">May 31, 2016<\/a> there is at least some reason to believe that student debt has harder-to-measure effects than the simple home-ownership binary:<\/p>\n<blockquote><p>A 2013 report by the think tank Demos found that student debt has a negative effect on income, by making borrowers more risk-averse and discouraging them from moving to another city or taking gambles on new jobs or launching a new business.<\/p><\/blockquote>\n<p>This paper, by Robert Hiltonsmith, titled <a href=\"http:\/\/www.demos.org\/what-cost-how-student-debt-reduces-lifetime-wealth#a\">At What Cost? How Student Debt Reduces Lifetime Wealth<\/a>, was not addressed by the White House researchers.<\/p>\n<p>There is also the underlying problem with student debt, that the ready availability of loans has caused tuition to skyrocket and that this additional revenue for the universities has not led to any meaningful increase in the quality of their product, but merely to an increase in the quantity of their administrators and the amount of marketing frills they offer (such as improved accommodation, meals, football stadiums, etc.).<\/p>\n<p>So, while I appreciate the intervention of the White House in the issue, I do not consider their pronouncement to be the final words on this matter.<\/p>\n<table border='1'>\n<tr>\n<td colspan='8'><strong>HIMIPref&trade; Preferred Indices<br \/>These values reflect the December 2008 revision of the HIMIPref&trade; Indices<\/strong><br \/>Values are provisional and are finalized monthly<\/td>\n<\/tr>\n<tr>\n<td>Index<\/td>\n<td>Mean<br \/>Current<br \/>Yield<br \/>(at bid)<\/td>\n<td>Median<br \/>YTW<\/td>\n<td>Median<br \/>Average<br \/>Trading<br \/>Value<\/td>\n<td>Median<br \/>Mod Dur<br \/>(YTW)<\/td>\n<td>Issues<\/td>\n<td>Day&#8217;s Perf.<\/td>\n<td>Index Value<\/td>\n<\/tr>\n<tr>\n<td>Ratchet<\/td>\n<td>0.00 %<\/td>\n<td>0.00 %<\/td>\n<td>0<\/td>\n<td>0.00<\/td>\n<td>0<\/td>\n<td>-0.3418 %<\/td>\n<td>1,666.5<\/td>\n<\/tr>\n<tr>\n<td>FixedFloater<\/td>\n<td>0.00 %<\/td>\n<td>0.00 %<\/td>\n<td>0<\/td>\n<td>0.00<\/td>\n<td>0<\/td>\n<td>-0.3418 %<\/td>\n<td>3,044.4<\/td>\n<\/tr>\n<tr>\n<td>Floater<\/td>\n<td>4.93 %<\/td>\n<td>4.68 %<\/td>\n<td>89,945<\/td>\n<td>16.08<\/td>\n<td>4<\/td>\n<td>-0.3418 %<\/td>\n<td>1,754.5<\/td>\n<\/tr>\n<tr>\n<td>OpRet<\/td>\n<td>4.85 %<\/td>\n<td>1.86 %<\/td>\n<td>45,617<\/td>\n<td>0.12<\/td>\n<td>1<\/td>\n<td>-0.2765 %<\/td>\n<td>2,842.5<\/td>\n<\/tr>\n<tr>\n<td>SplitShare<\/td>\n<td>5.11 %<\/td>\n<td>5.50 %<\/td>\n<td>97,164<\/td>\n<td>2.32<\/td>\n<td>5<\/td>\n<td>0.1367 %<\/td>\n<td>3,369.0<\/td>\n<\/tr>\n<tr>\n<td>Interest-Bearing<\/td>\n<td>0.00 %<\/td>\n<td>0.00 %<\/td>\n<td>0<\/td>\n<td>0.00<\/td>\n<td>0<\/td>\n<td>0.1367 %<\/td>\n<td>2,628.7<\/td>\n<\/tr>\n<tr>\n<td>Perpetual-Premium<\/td>\n<td>5.49 %<\/td>\n<td>-13.03 %<\/td>\n<td>83,740<\/td>\n<td>0.09<\/td>\n<td>12<\/td>\n<td>-0.0260 %<\/td>\n<td>2,676.3<\/td>\n<\/tr>\n<tr>\n<td>Perpetual-Discount<\/td>\n<td>5.25 %<\/td>\n<td>5.26 %<\/td>\n<td>100,799<\/td>\n<td>15.03<\/td>\n<td>26<\/td>\n<td>0.2646 %<\/td>\n<td>2,821.1<\/td>\n<\/tr>\n<tr>\n<td>FixedReset<\/td>\n<td>5.07 %<\/td>\n<td>4.39 %<\/td>\n<td>153,270<\/td>\n<td>7.17<\/td>\n<td>88<\/td>\n<td>0.1067 %<\/td>\n<td>2,003.0<\/td>\n<\/tr>\n<tr>\n<td>Deemed-Retractible<\/td>\n<td>5.03 %<\/td>\n<td>4.52 %<\/td>\n<td>123,850<\/td>\n<td>0.44<\/td>\n<td>33<\/td>\n<td>0.0099 %<\/td>\n<td>2,752.4<\/td>\n<\/tr>\n<tr>\n<td>FloatingReset<\/td>\n<td>2.94 %<\/td>\n<td>4.64 %<\/td>\n<td>32,175<\/td>\n<td>5.15<\/td>\n<td>11<\/td>\n<td>-0.0249 %<\/td>\n<td>2,115.6<\/td>\n<\/tr>\n<\/table>\n<table border='1'>\n<tr>\n<td colspan='4'><strong>Performance Highlights<\/strong><\/td>\n<\/tr>\n<tr>\n<td>Issue<\/td>\n<td>Index<\/td>\n<td>Change<\/td>\n<td>Notes<\/td>\n<\/tr>\n<tr>\n<td>BAM.PR.R<\/td>\n<td>FixedReset<\/td>\n<td>-1.46 %<\/td>\n<td>YTW SCENARIO<br \/>\nMaturity Type   : Limit Maturity<br \/>\nMaturity Date\t: 2046-07-19<br \/>\nMaturity Price  : 15.50<br \/>\nEvaluated at bid price : 15.50<br \/>\nBid-YTW : 4.83 %<\/td>\n<\/tr>\n<tr>\n<td>GWO.PR.N<\/td>\n<td>FixedReset<\/td>\n<td>-1.04 %<\/td>\n<td>YTW SCENARIO<br \/>\nMaturity Type   : Hard Maturity<br \/>\nMaturity Date\t: 2025-01-31<br \/>\nMaturity Price  : 25.00<br \/>\nEvaluated at bid price : 14.25<br \/>\nBid-YTW : 9.64 %<\/td>\n<\/tr>\n<tr>\n<td>TRP.PR.B<\/td>\n<td>FixedReset<\/td>\n<td>-1.02 %<\/td>\n<td>YTW SCENARIO<br \/>\nMaturity Type   : Limit Maturity<br \/>\nMaturity Date\t: 2046-07-19<br \/>\nMaturity Price  : 11.59<br \/>\nEvaluated at bid price : 11.59<br \/>\nBid-YTW : 4.30 %<\/td>\n<\/tr>\n<tr>\n<td>MFC.PR.J<\/td>\n<td>FixedReset<\/td>\n<td>1.00 %<\/td>\n<td>YTW SCENARIO<br \/>\nMaturity Type   : Hard Maturity<br \/>\nMaturity Date\t: 2025-01-31<br \/>\nMaturity Price  : 25.00<br \/>\nEvaluated at bid price : 19.13<br \/>\nBid-YTW : 7.24 %<\/td>\n<\/tr>\n<tr>\n<td>HSE.PR.C<\/td>\n<td>FixedReset<\/td>\n<td>1.14 %<\/td>\n<td>YTW SCENARIO<br \/>\nMaturity Type   : Limit Maturity<br \/>\nMaturity Date\t: 2046-07-19<br \/>\nMaturity Price  : 17.80<br \/>\nEvaluated at bid price : 17.80<br \/>\nBid-YTW : 5.59 %<\/td>\n<\/tr>\n<tr>\n<td>IFC.PR.C<\/td>\n<td>FixedReset<\/td>\n<td>1.47 %<\/td>\n<td>YTW SCENARIO<br \/>\nMaturity Type   : Hard Maturity<br \/>\nMaturity Date\t: 2025-01-31<br \/>\nMaturity Price  : 25.00<br \/>\nEvaluated at bid price : 17.90<br \/>\nBid-YTW : 8.04 %<\/td>\n<\/tr>\n<\/table>\n<table border='1'>\n<tr>\n<td colspan='4'><strong>Volume Highlights<\/strong><\/td>\n<\/tr>\n<tr>\n<td>Issue<\/td>\n<td>Index<\/td>\n<td>Shares<br \/>Traded<\/td>\n<td>Notes<\/td>\n<\/tr>\n<tr>\n<td>NA.PR.A<\/td>\n<td>FixedReset<\/td>\n<td>152,277<\/td>\n<td>YTW SCENARIO<br \/>\nMaturity Type   : Call<br \/>\nMaturity Date\t: 2021-08-15<br \/>\nMaturity Price  : 25.00<br \/>\nEvaluated at bid price : 26.10<br \/>\nBid-YTW : 4.57 %<\/td>\n<\/tr>\n<tr>\n<td>FTS.PR.E<\/td>\n<td>OpRet<\/td>\n<td>114,400<\/td>\n<td>YTW SCENARIO<br \/>\nMaturity Type   : Soft Maturity<br \/>\nMaturity Date\t: 2016-08-31<br \/>\nMaturity Price  : 25.00<br \/>\nEvaluated at bid price : 25.25<br \/>\nBid-YTW : 1.86 %<\/td>\n<\/tr>\n<tr>\n<td>IAG.PR.G<\/td>\n<td>FixedReset<\/td>\n<td>71,872<\/td>\n<td>YTW SCENARIO<br \/>\nMaturity Type   : Hard Maturity<br \/>\nMaturity Date\t: 2025-01-31<br \/>\nMaturity Price  : 25.00<br \/>\nEvaluated at bid price : 19.45<br \/>\nBid-YTW : 7.18 %<\/td>\n<\/tr>\n<tr>\n<td>RY.PR.H<\/td>\n<td>FixedReset<\/td>\n<td>68,204<\/td>\n<td>YTW SCENARIO<br \/>\nMaturity Type   : Limit Maturity<br \/>\nMaturity Date\t: 2046-07-19<br \/>\nMaturity Price  : 18.66<br \/>\nEvaluated at bid price : 18.66<br \/>\nBid-YTW : 4.18 %<\/td>\n<\/tr>\n<tr>\n<td>CM.PR.P<\/td>\n<td>FixedReset<\/td>\n<td>59,362<\/td>\n<td>YTW SCENARIO<br \/>\nMaturity Type   : Limit Maturity<br \/>\nMaturity Date\t: 2046-07-19<br \/>\nMaturity Price  : 18.35<br \/>\nEvaluated at bid price : 18.35<br \/>\nBid-YTW : 4.18 %<\/td>\n<\/tr>\n<tr>\n<td>PWF.PR.G<\/td>\n<td>Perpetual-Premium<\/td>\n<td>55,976<\/td>\n<td>YTW SCENARIO<br \/>\nMaturity Type   : Call<br \/>\nMaturity Date\t: 2016-08-18<br \/>\nMaturity Price  : 25.00<br \/>\nEvaluated at bid price : 25.75<br \/>\nBid-YTW : -29.96 %<\/td>\n<\/tr>\n<tr>\n<td colspan='4'>There were 25 other index-included issues trading in excess of 10,000 shares.<\/td>\n<\/tr>\n<\/table>\n<table border='1'>\n<tr>\n<td colspan='3'><strong>Wide Spread Highlights<\/strong><\/td>\n<\/tr>\n<tr>\n<td>Issue<\/td>\n<td>Index<\/td>\n<td>Quote Data and Yield Notes<\/td>\n<\/tr>\n<tr>\n<td>VNR.PR.A<\/td>\n<td>FixedReset<\/td>\n<td>Quote: 17.81 &#8211; 19.40<br \/>\nSpot Rate  :  1.5900<br \/>\nAverage  :  1.0190<\/p>\n<p>YTW SCENARIO<br \/>\nMaturity Type   : Limit Maturity<br \/>\nMaturity Date\t: 2046-07-19<br \/>\nMaturity Price  : 17.81<br \/>\nEvaluated at bid price : 17.81<br \/>\nBid-YTW : 4.97 %<\/td>\n<\/tr>\n<tr>\n<td>GWO.PR.L<\/td>\n<td>Deemed-Retractible<\/td>\n<td>Quote: 25.75 &#8211; 26.15<br \/>\nSpot Rate  :  0.4000<br \/>\nAverage  :  0.2742<\/p>\n<p>YTW SCENARIO<br \/>\nMaturity Type   : Call<br \/>\nMaturity Date\t: 2016-12-31<br \/>\nMaturity Price  : 25.50<br \/>\nEvaluated at bid price : 25.75<br \/>\nBid-YTW : 3.99 %<\/td>\n<\/tr>\n<tr>\n<td>BNS.PR.G<\/td>\n<td>FixedReset<\/td>\n<td>Quote: 26.60 &#8211; 26.90<br \/>\nSpot Rate  :  0.3000<br \/>\nAverage  :  0.1961<\/p>\n<p>YTW SCENARIO<br \/>\nMaturity Type   : Call<br \/>\nMaturity Date\t: 2021-07-25<br \/>\nMaturity Price  : 25.00<br \/>\nEvaluated at bid price : 26.60<br \/>\nBid-YTW : 4.08 %<\/td>\n<\/tr>\n<tr>\n<td>BAM.PR.X<\/td>\n<td>FixedReset<\/td>\n<td>Quote: 13.69 &#8211; 13.97<br \/>\nSpot Rate  :  0.2800<br \/>\nAverage  :  0.2175<\/p>\n<p>YTW SCENARIO<br \/>\nMaturity Type   : Limit Maturity<br \/>\nMaturity Date\t: 2046-07-19<br \/>\nMaturity Price  : 13.69<br \/>\nEvaluated at bid price : 13.69<br \/>\nBid-YTW : 4.70 %<\/td>\n<\/tr>\n<tr>\n<td>SLF.PR.J<\/td>\n<td>FloatingReset<\/td>\n<td>Quote: 12.30 &#8211; 12.74<br \/>\nSpot Rate  :  0.4400<br \/>\nAverage  :  0.3801<\/p>\n<p>YTW SCENARIO<br \/>\nMaturity Type   : Hard Maturity<br \/>\nMaturity Date\t: 2025-01-31<br \/>\nMaturity Price  : 25.00<br \/>\nEvaluated at bid price : 12.30<br \/>\nBid-YTW : 11.36 %<\/td>\n<\/tr>\n<tr>\n<td>POW.PR.C<\/td>\n<td>Perpetual-Premium<\/td>\n<td>Quote: 25.85 &#8211; 26.01<br \/>\nSpot Rate  :  0.1600<br \/>\nAverage  :  0.1030<\/p>\n<p>YTW SCENARIO<br \/>\nMaturity Type   : Call<br \/>\nMaturity Date\t: 2016-08-18<br \/>\nMaturity Price  : 25.00<br \/>\nEvaluated at bid price : 25.85<br \/>\nBid-YTW : -31.40 %<\/td>\n<\/tr>\n<\/table>\n","protected":false},"excerpt":{"rendered":"<p>The White House has published a study pooh-poohing the theory that student debt has begun to harm the economy: The White House just released a big report on student debt that contains all the familiar &hellip;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[15],"tags":[],"class_list":["post-33383","post","type-post","status-publish","format-standard","hentry","category-market-action"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/33383","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=33383"}],"version-history":[{"count":0,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/33383\/revisions"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=33383"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=33383"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=33383"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}