Bankruptcy Is The Solution to Student Loan Crisis: Joe Nocera

at student debt. I think it's fair today that nobody really wants to ever declare bankruptcy, but some people do have to declare bankruptcy. The one thing, though, that you won't be able to discharge in bankruptcy is your student loans. You'll carry them around for the rest of your life if you're not able to pay them off. Well, our next guest says bankruptcy is a solution to the student loan crisis. So to get what he means, let's bring

in Jon Oh Sarah Bloomberg Opinion columnist Joe. Obviously, you know this idea that you can never discharge your student loans even in bankruptcy is something to be reckoned with. You can spend a fortune getting you know, in education, and then life can intervene. You can end up going bankrupt, which you'll still have those student loans, you know, following you around for the rest of your life. How how

do we change that? How can that be changed? Good morning? So, first of all, it's beyond the rest of your life, because once you die, the federal government will come after your state to get to get paid off of the

student land. Um. You know, this has been something that's been going on for about forty years, starting in the late sixties, and they made it, the Congress made it more and more difficult, near impossible to discharge the student loans, not only those that are granted by the federal government, which is about but also those that are granted in the private market though by banks and institutions at grant student loans. Um. Uh. So it is a ownerous burden.

Uh The average student loan debt is about thirty dollars, but there are plenty of people who have debts of a hundred thousand or a hundred and fifty thou dollars. And you know, in in the economy that we have had for the last you know, fifteen or so years, maybe more, it's been so hard for for those people to get the kind of jobs that allow them to make monthly payments and and and stay straight with their

student loans. So, Joe, I think as it relates to the student loan issue, that what we've heard the most out of politicians is actually forgiving the debt. How would you compare and contrast I guess the pros and cons of forgiving the debt versus maybe allowing um a bor or to go into bankruptcy? Right? Um, well, uh, I say, first of all, from a political point of view, forgiving debt is going to be highly contentious. It's just gonna

be very controversial. There are gonna be lots and lots of people who say, you know, I had to pay my loan, why does this freeloader get you know, get his loan up and partially um uh, you know, wipe wiped off the board. So so that's point one, it's it's a political it's a political problem. Point number two is that you know, the amounts that are being talked about are being between loan forgiveness between ten thousand and fifty dollars. So for some people that will wipe out

their loan. For many others, it won't, and they'll still have a lot of money to pay back, just not as much as they had before. The thing about bankruptcy is number one, it would wipe out the entire loan. But number two, it comes at a price. Nobody, as as as you said at the beginning, nobody wants to

file for bankruptcy. You know, it hurts your credit and makes it difficult to buy a house, and maybe it sometimes makes it difficult to buy a car for five, six, seven years, and it takes a while to recover from. So when you file for bankruptcy, you pay a price. So that would help um subdue some of the objections from those who think it's just a program for freeloaders. Is there I mean, is there any appetite for it

to be done across the board? So I've definitely seen people talk about maybe doing it for teachers if they put in a certain amount of time of public schools, or doing it for people who go work with the Peace Corps for a while. But hows anybody has just suggested has it got anywhere in Congress? This idea that you know, as a certain amount of student loans we've paid off for every single student no matter what they study. Um,

it depends on what you talked to. I mean, in the progressive wing of the Democratic Party, there is an enormous amount of desire to get this done. In the in the in the in the furthest right wing of the Republican Party, there's no appetite for this whatsoever. And that's one of the reasons that I've been suggesting bankruptcy as as a possible middle ground. Um. But let me say something else about what you just said about teachers and so on. Um, there's a second aspect to this.

If you file, if you bring back bankruptcy, it means that the lenders, the banks, the government are all going to have to be more careful about making loans. That's one of the big problems. They give the money to anybody, they don't have to care whether the person can pay it back or not, because they're gonna get reimbursed by

the federal government. That's a huge problem. That's called moral hazard. Um. And so you know, if they're more careful with their lending, that means that you know, working class and poor kids are going to have a much harder time getting loans. So that's where I proposed the second part of this, which is to make it much easier to get into these income based repayment plans where you pay a percentage of your income for a certain number of years um as your way of paying of paying back your loan.

And if you have certain you could you could make it so that, you know, if you are in the Peace Corps, if you are a teacher, or if you do work on an Indian reservation, or you know, any of those kind of things, that that the amount would be reduced just because you're doing you know, what amounts to public service. So I think between bankruptcy and income repayment, uh,

you pretty much have the problem solved. Joe, what do we know about President elect Biden and his thoughts about this issue, because presumably this might be one of the things he might want to tackle in this first one days. I doubt he'll tackle it in this first one days because it's con contentious, but I do think he does want to tackle it. He needs to give something to the progressives. Now what I've heard is that, um, what he's looking at. You know, Elizabeth Warren wants fifty uh

wiped away. He and he and she and she wants him to do it through executive order. He would like to reduce it simply by ten thousand dollars, and he wants to do it through legislation, so it wouldn't look like, you know, by sea I, it wouldn't look like he's trying to ram something down those throats. Um, whether he could get a past legislation, well, a lot of that depends on what happens in Georgia, you know, in early January. Um uh, And so we'll just shop to see about that. Yeah.

And I mean, you know, it doesn't matter what kind of college you go to, you end up with these crushing debts, and then you know, interest rates that are insane for for a lot of young people out there that are just trying to give themselves an education. I know that Joe Biden has definitely talked about pel grounds for everybody, but I mean, that's what the tip of the iceberg, right Jo, Yes, it is. And I would

say I'm also about the crushing debt. Don't forget you know, kids who drop out of school because they can't keep paying, you know that they still have that debt. Kids who go to for profit colleges that are turned out to be scammed, they still have that debt. So, I mean, you know, there's a percentage of people for whom the debt is great. They get through college, you know, they have a good life, they have you know, they did

a good job. But there's a whole lot of other people, well that doesn't need can happen, and they're still stuck with the dad. Yeah, very big issue for a growing number of people. Jonah Sarah, thanks so much for joining us. Jonah Sarah's a columnist for Bloomberg Opinion. You can read his work and all the work of Bloomberg Opinion at Bloomberg dot com, slash Opinion or on the terminal O

P I N go. Well, we got another dose of sobering jobless claims this morning, arguably once again raising the incentive for the Fed remaining accommodative and for Congress to move forward on a meaningful piece of fiscal stimulus. Let's get the latest economic outlook with Lindsay Pegsa, chief economist at Steeple Financial, joining us on the phone from Chicago. Lindsay,

thanks so much for joining us here. You know, if we step back a little bit, we can certainly see signs that the economy is through the worst of the pandemic UH disruption, but there's still a lot of work to do. Given what we heard from FED Chairman Pal this week, given what we see on the on the job was front of other eco economic data points, where

do you think we are in the recovery? Well, I said, I think we've made it through the first the biggest barrier, the biggest top as we saw the worst of the pandemic in the second quarter. But that's not to say that we're not going to have more difficult times ahead, because even if we do see the second round resurgeon UH snuffed out at a relatively faster pace than the

first round. Remember, businesses and individuals are already beginning from an extremely fragile position after months of hardship, so it's going to be increasingly difficult for them to continue to weather a storm without some sort of additional artificial support

from officials in Washington. So there really has to be some increased pressure on our representatives on Capitol Hill to really do their job and get some of those funds out to hurting individuals and businesses really struggling at this point. How concerned you think the FLMC is about the situation, Lindsay, I think they're very concerned. I do think that FED

chairman struck a very delicate line. On the one hand, he was trying to be optimistic about the improvement that we've seen thus far, particularly in the third quarter, with that stellar rise more than offsetting the decline in the second quarter, at least in percentage terms. But he was also very cautious to say it looks that the virus

is going to dictate the path of the recovery. It's still very uncertain, and while we're optimistic, a number of things have to go right, A number of dominoes have to fall just perfectly in line in order to really navigate ourselves out of this, this unprecedented situation. So I do think the FED is increasingly concerned about being able to get the economy back on track, but more importantly, back to a position of a longer run, sustainable improved trajectory.

It's not about just a one quarter bounds, but really getting the economy back on a pathway towards potential GDP. There's a nillion dollar fiscal stimus here, do that, lindsay, or do we need even more than that? From your perspective this, I do think it will help. I do think it will help stabilize the economy. But again, it depends on the depth and duration of this second round resurgence.

If we continue to see businesses shut down, workers sent home well into the first quarter, billion is not going to do it. So it really depends on how quickly we're able to control the virus and how how really lenient I would say, local officials are in terms of allowing the private market to return to some semblance of normal market activity. Remember, this isn't a market crisis, this

is a health crisis. So the best way to control this, uh, this unprecedented scenario is having a meaningful way of separating the healthy from the sick, something that we don't have at this point. What else can the FED do? At this point where you surprised at the fact that the SCP skewed a little more positive, No, I wasn't. I

wasn't necessarily surprised by that. We did anticipate a little bit of an upward revision in terms of the Fed's expectation for growth and unemployment because we have seen vast improvements, in fact, faster than expected improvement. As I mentioned in the third quarter, carrying forward through October and somewhat in November. So it does make sense that the FET is reflecting

that improved baseline scenario. But going forward, I do think that the FED has put so many tremendous proposals and plans in place that at this point that there's very little additional they can do to support the market or support the economy. It really has to come from fiscal policy support at this point, and the FED all but handed that proverbial batime over to our officials in Washington, saying, look,

we've done everything we can up to this point. Now it's up to you guys to again do your job and reach an agreement and get those much needed funds out to those that are hurting the worst, including small businesses and individuals that have lost their job through no faults of their own, but by the government's own design. H lindsay, briefly, what's the steeple four Q GDP call and GDP call. I do think there's enough strength in October and November to carry growth in positive territory in

the fourth quarter. So I am looking for low single digit growth around four or five percent for the fourth quarter, certainly a decline from that rebound that we saw on the third quarter, but still a very a very welcomed improvement in terms of growth going forward, however, into the

first quarter. Right now, our baseline scenario is less than one percent GDP, with a downside risk of the U S economy falling back into negative territory if we do see a continued drag out of this second round resurgence without additional support from the federal government. Lindsay, you have to live there, but thank you so much for joining us, and uh, maybe speak to you again before the end of the year. If not, we'll talk to you in January.

That's Lindsay, pe TV economists add Stephile Nicholas joining us there and pull. It's really just so fascinating to see the data come in and some of it poor, some of it okay. It really is so obviously a caeshaped recovery. It really is. And I think the concern here is is Lindsay suggested not getting a handle in the near term on this pandemic. Another industry that's had a very tough year is the home health business. Those going into

people's homes protecting the aging population. And so on. Charlie Young is the CEO of Synergy home Care, located in New Jersey. It's one of the leading in home care organizations that operates in three markets. Charlie, first of all, before we get onto the vaccine vaccine rollout, tell us how your business has been going and what changes you've had to make thanks to the pandemic. Well, first of all, Fanny,

it's great to be here. Thanks for having me. I'm actually out in Arizona, so I missed that beautiful snowstorm that you are just that. Uh. The business of home care has has seen quite a bit of demand, as you can imagine obviously. Uh, people are looking to make sure that they are safe and one of the safest places to be is at home. Like many industries, senior care, home care, December this is prime time for us UM and the reason for that is generally this is when

families get together. This is when families gather usually for extended, extended areod of time and adult children often times see that mom or dad or another senior love one of theirs needs more care and more more help. Um. We're not having that this year. Um uh, So we're trying to help people understand how that they can support their loved ones and look for the things that they need uh to help them to continue to thrive at home,

even though they might not be there in person. But to your to your point, the business has been been doing quite well because the demand for home care during the pandemic is quite high. Charlie, your employees, they are just the definition of frontline workers. Here a couple of points here how to how they've been faring Number one and number two. Um, presumably they will be one of the first to get the vaccine. What if we can you tell us about that? Yeah? Well, first of all,

you're absolutely right. I mean, there's no more noble cause than to be a caregiver who goes into another's home UH to take care of them. Our mission at Synergy own cares to help people thrive at home, and that's what these people do every single day. UH. As you know, the response to the pandemic has been decentralized across the country, with states all having different approaches and oftentimes trickling down

to local UH and county governmental decisions. So UM, you know, what we're seeing is that our home care workers are being treated as essential. Some places, but not in others. Really encouraged. I did get a call from a franchise e of ours in New Jersey this morning. They were called by their county health department yesterday asking for a list of their caregivers so that they could be put on uh that priority list for the vaccine. And uh, I only uh wish it was that way all over

the country. So Charlie talked us about how franchise e that works. Are all of your home all of your businesses in the various dates franchise run and uh and how do they pay you a fee? And what do you provide to them? Yeah? Absolutely so, uh, you know, we are a franchise business. We uh we really offer the promise to help care minded uh compassionate entrepreneurs build a robust business. We do that in four basic ways.

We provide a home care platform everything that you need to run a home care business, from the initial training, the software and other tech backbone that you need, uh, and then all the marketing that goes with it. We provide all the local lead generation marketing, referral partnerships with insurance and health organizations, and obviously a network of people

who have done this before. Uh, and so when you have over three seventy markets around the country, there's a robust group of people who have experience and can help there. That's another area of our business has grown quite well during the pandemic is the franchising side. We're selling home care franchises. I think that's a function of two things. One is, you know, the the economic situation in the country.

Many people have been downsized and are out of work and are looking for a new chapter in their lives. And then I think when you look at the the the upside for home care in the years to come starts with demographics. Uh, it starts with a shift in in in thinking about the whole healthcare continuum. It's a it's a business to be in and so we've done well there over the last nine months as well. So it was I just curious, why would somebody need to buy into a franchise if they want to, you know,

be in the home care business. Can they not just do it? You could? You could just do it. You would be faced with a much steeper learning curve and startup curve because when you when you join a synergy of home care franchise, you're gonna have all of your systems in place from day one. So that is a thought process as a business owner that you don't need to go through. You're going to have the software, software platform for billing, for scheduling, for recruiting caregivers, all of

that sort of thing. You're gonna have the marketing platform for lead generation. And because we have a national footprint, we have uh, national partners who are bringing referral business to us. Uh you know, and so so it's a it's a it is a way to get up and running and uh uh much more, much more efficiently. Yeah, go ahead. Interesting, Charlie, thanks so much for joining us. It's a really an interesting time for you and your business.

I'm sure, Charlie young Ief, executive officer for Synergy Home Care, obviously seeing increased demand during these pandemic times. Now, let's bring in Bloomberg journalist to Molly Smith. A fantastic story on the Bloomberg Today and it relates to minority owned underwriting firms and how they benefited from a new detention on social justice issues, particularly this summer after Floyd's killing.

But they say that actual institutional barriers are keeping them from gaining a bigger share of the corporate debt market, and it really is a phenomenal, molly great story. First of all, give us a rundown of some of the firms that you're talking about. Sure, So when we talk about diverse underwriters, these are banks that are owned by minorities, women,

and veterans. So we talked to several of the prominent African American owned banks like Luke Capital, playlog Van, We talked to several veteran owned banks like Drexel Hamilton's Academy Securities, and a lot of these banks really trace their roots back to UH the civil rights movement, and that's when a lot of them got started and in underwriting bonds for America's local governments, and that's why they've done so well in the municipal bond market, where where America's leadership

at the local government level, excuse me, is tends to be much more diverse in nature itself. You transition them to the corporate market, and America's companies are hardly as diverse in nature at the leadership level than the cities are, and it just hasn't been as integral and natural of

emission on the corporate market. So'm only I know historically some of the challenges for some of these minority on banks as it relates to uh, the corporate market is lack of adequate capital and maybe even staffing and so on. So what's the story there. The biggest obstacle that a lot of the banks will point to is that they are set up as solely investment banks, meaning that they

don't have commercial banking abilities as well. And that's what makes the biggest banks on wall streets such a formidable force in this space, so that they are able to provide cheap loans to companies with the expectation of winning the more lucrative capital markets business in return. And when you're just an investment bank that's not in your wheelhouse, you don't have, you know, provide these credit facilities to companies.

So the lend these diverse underwriters have had to be much more creative and how they get into deals, and that's that's what key obstacle that they pointed to that's

keeping them from moving forward. Yeah, I mean earlier this year when by Lackman was ringing his back to sort of the public attention, he pointed to the fact that he used minority owned underwriters for setting up some of the deal, but if you looked at it, it was actually you know, a small sliver of the deal, but they did have permanent capital was going to be you know something, and he was trying to get other people on Mole Street to do this as well. There was

no downside according to him. Why are they not doing it? What is the big big setback? Are they afraid of the big banks like David Morgan and Goldman's X I don't I think that they're starting to come around to it, because when the All State deal, at least in my opinion and for definitely a lot of these banks too, was a really big turning point and showing that they that All State had borrowed one point two billion dollars. I believe it was last month, and this was the

biggest deal ever managed solely by diverse firms. And all State is a major US companies. Certainly they have banking relationships with the biggest Wall Street banks and they actually consulted with some of those banks before this bond sale, and all of them, including Brian moynihan from Bank of America, said they thought this was a great idea and something that all states should definitely pave the way in doing so. I think there is more receptiveness to us. But certainly

there is just that stigma. It's not, you know, a start and set rule in any way, but companies just naturally tend to look at their lending partners when looking at capital markets like ativities. Is there any incentive for companies to change I'm thinking about E s G investing, is that maybe could be a criteria for certain investors to say, hey, we want your advisors, whether it's your legal advisors or your financial advisors, to be more diverse.

Is that an angle perhaps, certainly, and that's something that uh, you know, a lot of companies they cannot fulfill D and I mandates through their capital markets group as well. So I think a lot of them are starting to

look at this in the new light. And certainly you're seeing as well with Goldman and NASDAC requiring companies to have diverse leadership in the at the board level, that it's becoming much more significant that they're going to be real consequences that if you could be delisted from an exchange if you don't have if you're not inclusive in your board representation, that's a really big deal. So I think companies are really going to be waking up to

this more. But certainly that is what these diverse banks are looking for, that this isn't just a thing, it is a sustainable trend. You quote Eric van Standifer, who's the founder and chief executive author of Laylock, saying, they're still giving us qualms and just giving us more crumbs. It seems to be so you know, at the margin, you know it needs to be a much more major

sort of movement, doesn't it. That's exactly it, because these firms, that's why all State was so significant that they took on lead manager roles versus in the Google deal which he was talking about. Google brought on fifteen diverse co managers for this deal. So that means that they've walked away with just two hundred sixty thousand dollars in fees each versus the three biggest underwriters got more than seven

million dollars each. So it's just like, of course, you want to spread the wealth, so to speak, but when you include so many firms on one deal, it's just being spread out among that many more people. Hey, Molly, thank you so much for joining us and sharing this story really well reported. Molly Smith, corporate finance reporter for Bloomberg News. Thanks for listening to Boomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or

whatever podcast platform you prefer. I'm Bonnie Quinn, I'm on Twitter at Bonnie Quinn, and I'm Paul Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio