Tomorrow's Debt Trap Today—Government Subsidized Day Care Loans

Moneybox
A blog about business and economics.
Aug. 5 2013 10:10 AM

Tomorrow's Debt Trap Today—Government Subsidized Day Care Loans

170446833
City Council speaker and mayoral candidate Christine Quinn speaks at a press conference on June 13, 2013, in Queens, N.Y.

Photo by Andrew Burton/Getty Images

City Council speaker and New York City mayoral front-runner Christine Quinn is out with what seems to be a proposal for government-subsidized student loans for toddlers:

Families with children between the ages of 2 and 4 can get loans up to $11,000. In the first year, they’ll be available to 40 eligible families.
“Early-childhood education is one of the most important investments a parent can make,” Quinn said.
New York City has some of the highest child-care costs in the country, averaging $13,000 per year, according to the Center for Children’s Initiatives.
Applicants must have an annual income of $80,000 to $200,000, a credit score of at least 620 and agree to attend a free financial counseling session with a Neighborhood Trust counselor.
Once parents are approved, the payments will be disbursed directly to the day-care providers.
The program also allows parents to make interest-only payments until their children reach kindergarten-eligible age.
Advertisement

Perhaps the best way to understand the problems here is to start with the deep logic behind student loans for college. College is expensive, and difficulty paying the tuition bill can be a major barrier to attending or completing college. Yet completing college appears to be quite financially rewarding, with degree-holders earning a lot more money over the course of their lives than those who don't have a college degree. So it's a very natural situation for a credit market to arise. Having the money to cover your college tuition makes you much more likely to be able to repay the loan in the future. Throw in a pinch of positive social externalities to a better-education population and a dollop of positive social externalities to a well-financed academic research sector, and you have both a logical scenario for a credit market and a rationale for the provision of some public subsidy to ensure that the credit flows freely.

Yet the student loan situation is deeply problematic in a whole range of ways that we're all familiar with.

Day care lending, meanwhile, has basically none of the features that make college tuition loans seem attractive. Being able to get a loan for your 3-year-old to get some child care doesn't in any clear way increase your income three, five, or 10 years down the road. For lots of hard-pressed New York families, a loan like this is going to be a great lifeline out of a difficult situation. But down the road, you're going to end up with a new set of difficult situations as people struggle to repay the loans. Whether this goes wrong in the form of large losses that the city somehow has to cover or a huge burden of payments on families is going to depend on the precise details, but either way you're asking for trouble.

Compare this to Bill de Blasio's plan to pay for a universal preschool program with higher taxes on high-income New Yorkers. That's certainly a plan open to all the usual criticisms leveled at tax hikes. But it also seems like the sensible way to propose an expansion of public services. You have a service you want to offer, an estimate of what it would cost, and a proposal to obtain the money necessary.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

TODAY IN SLATE

The Slatest

Ben Bradlee Dead at 93

The legendary Washington Post editor presided over the paper’s Watergate coverage.

This Scene From All The President’s Men Captures Ben Bradlee’s Genius

Renée Zellweger’s New Face Is Too Real

Sleater-Kinney Was Once America’s Best Rock Band

Can it be again?

Whole Foods Is Desperate for Customers to Feel Warm and Fuzzy Again

The XX Factor

I’m 25. I Have $250.03.

My doctors want me to freeze my eggs.

The XX Factor
Oct. 20 2014 6:17 PM I’m 25. I Have $250.03. My doctors want me to freeze my eggs.
Technocracy

Forget Oculus Rift

This $25 cardboard box turns your phone into an incredibly fun virtual reality experience.

George Tiller’s Murderer Threatens Another Abortion Provider, Claims Free Speech

The Congressional Republican Digging Through Scientists’ Grant Proposals

  News & Politics
The World
Oct. 21 2014 3:13 PM Why Countries Make Human Rights Pledges They Have No Intention of Honoring
  Business
Moneybox
Oct. 21 2014 5:57 PM Soda and Fries Have Lost Their Charm for Both Consumers and Investors
  Life
The Vault
Oct. 21 2014 2:23 PM A Data-Packed Map of American Immigration in 1903
  Double X
The XX Factor
Oct. 21 2014 3:03 PM Renée Zellweger’s New Face Is Too Real
  Slate Plus
Behind the Scenes
Oct. 21 2014 1:02 PM Where Are Slate Plus Members From? This Weird Cartogram Explains. A weird-looking cartogram of Slate Plus memberships by state.
  Arts
Brow Beat
Oct. 21 2014 9:42 PM The All The President’s Men Scene That Perfectly Captured Ben Bradlee’s Genius
  Technology
Technology
Oct. 21 2014 5:38 PM Justified Paranoia Citizenfour offers a look into the mind of Edward Snowden.
  Health & Science
Climate Desk
Oct. 21 2014 11:53 AM Taking Research for Granted Texas Republican Lamar Smith continues his crusade against independence in science.
  Sports
Sports Nut
Oct. 20 2014 5:09 PM Keepaway, on Three. Ready—Break! On his record-breaking touchdown pass, Peyton Manning couldn’t even leave the celebration to chance.