Go Lean…Caribbean

Go Lean Commentary

This point from the foregoing news article is most poignant: “Of the many factors holding back young home buyers … none looms larger than the recent explosion of college debt”.

The book Go Lean … Caribbean serves as a roadmap for the introduction and implementation of the Caribbean Union Trade Federation (CU), for the economic optimization in the region. If the target of the book is the Caribbean, why does this article about American student loans weigh so heavy in a consideration of Caribbean economics?

There are lessons to be learned here! Not just for student loans, but also regarding education policy. This issue is pivotal to the economics of the Caribbean region. This point is made early in the book’s Declaration of Interdependence (Page 13):

xxi. Whereas the preparation of our labor force can foster opportunities and dictate economic progress for current and future generations, the Federation must ensure that educational and job training opportunities are fully optimized for all residents of all member-states, with no partiality towards any gender or ethnic group. The Federation must recognize and facilitate excellence in many different fields of endeavor, including sciences, languages, arts, music and sports. This responsibility should be executed without incurring the risks of further human flight, as has been the past history.

Classic economic policy promotes that education has a direct effect on a community’s economy and the standard-of-living, quantified as each increased-grade-level, raises GDP by 3 percent (Appendix C2 – Page 258). But, the Go Lean roadmap posits that this rule is not true for the Caribbean, because of the debilitating emigration rate, the brain drain in which our educated population flees for foreign shores, or worse, students that do not return after matriculating – despite using funding from their Caribbean homeland. These are all investments with no return. In short, the economy of the Caribbean can be impacted by the activity of this recent-student population, when they repatriate; but when they emigrate, they hurt the economy.

By: Tim Logan
LOS ANGELES – Sarah Luna wants to buy a home in up-and-coming northeast Los Angeles before it’s too late.

At 31, she has a master’s degree and earns more than $70,000 as a court reporter and freelance editor. She daydreams about trading the Glendale apartment she shares for a little condo, maybe in Echo Park or Highland Park….

Just one thing holds her back: The $700 she’s paid every month since 2008, after she graduated from the University of Southern California — with $75,000 in student debt. With about half that total left to pay, buying that condo seems a long way off.

“Honestly, I don’t know if it’ll ever happen,” she said. “Barring some sort of awesome miracle, a down payment is hard to wrap my head around right now.”

Of the many factors holding back young home buyers — rising prices, tougher lending standards, a still-shaky job market — none looms larger than the recent explosion of college debt.

The amount owed on student loans has tripled in a decade, to nearly $1.1 trillion, according to the Federal Reserve Bank of New York. People in their 20s and 30s — often the best-educated and highest-earning among them — owe most of that tab. That is keeping a crucial segment of home buyers on the sidelines, deferring one of the traditional markers of adult success.

The National Assn. of Realtors recently identified student debt as a key factor in soft demand for home-buying this spring. A recent study by the trade group identified student loans as the top reason many home buyers delayed their purchase. Many more didn’t buy at all.

Surveys show today’s adults value homeownership just as much as their parents did. But the shaky job market, higher debt loads, and the roller-coaster market of recent years is keeping many from pulling the trigger, said Selma Hepp, senior economist with the California Assn. of Realtors.

“They’re just postponing,” she said. “It’s the economy and the recession and what that generation has gone through.”

The share of buyers who are first-timers has dropped well below historical averages — 28% of California buyers last year, compared with 38% typically, according to CAR surveys. The absence of a new generation of customers could become a long-term problem for the industry, said Dustin Hobbs, spokesman for the California Mortgage Bankers Assn.

“You have to have that swath of first-time buyers who will eventually be your move-up buyers,” he said. “When you take that out, it damages the whole chain.”

Traditionally, student borrowers were more likely than most people to buy a house, experts say, because college graduates tend to earn more. But that’s flipped since 2008, according to researchers at the New York Fed. Today, the share of 30-year-old homeowners who have student debt is lower than that of 30-year-old homeowners without it.

It’s a sign that skilled, educated workers are getting pushed out of the housing market.

“When people have less money to commit to housing, they don’t buy a house,” Hobbs said.

Jay Stewart Samilin sees that all the time. He’s an agent at Rodeo Realty in Beverly Hills and runs a tax preparation business on the side. Many of his younger clients are skipping the house until they pay down their debt.

“They’re maxed out on student loans, and there’s nothing else they want to think about until they pay that down,” he said.

Some who do start shopping quickly realize they can’t afford as much house as their income suggests. The more they pay each month on student loans, the less the bank will lend them to buy a house, said Natalie Lohrenz, director of counseling at Consumer Credit Counseling Services of Orange County. In a pricey market such as Southern California, that can severely limit a buyer’s options.

“You have to think about your quality of life after you purchase this home,” she said. “It’s OK to rent for awhile.”

That’s not to say some people don’t make it work.

Marco Manansala is starting to shop for a house, maybe a two-bedroom in Long Beach or on the Eastside, close to a freeway. When he began to think about it, the 28-year-old got preapproved for a loan — but only for $180,000.

“That gets you a shack,” he said. “I asked, how do I get more? They said I need to pay down debt.”

So he started aggressively paying off his car, and he’s worked his student loan balance down to $6,000, from $10,000. With a good job as a creative director for a Venice marketing agency, he has cut his spending to save up for a down payment. He’s getting close.

“I have a goal of buying something by June,” Manansala said. “I’m gearing up for it.”

But many others, like Luna, are forced to take a much longer view.

She graduated into the worst job market in decades. Although she eventually found work that enabled her to keep up with loan payments, it’s been hard to save much. In six years, she’s paid down nearly half of her original tab. When she borrowed the money for a master’s in professional writing, Luna acknowledges, she was an “idealistic” 22-year-old, and the numbers didn’t seem real.

Now the reality of a $700-a-month student loan payment makes it hard to get ahead, house or no house, even with a good salary. And she’s worried she’ll get priced out of the city she loves.

“It’s frustrating,” she said. “I think by the time I get a chance to get together that money and find a house, it’ll be unattainable.”

Source: Los Angeles Times – Online News Source – April 19, 2014 –http://www.latimes.com/business/realestate/la-fi-0420-student-debt-house-2-20140420,0,7975649.story#ixzz30Iw7x8Hz

The foregoing news article relates that education funding policies adversely affect major areas of the economy, in this case home-buying. The cause-and-effect paradigm is direct, within 5 to 10 years after graduation; a former student should be planning to buy a house. Apparently the macro economy is dependent on this relationship. According to the foregoing article, the National Association of Realtors (NAR) identified student debt as a key factor in soft demand for home-buying this spring (2014).

The Go Lean roadmap also identified that the 2008 financial crisis still deeply impacts the Caribbean economy; that it was not just the housing finance dysfunction alone that contributed to the crisis, but educational loans as well. This point is declared in Appendix IH on Page 286. This foregoing news article pronounces that the US economy continues to be impacted by a defective and dysfunctional student loan policy.

In the Caribbean, we do not want to follow this American model.

The economic solutions to effect change in the region are detailed in this book Go Lean … Caribbean as community ethos, strategies, tactics, implementations and advocates; as follows:

The goal of the Go Lean roadmap is to make the Caribbean a better place to live work, learn and play. To elevate our economy, we must continue to place a high priority on education, thus the roadmap features our own student loan solution (Page 160) and numerous reforms and optimizations. But we need to be prepared for many of the same pitfalls that have befallen the US. We especially want to learn from these American mistakes:

It’s not the cost of the loan that’s the problem; it’s the principal – the appallingly high tuition costs that have been soaring at two to three times the rate of inflation, an irrational upward trajectory eerily reminiscent of skyrocketing housing prices in the years before 2008. – Ripping Off Young America: The College – Loan Scandal By Matt Taibbi, Rolling Stones Magazine; August 15, 2013. (Appendix IH – Page 286).

For the past 40 – 50 years, we have pushed too hard on college education, just for the sake of the “best practice” in economic elevation. We have suffered as a result, with a brain drain and excessive debt.

As a region, we cannot risk losing any more of our young adults and their contribution to their communities. Plus, we do not want to saddle them with overbearing student loans; this “paints them in a corner” where they must flee to earn enough money to repay the loans; (but so often, they have simply defaulted – which imperils the next generation).

We want to learn from our past mistakes!

We want to learn from America’s mistakes!

So we must deliver quality affordable education at home, without predatory lending habits. For the Caribbean, we do not want to be America. We want to be better!

Download the free e-book of Go Lean … Caribbean – now!