President Obama’s legacy may come to be defined by two words that have become synonymous with the post-recession economy: “New normal.” Economists have used the words to define a number of troubling trends that seem to be eroding many of the assumptions we were able to make prior to 2007.
The labor participation rate is now around 62 percent, meaning that nearly four in 10 Americans aren’t in the labor force. Is this a new normal? Employment is slowly increasing, but most of the net job losses continue to occur in middle income occupations, while low-wage occupations account for more than half of job gains. Is this a new normal? Since 1947 GDP has risen at an average rate of 3.3 percent, but the past two years of the recovery (when the economy should accelerate the fastest) GDP growth has averaged 2.3 percent. Is this the new normal? We’ve had just five months of 300,000-plus job growth in the 68 months since the recovery began, but in the 1980s there were 23 months of 300,000-plus jobs despite the population being 73 million smaller. Is this the new normal?
And now, sadly, we can add another question to the list. CNN reports:
“Carrying tens of thousands of dollars in student loan debt has become the new normal.
Thanks to climbing tuition and inadequate college savings, 40 million Americans now have at least one outstanding student loan, according to new analysis from credit bureau Experian. That’s up from 29 million consumers in 2008.
On average, borrowers are carrying roughly four student loans each, up from less than three in 2008. Meanwhile, the average balance has increased to $29,000 from $23,000.
That has helped to push nationwide student loan debt to an all-time record of $1.2 trillion, an 84% jump since the recession.
Spiraling tuition costs, a tepid job market for young adults and stagnant wages have contributed to a system that forces young adults to take out ever-larger loans despite the moribund hopes for their future finances. Fortunately, Republicans aren’t willing to accept this new normal.
In late January, just days after President Obama announced his proposal to effectively end 529 college-savings accounts, Rep. Lynn Jenkins (R-Kan.) did the exact opposite by introducing a bill to expand and modernize the accounts.
Currently, the tax benefits of 529 plans only apply to certain “qualified expenses,” that include things like tuition, room and board and books. The bill would expand the list to include the purchase of a computer, which has moved beyond being a luxury to being an absolute necessity.
The bill also updates the language to assist students who withdraw money from 529 plans, but end up not being able to attend college, for one reason or another, in the immediate future. For instance, if you withdraw $10,000 to pay tuition for your fall semester, but you are forced to withdraw from school for a few months due to a serious illness, you’d currently owe a tax and a 10 percent penalty on the portion of the refund that is attributable to earnings in the 529 plan. But, under the bill, if you re-deposit the money in the 529 account within 60 days of the refund, then you would avoid the tax hit. In short, it adds some peace of mind that your money won’t be taken from you for things out of your control.
“Helping students attend college ultimately makes America more competitive in the global marketplace, but with rising tuition costs and the growing crisis of student loan debt, we need to use every tool we can to help families afford higher education,” bill-cosponsor Rep. Ron Kind said upon introduction. “This commonsense, bipartisan legislation promotes college access and proactively encourages families and students to save in advance, while eliminating perceived barriers to savings.”
So even as the economy slouches towards a “new normal” under President Obama’s stewardship, unsustainable student loan debt doesn’t have to suffer the same fate. There are bipartisan reforms on the table to encourage families to save money and get out of a system that pushes them to borrow more. This is a no-brainer. Let’s hope the White House sees it that way.