Thursday, April 7, 2016

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1--More Than 40% of Student Borrowers Aren’t Making Payments  

New figure raises worries that millions of them may never repay more than $200 billion owed

Carlo Salerno, an economist who studies higher education and has consulted for the private student-lending industry, noted that the government imposes virtually no credit checks on borrowers, requires no cosigners and doesn’t screen people for their preparedness for college-level course work. “On what planet does a financing vehicle with those kinds of terms and those kinds of performance metrics make sense,” he said.

More than 40% of Americans who borrowed from the government’s main student-loan program aren’t making payments or are behind on more than $200 billion owed, raising worries that millions of them may never repay.

The new figures represent the fallout of a decadelong borrowing boom as record numbers of students enrolled in trade schools, universities and graduate schools.

While most have since left school and joined the workforce, 43% of the roughly 22 million Americans with federal student loans weren’t making payments as of Jan. 1, according to a quarterly snapshot of the Education Department’s $1.2 trillion student-loan portfolio

About 1 in 6 borrowers, or 3.6 million, were in default on $56 billion in student debt, meaning they had gone at least a year without making a payment. Three million more owing roughly $66 billion were at least a month behind. 

Meantime, another three million owing almost $110 billion were in “forbearance” or “deferment,” meaning they had received permission to temporarily halt payments due to a financial emergency, such as unemployment. The figures exclude borrowers still in school and those with government-guaranteed private loans

Navient Corp. NAVI -0.09 % , which services student loans and offers payment plans tied to income, says it attempts to reach each borrower on average 230 to 300 times—through letters, emails, calls and text messages—in the year leading up to his or her default. Ninety percent of those borrowers, which include federal borrowers as well as those who hold private loans, never respond and more than half never make a single payment before they default, the company says.

The Obama administration—worried about taxpayer costs and the prospect of consumers damaging their credit by defaulting—has stepped up efforts to reach borrowers and offer the income-based repayment plans. In some cases, the government is garnishing wages and tax refunds of borrowers who refuse to pay.

But the officials acknowledge that a large pool of borrowers have essentially fallen off the radar. The Education Department has assembled a “behavioral sciences unit” to study the psychology of borrowers and why they don’t repay.

“We obviously have not cracked that nut but we want to keep working on it,” said Ted Mitchell, the Education Department’s under secretary. He said many defaulted borrowers dropped out of school and are underemployed....

Some borrowers aren’t repaying even when they can. Research from Navient shows that borrowers prioritize other bills—such as car loans, mortgages and heating bills—over student debt. A borrower who fails to pay down an auto loan might have her car repossessed; with student loans, there is no such threat.

The administration maintains that the student-loan program, as a whole, will generate a profit over the long term, but the risk is rising that its revenue won’t meet the administration’s projections.

Even many borrowers who are current on their loans are paying very little. More than a third of borrowers on an income-based repayment plan had monthly payments of zero because their incomes were so low, according to a Navient survey last year.

The Education Department, through private debt-collection agencies, garnished $176 million in Americans’ wages in the final three months of last year for student debt, federal data show.

The administration’s pursuit of troubled borrowers is drawing criticism from student advocates and their allies in Congress. Last week, the American Civil Liberties Union and the National Consumer Law Center sued the Education Department, accusing it of blocking public access to data on the agency’s debt-collection efforts. The groups suggested that the companies collecting debt for the department might be discriminating against black and Hispanic borrowers.

Dorie Nolt, a spokeswoman for Education Secretary John B. King Jr., said the agency is reviewing the groups’ public-information requests.

“The singular goal of our student loan program is to help all students get a degree that sets them up for success, and we take the treatment of our borrowers—particularly historically underserved students—very seriously,” Ms. Nolt said in an email.

2--Why Japan’s Economy Is Laboring---As Abenomics stalls, Prime Minister Abe is turning his focus to a major economic drag: Japan’s labor market

After three years, the prime minister’s Abenomics revival plan is stalling, with growth and inflation both around zero. The nation’s labor market is a big reason why. It feeds a range of the country’s core problems: weak wage growth, low productivity and investment—even low rates of marriage and births. ....

After Japan’s economic bubble burst in the mid-1990s, companies sought more flexibility in hiring and firing, increasingly turning to nonregular workers. Japan Inc., saddled with overcapacity and debt, faced a choice: cut jobs or cut pay. It chose the latter, reflecting the view in Japan that big companies are public institutions with a responsibility to provide employment.

But protecting permanent employees led to the expansion of a second tier of nonregular workers as companies, through years of economic stagnation and falling prices, hired more workers they could more easily dismiss in bad times.

Workers in the first tier are still essentially guaranteed lifetime employment. Workers in the other, now accounting for 38% of nonexecutive employees, earn far less, even for doing the same job as permanent workers. They receive little formal training, aren’t represented by unions and flit from posting to posting, blocked from advancement by permanent workers.

“If you’ve had only irregular jobs, by the time you are in your 30s, you aren't an attractive employee,” said Richard Katz, editor of the Oriental Economist Report.

Nonregular workers’ precarious status and low pay also make them unattractive as potential spouses, a problem in a nation with a shrinking population. Only 27% of men in their 30s with nonregular jobs were married last year, compared with 66% of men the same age with permanent jobs, according to government statistics...

Reforming the dual labor market is one of the most important issues Japan faces, said Randall S. Jones, chief economist for Japan and South Korea at the Organization for Economic Cooperation and Development. It is a big drag on labor productivity, in which Japan ranks in the bottom half among OECD nations—a primary reason the nation’s potential growth rate is now so low, he said....

Business leaders have long pushed for more flexibility in firing permanent workers, but they express wariness about Mr. Abe’s focus on equal pay, which is already required under existing law but rarely enforced. They say efforts to enforce it would be burdensome. ...

Mr. Abe has stressed the need to get everyone working, and the labor participation rate has risen during his three years in office, pushing the unemployment rate to a two-decade low. But the headline figures mask underlying weakness. During Mr. Abe’s tenure, the number of regular workers has fallen, while the percentage of nonregular workers has hit a record....

The jump in labor participation has been fueled mostly by an increase in the number of married women and people aged over 60 taking part-time jobs as incomes of heads of households fall and the pension age rises, Goldman Sachs GS -3.08 % said in a January report.

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