This post was originally published on this site
Hello and welcome back to MarketWatch’s Extra Credit column, a weekly look at the news through the lens of debt.
Have any debt-related stories or questions you want us to tackle? Email jberman@marketwatch.com.
This week we’re digging into the challenges some student loan borrowers borrowers face getting relief from their student debt when their schools close abruptly and the economic impact of restricting abortion. But first up, a look at the work of one of this year’s winners of the MacArthur “genius” grant.
An asset for some, but debt for others
Everywhere from politics to pop culture sends the message that owning a home is key to building wealth in America, but over the past several decades Black households — even when they own a home — have largely been shut out of that benefit.
That’s one of the many takeaways from the work of Keeanga-Yamahtta Taylor, a historian, writer, and professor of African-American studies at Princeton University and 2021 winner of a MacArthur Fellowship, commonly referred to as a “genius” grant.
“Property in white hands is valued more than property in Black hands,” Taylor, the author of “Race for Profit: How Banks and the Real Estate Industry Undermined Black Homeownership,” told Vox last year. “So even when Black people own property, it still does not accrue in value in the same way or at the same rate. Instead, it often functions as a debt burden to African Americans.”
In honor of Taylor’s win and her work’s ties to the themes of this newsletter, I thought I’d dig into a topic that’s at the center of speaking and writing by Taylor and other scholars who study race, economics and finance: predatory inclusion. The idea is that financial systems that once excluded Black Americans and other marginalized groups shifted to provide them access to assets they were once excluded from — a home, a loan, an education — but did so on predatory terms.
“A lot of the gains of the Civil Rights movement and the demands that people have placed on institutions for equity as well as inclusion have an unintended side effect,” said Louise Seamster, an assistant professor of sociology and African-American studies at the University of Iowa. “Systems that look like they’re giving people what they want but on terms that are turning out to have major catches or downsides.”
Taylor’s work highlights how this dynamic has played out in the housing market. Even when, in theory, a partnership between the government and the private sector aimed to expand homeownership among Black households in 1968, homeowners wound up being harmed, Taylor wrote in an excerpt of “Race for Profit” published in the New York Times in 2019.
The partnership allowed for different than typical mortgage terms, including tying the size of the mortgage payments to a buyer’s income instead of the value of the home they were purchasing. It also allowed for down payments of only $200. The private sector made the loans and the government paid them off in cases of default, laying the groundwork for fraud, Taylor wrote.
Investors would buy shoddy houses and quickly flip them, bankers would inflate appraisals and push to issue as many mortgages as possible — earning money on the closing costs and fees — which they would later bundle to resell, Taylor writes. The result was the experience of people like Janice Johnson, a Philadelphia Black single mother who in 1970 bought her first house through the program and in short order faced wastewater in the home due to a sewage line break and a rat infestation, including in her son’s bed.
Predatory inclusion extends beyond housing. Seamster has studied how it plays out in higher education where access to college has expanded for women and students of color as the cost and debt required to complete degrees have grown. Other scholars have found that products billed as bringing the unbanked into the financial system often do so on predatory terms.
Predatory inclusion is “calling into question these assumptions that equity is going to come by people borrowing against their future, rather than through programs that are providing equal funding or even reparative funding to make up for past harms or disadvantage,” Seamster said.
FLASHBACK: Jason De León, an anthropologist at the University of California Los Angeles, who won a MacArthur genius grant in 2017, said he would use some of the $625,000 to pay off his student loans.
Waiting for decades for debt relief when your school goes out of business
Thousands of students who were entitled to have their debt cancelled because their schools closed in the middle of their educations didn’t end up getting the relief until after the loans had already caused them financial harm.
That’s one conclusion from data released this week by the Government Accountability Office as part of a hearing held by the House of Representatives Subcommittee on Higher Education and Workforce Investment. The report comes just days before the Department of Education will convene a group of stakeholders as part of a rulemaking process that will address several policies, including “closed school discharge,” which allows borrowers to have their student debt cancelled in cases when their education is interrupted by a school closure.
The data also comes amid pressure from advocates and lawmakers, including Representative Bobby Scott, a Democrat of Virginia and the chair of the House Committee on Education and Labor, to hold executives and owners accountable when the schools they run collapse. Right now, only students and taxpayers are left facing costs when schools close.
The GAO found that more than 80,000 borrowers who attended colleges that closed between 2010 and 2020 and were eligible for a closed school discharge had their debt cancelled through the process. Most of those borrowers applied to have their debt discharged, but 27,600 received relief automatically through a system the Department implemented in 2018. Of the borrowers who had their debt cancelled in the GAO study, 96% attended for-profit colleges, according to the GAO.
The borrowers who didn’t apply for cancellation may not have been aware that they were eligible. While they eventually received relief, it came too late to avoid the negative consequences of the debt on their financial lives. More than 70% of the borrowers who received the automatic discharge struggled to repay their loans; 52% defaulted and the other 21% were past due on their loans by more than 90 days at some point, the GAO found.
The Trump administration eliminated the automatic discharge system that allowed thousands of borrowers in the GAO’s study to receive relief. As part of the rulemaking process kicking off next week, the Biden administration is recommending reinstating it.
“The Government Accountability Office’s (GAO) preliminary findings demonstrate that students affected by abrupt college closures are not getting the timely support they need,” Scott said in a statement.
One former student, Karyn Rhodes, testified before Congress Thursday about her experience following the closure of American Business Institute, which shuttered seven months into her schooling. Rhodes attended the school in 1988 and became eligible for a closed school discharge in 1994 when the Department started issuing discharges. But Rhodes said her loan servicer and debt collector never told her she could apply for relief.
“As a result, I experienced ruined credit and the constant threat of wage garnishment and tax refund offsets for debts that I should not have had to repay,” Rhodes said in her prepared statement. Eventually, the government seized her tax refund over the debt.
Ultimately, Rhodes was able to get her loans cancelled through help from a legal aid attorney, she said. In the decades she waited for relief, her balance swelled from $6,625 to $26,000.
ICYMI: Navient
NAVI,
says it plans to stop servicing government-owned student loans, the fourth company in a year to announce its exit from the student loan system.
The economic impact of abortion restriction
We’re currently in the midst of debates over abortion access on many fronts. This week, the state of Texas asked a judge to dismiss a lawsuit filed by the Justice Department over its strict abortion law and Representative Cori Bush, a Missouri Democrat, shared her personal experience with abortion as part of a Congressional hearing on the approach of the Supreme Court and some state governments to abortion access.
Obviously there are many health, religious and political consequences of the battles raging in state houses over restrictive abortion laws and at the Supreme Court. But I was curious about the possible economic impact of changes to laws surrounding abortion, so I called up Sarah Miller, an assistant professor of business economics and public policy at University of Michigan’s Stephen M. Ross School of Business to learn more.
Her research, co-authored with Laura Wherry, an assistant professor at NYU Wagner Graduate School and Diana Greene Foster, the director of the population sciences research unit at Bixby Center for Global Reproductive Health, found that women who were denied abortoins are more likely to struggle with debt.
According to their paper published last year, women who are denied an abortion see their past-due debt increase by $1,750, a jump of 78% compared to their pre-birth average. In addition, the incidence of bankruptcy, eviction and tax liens on their credit report went up by 81%. These challenges persisted for years after the abortion denial.
The researchers were able to come up with their findings thanks to data from The Turnaway Study, which followed two groups of women who showed up to clinics seeking abortions. One group had pregnancies that were just under the facility’s gestational age limit and so received an abortion. The other, the so-called turnaway group, had pregnancies that were just above the gestational age limit and were denied access to the procedure. The researchers matched the women’s information with credit reporting data.
The study indicates that women who were turned away were more likely than the group that received an abortion to lack access to resources that would have helped them avoid financial distress, such as the ability to lower housing costs by living with an adult relative or roommate.
“It paints this picture of you having these changes in your housing situation, you have changes in your income, changes in your financial life and you’re not getting all of the support that you need to make that transition smoothly,” Miller said. “It’s not all that surprising that these women are having trouble making ends meet and keeping up with their bills.”
The outcome of the legal and political debate over abortion access doesn’t hinge on the economic impact of abortion access, but experts are trying to insert personal finances into the discussion. Miller is part of a group of 154 economists who submitted a friend of the court brief to the Supreme Court in a case the justices are expected to hear oral arguments in March outlining some of the economic data on this issue, including The Turnaway Study.
“I hope they take this research into account,” Miller said of the justices.
