← Wall Street Week
Wall Street Week
AI Debt Question, Austin Housing Test, Student Loan Reckoning, Canada Weighs US Tariffs
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- [00:00]
OTC Markets Group Announcer
Wall Street Week is brought to you by OTC Markets Group. OTC Markets overnight platform for exchange listed securities Moon ATS provides access to Global securities in US dollars from 8pm to 4am Eastern Sunday through Thursday. Learn more at OTCMarkets.com Moon Moon ATS is operated by OTC Link LLC, a FINRA registered broker dealer, and is available only through participating broker dealers.
- [00:27]
David Westin
So there's a lot of noise about
- [00:28]
Stephen Rattner
AI, but time's too tight for more
- [00:30]
David Westin
promises, so let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now a Global workforce of 300,000 can use AI to fill their HR questions. Resolving 94% of common questions, not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business IBM when you're
- [00:57]
Public.com / The Hartford Sponsor Announcer
running a business, the best days are the ones where priorities stay on track. For midsize and large companies, that isn't always easy. Risk can touch multiple parts of an organization at the same time, often in ways that aren't immediately obvious. It might involve property liability or cyber. It could stem from regulatory requirements or challenges tied to a specific industry or the scale of an operation. At that level, managing risk becomes an ongoing discipline, not a one time decision. At the Hartford, the focus is on helping businesses manage risk before it turns into something more disruptive. That means working with companies to identify where they're exposed, decide what matters most, and put practical standards in place so risk is managed as part of day to day operations. And when losses do happen, the Hartford can pair that risk control work with insurance coverage grounded in underwriting, risk engineering and claims experience developed over time. Learn more@the Hartford.com Risk Mitigation
- [01:57]
Bloomberg Reporter / Narrator
Bloomberg Audio
- [01:59]
Herobread Sponsor Announcer
Studios Podcasts Radio News.
- [02:15]
David Westin
This is Wall Street Week. I'm David Westin bringing you stories. Capitalism Affordable housing is a problem pretty much everywhere across the United States. We go to Austin, Texas to look at one city that's actually doing something about it. Plus, giving grad students a way to finance their education seemed like a good idea at the time. Now cutting back on the support is creating problems for students and universities alike. And tariffs are back with a vengeance as President Trump threatens 50% levies on a range of Canadian imports. With with more to come, what will they mean for trade and for the US Economy? But we start once again with artificial intelligence in a week when the Chinese came forward with yet another model that they claim is cheaper than the US Alternatives and can do just about as well. Stephen Rattner is chairman and CEO of Willett Advisors, which invest the personal and philanthropic assets of our founder and majority shareholder, Michael Bloomberg. So Steve, artificial intelligence has been all the talk of the markets for some time now, both the investment in it and the promise of it. There are some questions being raised right now. What do you think of those questions? Are they serious questions?
- [03:29]
Stephen Rattner
Oh, they're definitely serious questions, David. Let me step back just for a second and say that every technological innovation that I've seen happen has always occurred with sort of a swirling of the cosmos effect where the stars are forming and you don't quite know how it's all going to shake out for a while. And that was certainly true. For example, when we had computers came in, there were many different computer manufacturers, many different systems and so forth and all the way through the Internet. But I would say this time it may be even more dramatic in terms of not really being able to see clearly how the movie ends. The movie's going to end with a lot of artificial intelligence in my opinion. It's going to be a huge contributor to society, to the economy, to our lives. But exactly who the winners and losers are, I don't think you can say with 100% certainty just yet.
- [04:20]
David Westin
The markets have been very enthusiastic. I think it's fair to say with a broad brush so far. We're now starting to see perhaps a little hesitancy on the money being borrowed. As you see some of the spreads really increase for the hyperscalers. Are the markets having some doubts now about the repayment of all that money?
- [04:37]
Stephen Rattner
Not about the repayment per se. The widening of the spreads is still quite modest relative to where they were and relative to other spreads for other kinds of companies. I think the market got caught up in a little bit of irrational exuberance, to borrow a phrase, when Google and others financed all that debt and gave them pricing that was really kind of rock solid, very, very high investment grade pricing. And I think on reflection the market is saying, well you know, they're good companies and they've still got trillion dollar plus market caps. But shouldn't we have a little bit more of a margin of safety? You saw in Google's earnings earlier this week that they're actually potentially running cash flow negative now because of all the CapEx and that that isn't the end of the world. It's not terrible and hopefully the capex will be justified. But, but the market just wants to be paid a little bit more for it.
- [05:34]
David Westin
And as you Say there's going to be a lot of AI, however it all plays out, no question about it. One question though that did come up particularly this week is what kind of AI will it be given what we saw coming out of China? Whether in fact we need the silver plated special version that's very out there in advanced, or is there something that's a little less powerful but perhaps much cheaper?
- [05:57]
Stephen Rattner
Well, yes. And so that is the absolute question of the moment is who are the winners? I'll call it who are the winners and losers going to be? We had a few months ago, as you well recall, the deep seq moment where China first kind of raised its head in a way where people said, aha, they actually have something. And now we've had a number of different developments in China that lead us to think that again, they have very robust models. It has been tested that their newest models are not quite as good as ours, but they're close. But they come at a fraction of the price per token. You know, a token is the unit of purchase of artificial intelligence. That's a big question and it is in some ways not that different of a question than the question of competing against anything else China does, whether it's cars or whatever. But in some ways it is a more complicated question because of the potential for information leakage the wrong way and things like that. So we're going to see how it unfolds. What you're going to see and what you've already seen are a number of companies getting in the business of essentially intermediating between the user and the LLMs and essentially going out and you ask it a question or you ask it to do something and it figures out the least expensive way to get what you want by going whether it's model A, B or C and then coming back. And it might be a bit of each for that matter, or another one question might be all of the cheapest or all the most expensive. So you're going to see, you're going to see things happen there. The token prices in China are as little as 5% of what they are here. And so, and so we're going to have to deal with that.
- [07:38]
David Westin
One of the features of the Chinese approach is so called open source open waiting, where the most the US systems, the advanced systems are not. Should we expect a new generation of AI to come up in the United States that follows the open source open waiting approach?
- [07:56]
Stephen Rattner
I'm not going to take credit for this remark, but I read it somewhere. It was sort of amusing to Me, which is that the most authoritarian country in this ecosystem has the most open models of AI and the most open country in this ecosystem has the most closed models of AI. So it's sort of just a little irony that China and we have gone in such different directions. Do I think there'll be open source models here? I think it's possible. I think it's possible. I can't say I know of one right now that I would bet is going to either emerge and be of any consequence, but it's certainly possible.
- [08:35]
David Westin
As we talk about the price of borrowing, the price borrowing overall has crept up here where we have the Yield on the 10 year significant above 3.5 now and on the 30 year US treasury really above 5.1. What is causing that?
- [08:53]
Stephen Rattner
Right. So I think that you could maybe draw a little bit of a line to AI, but I don't think it's one that is meaningful. And I would not go there in terms of looking for answers to your good question. And of course the only right answer is nobody really knows. But I think the factors that are out there that are weighing on the market are certainly inflation, which while it went down last month, will almost certainly go up next month given what's happening to oil prices as we sit here, as we sit here today. And you also have the fact that the federal budget deficit is still high and in fact going higher. It was $1.8 trillion last year, it's going to be $1.9 trillion this year, it's going to be 1.9 trillion dollars next year, and then it goes up from there. And we are going to exceed our highest level of debt to GDP, which was 106% in 1946 at the end of World War II, and keep going up from there. And this is something of course, as you know, that economists and Wall street types have been discussing for decades, which is at what point does the treasury market sort of roll over and say we can't take any more of this? I'm not here to say that that's happening now and I'm not here to say it's ever going to happen. Treasuries have always been viewed by the market as rock solid investments. But certainly the amount of debt and borrowing that's going on by the US Government is playing a major role. Playing a major role, as is inflation and other uncertainties in the world. But, but basically it's, it's a function of inflation and borrowing.
- [10:24]
David Westin
And as I look around, it's a certainly United States problem. It's not unique to United States. We see it in a fair amount of the Western world where fiscal situations have really deteriorated. The balance of debt to balance sheet has really grown.
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Stephen Rattner
Yes, we have this problem in other countries as well as here with high and growing debt loads as they deal with the same issues we deal with aging societies. And you saw this in Britain in the very brief Liz Truss moment where she tried to propose a budget that would have increased British borrowing by a material amount. And the market just threw up on it and said that's not happening. And you know, it wasn't that long ago. Maybe 50 years is a long time. But it was, I think around 1976 that Britain needed a rescue package from the IMF. And so these countries, we have the advantage of being the ultimate reserve currency. We still are. People still want us Treasuries. So that in a way is an advantage. It's also a disadvantage that if you can, if you can do things you shouldn't do, you sometimes do them.
- [11:24]
David Westin
Steve, you are responsible for a large number of investments around the world. As you look at the increasing borrowing costs we're seeing right now, as I say, creeping up but nonetheless moving in that direction. How does it affect your investment decisions? Does it affect what you invest in what you keep investing? Liquidity? How do you take into account.
- [11:45]
Stephen Rattner
Yeah, it does affect it. It affects it in several ways, maybe reverse order. It does make investing in fixed income, that is debt, more attractive. We're not really big debt investors. We did some of it a few years ago, about five years ago, when we thought there was a moment where both rates were high and spreads were wide and so we could achieve attractive returns. I don't think we're near that level, at least for our appetite. But for many investors, when they see the 30 year go above 5%, they think, hmm, maybe that's a better bet than being in stocks that could go down or whatever. So that is certainly one thing that affects investing. The second thing that affects investing is that, and we Learned this in 2022 when a lot of the software companies had real problems with their valuations. Because what happens is the market when you have a company where the cash flows are way out there in years, the market uses a discount rate to arrive at a present value of those cash flows and therefore an appropriate stock price. When interest rates go up, the discount rate you use goes up. And so companies that where most of the earnings are on the cum, so to speak, are hurt with higher interest rates. And that, yes, to anticipate a question that could well affect some of the AI companies and things if interest rates continue to go up. The third place that it has an effect that we have to be mindful of is when we make private equity investments that involve significant amounts of debt. If the cost of debt goes up, then obviously the cost of operating this business goes up and therefore you can't pay as much for it. So it is having something of a limiting factor on our ability to do private equity and make the kinds of returns that we want to make.
- [13:36]
David Westin
Coming up. Everyone likes to complain about housing costing too much, but is anyone doing anything about it? We go to Austin, Texas to see what people there claim is working.
- [13:46]
Kirk Watson
We knew that our affordability had become a really bad issue.
- [13:58]
OTC Markets Group Announcer
Wall Street Week is brought to you by OTC Markets Group. Thinking about joining the exploding overnight market space but unsure where to start. Designed to meet the needs of a growing international investor base, OTC Markets Overnight Platform for Exchange Listed Securities Moon ATS provides access to Global securities in US dollars from 8:00pm to 4:00am Eastern Sunday through Thursday. Extend your trading day and trade Global securities in US dollars through a FINRA licensed broker dealer. In the first half of 2026, over US$28.1 billion traded on Moon ATS. Learn more about Moon ATS visit otcmarkets.com Moon Moon ATS is operated by OTC Link LLC, a FINRA registered broker dealer.
- [14:44]
Public.com / The Hartford Sponsor Announcer
Support for the show comes from public.com if you're actively involved in your portfolio, you probably catch yourself repeating the same actions. Buying the dip, manually sweeping idle cash, Putting on a hedge on public. You can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English like if the Vix hits 25, buy a put option on the S&P 500 or if my cash balance goes above $20,000, move the excess into my direct index. You approve of the workflow and your agent handles the risk, monitoring the market, watching for your conditions and executing your strategies exactly as defined. An investing platform driven by your intent, not just your clicks. You can also get full read and write access to your account via the public API. Go to public.com market and fund your account in five minutes or less. That's public.com market paid for by Public
- [15:40]
David Westin
Investing Brokerage Services by Open to the Public Investing Inc.
- [15:43]
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Member FINRA and SIPC Advisory Services by Public Advisors, LLC. SEC registered advisor complete disclosures available@public.com disclosures
- [15:53]
Herobread Sponsor Announcer
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- [16:57]
David Westin
This is a story about solving the unsolvable Housing affordability is a problem across the United States, not just in New York City.
- [17:07]
Public.com / The Hartford Sponsor Announcer
It is nearly impossible today to find affordable housing in New York City. We face one of the most severe housing crises in American history.
- [17:20]
David Westin
But there's one major US City that appears to be making real progress when others are struggling. Austin, Texas, once called Waterloo, a city that built its reputation on opportunity for the settlers of the Republic of Texas, and now for musicians, for entrepreneurs, and for young families. Everyone seems to have a theory about what makes this city so special. And naturally, so too does its mayor, Kirk Watson.
- [17:49]
Kirk Watson
We're a very fortunate place in that the creativity and the innovation and a lot of the things that has made us successful arises out of what I consider to be a fountain of youth. Those universities every year bring thousands of young people with new thinking and new ideas, new music, greater diversity, all of the things that make the city pretty special. And then what happens is after about a year or so, they all say, ooh, I never want to leave.
- [18:21]
David Westin
But as the pandemic fueled remote work and companies moved to Austin, there was an influx of new residents pushing the housing market to the breaking point. Rents jumped roughly 25% in a single year, one of the biggest increases in the nation. Take us back to the time coming out of the pandemic when you were taking a second run at being mayor of Austin. What was the housing situation in Austin at that time?
- [18:47]
Kirk Watson
Well, the housing situation was one that was pretty dire because of Austin's rapid growth and supply and demand. We were about 15% above, I think, the national median or national average on what it cost to live, to rent in Austin, Texas. We knew that our affordability had become a really bad issue.
- [19:16]
David Westin
So Mayor Watson turned to one of the oldest rules in economics. When demand is rising fast, look for ways to increase supply.
- [19:25]
Kirk Watson
The programs really started with a couple of pretty basic thoughts. One was we needed to address red tape. We needed to get out of our own way. And in fact, what I did is we partnered up with McKinsey Consulting and they came in and did a top to bottom, soup to nuts review of our site planning process. The city itself itself was adding about $10,000 a month to the cost of a single family home. And it was causing more than a half a million dollars a month to multifamily. Well, you can't, out of one side of your mouth say you're for affordability and out of the other side of your mouth be getting in the way. And then, of course, the second big area is land use itself and how we. How we make it so that people can use the land and build what they need to build.
- [20:17]
David Westin
On the question of land use, what reforms did you enact? I suppose this is in terms of things like density.
- [20:23]
Kirk Watson
Yeah, density is one of the big ones. I guess the way I would approach this is I would start with density in the sense that single family zoning really allowed for one unit on a single family zoned lot. We came in and through what we called our home initiative, we changed that to allow, by right, three units on even a single family zoned lot. And then the second thing we did is, again, this will help with density. What we did is we changed the minimum lot size in Austin. Our minimum lot size when I came into office was 5,750 square feet. That was the minimum lot you could build on. Well, it doesn't take much land use understanding to realize that what that means. If you got to have that big a lot, then you're going to need to build a big house, you're going to need to build a McMansion. That's the only way it makes any sense. But if you have the ability to have three by right, and you reduce the minimum lot size, which we did, to 1800 square feet, from 5750 to 1800. Now you can start building what I was talking about a minute ago, those starter homes, you can build smaller homes. And it makes economic sense. The market can react to that in an appropriate way.
- [21:48]
David Westin
The city of Austin took a range of actions to deal with local regulations and restrictions. But what can lawmakers do in the rest of the country? Congress recently enacted the 21st century road to housing act to try to address affordability, but some question whether it goes far enough. Tom Shapiro runs gtis, which develops residential and commercial real estate across the country and abroad, and he questions how important the new legislation will be.
- [22:16]
Tom Shapiro
The government can do what they want to do, but if you add supply, rents will drop. So there has to be ways of adding the supply through all sorts of means that the government can control a lot of it.
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David Westin
If you talk about the federal, state, and local governments, which have the biggest effect on the affordability of housing, it depends.
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Tom Shapiro
It really depends on the market, because a lot of the local markets, you know, are really the most important part. But if you get areas like Texas, where there's no zoning in Houston, like, obviously, that's quite different, but the federal parts are probably less so in most. In most markets, it's really the local markets that are creating the cost increases in a lot of these projects.
- [22:58]
David Westin
In the wake of Austin's reform, developers added nearly 50,000 rental units in 2023 and 2024 alone, the biggest increase of any major US city. And as those apartments hit the market, rents began to fall. Inflation adjusted rents fell 19% from the 2021 average to 2025.
- [23:19]
Chrystia Freeland
The rents have definitely been declining. I personally, anecdotally, in some of our places, the rents are down 20%.
- [23:25]
David Westin
Austin real estate broker Jen Burbus has a front row seat to the changing dynamics of Austin's housing market.
- [23:31]
Chrystia Freeland
There are something like 50% of the units have turned over this last year, which is the highest number in the entire country. I thought that was astonishing. If you can think about that. 50% of the renters in Austin moved this last year.
- [23:44]
David Westin
But for builders, the swing away from scarcity created a different set of pressures. More supply, lower rents, and a tougher equation for new projects.
- [23:53]
Chrystia Freeland
It's cyclical like anything else, right? Effectively, really, what builders are doing is a form of arbitrage. And they have their land costs, their build cost, then they have their margins, and then what they can rent things for. And then that really dictates the difference between those two things, dictates their profits. Well, now the profits are coming down because rents are coming down. But as that inventory gets absorbed, rents will probably start swinging back up again, and then we will start seeing more permits being pulled in the multifamily space.
- [24:21]
David Westin
Shapiro says Austin's apartment boom follows the pattern Burbus describes.
- [24:26]
Tom Shapiro
It's not like the developers get together and say we should probably build 20,000 units a year. You guys build two, I'll build three. It doesn't work that way. As we know, everyone builds at the same time. You know, no offense to the developers and we're one of them. You give developers money and they build it. We can go to any of these Sunbelt cities, to Nashville or Charlotte. They all respond to the same thing. You know, great employment stories, you know, going back to Austin. Number two, population growth in the country. Number three, employment growth in the country. And dead last for resale activity because of all the things that we're talking about. So I would say, you know, if you look at the Sun Belt right now, way oversupplied, you know, very concerned. We're, we haven't been investing for Shapiro.
- [25:10]
David Westin
Those cycles aren't just something to watch. They can present an investment opportunity. What are some areas where the reverse has happened where there's just not enough supply which is really driving prices up and addressing that affordability issue.
- [25:23]
Tom Shapiro
We fundamentally believe that San Francisco is recovering and the market is just soaring right now. So we're, and you're able to buy buildings at half a replacement cost. So you're not going to see construction for a while. So when you talk about affordability, it has been affordable, it's about to be less affordable. And then we'll start to see units start to deliver similar in New York. In New York, median rent for a one bedroom apartment is $5,500 a month. It's going up. What's the issue? The issue is you need to build affordable units. But in order to do that you have to let developers raise rents. You can't tell developers that they can't ever raise rents when your expenses are going up. As you probably know, they just instituted no rent increases for rent stabilized units. How generally a development works in New York is you reserve approximately, depending on the project, around 30% of your units for affordable, 70% for market rate. Terrific, that works great. But if you now tell me my affordable units, I can't raise and we should assume Mandani is going to be an eight year term mayor because he's wildly popular, I don't see that changing anytime soon. You're not going to see rent increases, so how do you underwrite that? So if you can't build the affordable units, you can't build the market rate units. We're just going to continue to have the supply issue and it's very, very hard to build in New York. So There has to be a collaboration and understanding that if you can't have the developers earn a reasonable profit on these projects, you're not going to be able to deliver the market rate units and you can't deliver the affordable units as well. But it's a huge problem and frankly I think it's a problem that everybody needs to deal with.
- [26:57]
David Westin
If there's one thing nearly everyone can agree on, it's that housing affordability has become a problem. The real challenge begins when communities have to decide how to solve it and whose interests to prioritize along the way. Are there divisions in the opinions based on whether, for example, if you own a house, you like the price of housing to be pretty high. If you're trying to buy one, you want to be low. If you're renting, you want the rent to be low. If you're a landlord, it's not so attractive. It is a zero sum game.
- [27:27]
Kirk Watson
Well, it's not a zero sum game, but sure you have some division. I've actually even done my best on. I've not been successful, let me say that, at outlawing the use of things like NIMBY and yimby. Use those labels. You know, it's interesting to me that the other day I quoted in a speech I gave about affordability that the Vice President Vance, Vice President Vance used Austin as an example. And then a few weeks later Mayor Mamdani of New York City used Austin as an example. So I kind of like the fact that it looks to be a non partisan approach.
- [28:05]
David Westin
Vice President Vance and New York's Mayor Mamdani may share an appreciation for Austin's work to make housing more affordable. But make no mistake that Austin's path of increasing supply is very different from Mamdani's freezing rents. Time will tell what works best, but at least at this point, one size definitely does not fit all. You mentioned Mehra Mamdani and certainly he was elected in part because of affordable housing. Did it ever occur to you, did anybody propose maybe we should just limit how much you can charge for rent? Do it the other way around, don't provide more supply, just really go at the price.
- [28:40]
Kirk Watson
Well, I live in Texas and that was not an option.
- [28:46]
David Westin
Up next, the shock hitting graduate students and their universities as the federal government pulls back on the federal grad school loan program.
- [28:58]
OTC Markets Group Announcer
Wall Street Week is brought to you by OTC Markets Group. Thinking about joining the exploding overnight market space, but unsure where to start. Designed to meet the needs of a growing international investor base, OTC Markets overnight platform for exchange listed securities Moon ATS provides access to Global securities in US dollars from 8:00pm to 4:00am Eastern Sunday through Thursday. Extend your trading day and trade Global securities in US dollars through a FINRA licensed broker dealer. In the first half of 2026, over US$28.1 billion traded on Moon ATS. Learn more about Moon ATS visit otcmarkets.com Moon Moon ATS is operated by Otclink LLC, a FINRA registered broker dealer.
- [29:44]
Public.com / The Hartford Sponsor Announcer
Support for the show comes from public.com if you're actively involved in your portfolio, you probably catch yourself repeating the same actions. Buying the dip, manually sweeping idle cash, putting on a hedge on public. You can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English like if the Vix hits 25, buy a put option on the S&P 500 or if my cash balance goes above $20,000, move the excess into my direct index. You approve the workflow and your agent handles the risk, monitoring the market, watching for your conditions and executing your strategies exactly as defined. An investing platform driven by your intent, not just your clicks. You can also get full read and write access to your account via the public API. Go to public.com market and fund your account in five minutes or less. That's public.com market paid for by Public
- [30:40]
David Westin
Investing Brokerage Services by Open to the Public Investing Inc.
- [30:43]
Public.com / The Hartford Sponsor Announcer
Member FINRA and SIPC Advisory Services by Public Advisors, LLC. SEC registered advisor complete disclosures available@public.com disclosures
- [30:53]
Herobread Sponsor Announcer
bite into a stacked sandwich made with HeroBread or a fully loaded bagel and the only thing you'll think is delicious. You won't think it's up to 19 grams of protein, but it is. You wouldn't believe it has 11 to 32 grams of fiber, but it does. Herobread makes loaves, buns, tortillas, bagels and noodles packed with taste but without all the net carbs. We're talking 0 to 5 grams net carbs per serving. With Herobread there are no compromises, just flavor. There's none of the stiff baked goods you'd expect from better for your brands. There's just the soft, fluffy bread you crave, plus small batch drops of indulgent favorites like the popular 2 gram net carb Hero croissant and 3 gram net carb Hero pain au chocolat. And right now Herobread is offering 10% off your order. Go to Hero Co and use code IHEART at checkout. That's code IHEARTO, CO. All figures per serving of Herobread. See Nutrition Facts on Hero Co.
- [32:01]
David Westin
This is a story about having too much of a good thing a US College education has been the path to a brighter future for generations, and the government has often played a key role in that future, starting with the GI Bill paying for higher education for World War II veterans, and then with federal loan programs helping students get their start. But it's not just undergraduates getting these loans. The government has also provided loans for grad students, a program that exploded in recent years but is now coming to an end because of the one big beautiful bill. Bloomberg Scarlet Fu has the story.
- [32:39]
Bloomberg Reporter / Narrator
Like many Americans, Marissa Borer relied on loans to pay for her education, a Master of Social Work degree from Washington University in St. Louis, which wound up
- [32:48]
Chrystia Freeland
being a pretty expensive decision to make. Having the debt that I had has absolutely shaped the trajectory of the last several years of my life.
- [32:58]
Bloomberg Reporter / Narrator
Bohr obtained her loans through Grad Plus, a federal program introduced in 2006 by the George W. Bush administration that allowed students to take out unlimited and uncapped loans. Its purpose was to expand access to graduate education, but it also left young Americans like Bohr saddled with significant debt. The program came to an end this month with new limits placed on graduate lending from the federal government. Almost all programs will be capped at $20,500 per year, except for those deemed professional, including law and medicine, which will top out at $50,000 per year. Under the new loan limits, bore would have been over $30,000 short.
- [33:38]
Chrystia Freeland
So grad plus loans have historically really filled in the gaps for people who are needing to find finance more education.
- [33:46]
Bloomberg Reporter / Narrator
In the Grad plus program's first year, Americans borrowed some $2 billion. By last year, that number had ballooned to more than $15 billion, accounting for over 30% of all graduate student loans. So how did Grad plus come to dominate the business of higher education after the financial crisis?
- [34:05]
Stephen Rattner
We had so many families, especially homeowners, who who really lost so much of their household wealth. That meant that they weren't able to really contribute to their own education or to their kids education.
- [34:23]
Bloomberg Reporter / Narrator
Rohit Chopra is the former director of the Consumer Financial Protection Bureau and its first student loan ombudsman. He is currently the Secretary of the California Business and Consumer Services Agency.
- [34:34]
Stephen Rattner
We really had a lot of private financial institutions looking to make big money on those PLUS loans. They were able to issue billions and billions of dollars and really take no risk.
- [34:52]
Chrystia Freeland
The federal government and Congress basically said, hey look, we can expand federal lending, make loans available to graduate and professional students, and those Loans will actually generate revenue for the federal government.
- [35:04]
Bloomberg Reporter / Narrator
Beth Akers is a senior fellow at the American Enterprise Institute who studies the economics of higher education. She says Grad plus pushed schools themselves to shift the type of degree programs they offered.
- [35:16]
Chrystia Freeland
Grad plus created incentives for institutions to really lean into the graduate and professional education space. So, I mean, this was really money on the table and there was demand. We'd been celebrating higher education to such a degree that people felt like these are degrees that they want.
- [35:32]
Bloomberg Reporter / Narrator
Graduate programs have long been described as cash cows for universities. Although grad students make up just 16% of enrollment, graduate programs account for roughly 40% of student loan debt. How significant is graduate tuition revenue to Fordham's business model, to your financials?
- [35:51]
Tanya Tetlow
It is a big part of our model. It's about a third of our revenue.
- [35:56]
Bloomberg Reporter / Narrator
Tanya Tetlow is president of Fordham University, a Jesuit university in New York City. With campuses in the Bronx and Midtown Manhattan. It offers more than 130 graduate degree programs. Which programs are you worried about the most now that Grad plus is going away in its current form?
- [36:13]
Tanya Tetlow
I think teacher training, K12 training.
- [36:16]
Herobread Sponsor Announcer
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- [36:16]
Tanya Tetlow
It matters so much, and I wish teachers would were paid more than they are, but the fact is we need them, and we need them really well trained because the future of everything relies on them.
- [36:26]
Bloomberg Reporter / Narrator
If the new loan caps leave a student like BOHR More than $30,000 short, what are their options? To make up that shortfall, many will turn to private lenders. Ken Ruggiero is CEO of Ascent Funding, which offers outcomes based student loans in
- [36:42]
David Westin
about 50 to 75% of the student situation.
- [36:46]
Public.com / The Hartford Sponsor Announcer
The private sector can support the student
- [36:48]
David Westin
with all the borrowing they need at rates that are either a little less than the current federal loan or a little bit higher than the federal loan.
- [36:57]
Bloomberg Reporter / Narrator
Why is there a difference in the rate that some private lenders would charge versus the federal government?
- [37:03]
David Westin
The federal government doesn't pull credit. Credit is priced relative to the expectation of repayment. So when there's a high expectation of repayment, then we can give very, very low interest rates lower than the federal government.
- [37:17]
Bloomberg Reporter / Narrator
On the one hand, private lenders use underwriting and credit checks to reduce the risk of students taking on debt they cannot repay.
- [37:24]
Chrystia Freeland
When a lender comes in and thinks, am I going to make a loan to this student? What they're really thinking is, is this student going to be able to repay this loan? And quite frankly, that's a good thing for the student.
- [37:35]
Bloomberg Reporter / Narrator
On the other hand, taking out private loans can be risky and potentially more expensive for students who lack a strong credit history.
- [37:42]
Stephen Rattner
There will be a boom for many financial institutions who offer private student loans. Many of them were drooling at the opportunity to be able to take back that lending volume.
- [37:58]
Bloomberg Reporter / Narrator
With federal loans, borrowers may have ways to get out of default if they find themselves in trouble. What options, if any, exist in the private loan market?
- [38:07]
Stephen Rattner
These private, private student loans don't have any clear consumer protections for when you can't afford your payment. So I'm really worried that student loan borrowers are going to be forking out big payments and leading them to default on their other obligations, maybe falling behind on their auto loan and risking repossession, or falling behind on rent and being at risk of eviction.
- [38:39]
Bloomberg Reporter / Narrator
One of the Trump administration's stated goals in eliminating the Grad plus loan program is to incentivize schools to reduce tuition and fees. But that's easier said than done.
- [38:49]
Tanya Tetlow
We're thinking about everything we can. It's just very hard to bridge the gap of excellence our students deserve. We're already as frugal as we possibly can be and what they can afford to pay. And the new cap caps are so low.
- [39:02]
Bloomberg Reporter / Narrator
So graduate tuition has steadily increased over the past 20 years, with some people attributing that inflation to the availability of uncapped federal loans. Do you think that that's fair?
- [39:12]
Tanya Tetlow
We are in a pricing model that is very illogical, but it's impossible for us to escape, which is that tuition signals quality in the market. If a school is too cheap, it seems suspicious that maybe they're not as good. So that sticker price does keep rising in the market. And where we've been very flat on price as an industry across decades is on financial aid. And so that net price is the number you need to look at. And that net price has been far more flat than people realize.
- [39:40]
Bloomberg Reporter / Narrator
So, briefly explain how tuition at Fordham is priced. What are the factors, specific factors that come into play for your institution?
- [39:46]
Tanya Tetlow
We look at, literally at the market to see where is our competition and where are they priced? Pricing, we're guessing at that for next year, right? Because we don't collude on price, but we look at how good we are and that we should not cost more than an Ivy League institution, but we should not cost less than a competitor who's not as good a quality as we are. That's how we're setting tuition price. How we're setting the actual price is doing everything we can to maximize financial aid, of knowing that we compete almost individually for students.
- [40:20]
Bloomberg Reporter / Narrator
Fordham did find a Short term fix ahead of the July 1st expiration of Grad plus, the school announced it would allow students in its social work program to begin classes over the summer, giving them a chance to benefit from uncapped borrowing for one final year.
- [40:35]
Tanya Tetlow
It was a way to at least put off the pain of what our students would face. But we do know that even then our enrollment has begun to decline overall and we are just pushing the pain off until next year when students will very much not qualify for Grad plus.
- [40:55]
Bloomberg Reporter / Narrator
So it sounds like this was a short term bridge as Fordham searches for a more permanent solution to this funding gap that's emerged.
- [41:02]
Tanya Tetlow
Yes, yes, but it's a problem not just for Fordham, but there just will be fewer trained K12 teachers in the metro New York area for public and parochial and private schools. There will be fewer counselors at a time when families are desperate to find a counselor for their child. And that's a problem for everyone.
- [41:24]
Bloomberg Reporter / Narrator
Tuition appears unlikely to come down immediately, but in a world where higher education is a marketplace that competes on price and outcomes, students have a choice of where and how they pay for their education. Looking back on her journey, Bohr wishes she was more discerning in weighing the costs and benefits of her educational investment.
- [41:43]
Chrystia Freeland
I would never have done anything differently about getting my master's in social work. However, if I had been able to have a sneak peek of what this debt would look like 10 years down the line from when I started grad school, I really would have looked around much more widely. I would have been a lot more thoughtful about, well, what kind of value am I getting on my dollar?
- [42:03]
Bloomberg Reporter / Narrator
Ruggiero agrees that it comes down to doing your research.
- [42:07]
David Westin
You should shop around for the best priced loan and the best loan that fits your circumstance when you're applying into a competitive marketplace like grad programs are having two schools and letting both of them know that you've applied to two
- [42:23]
Public.com / The Hartford Sponsor Announcer
and are considering two can very often
- [42:25]
Stephen Rattner
get you a better price.
- [42:27]
Bloomberg Reporter / Narrator
With Grad plus loans no longer available, students will now need to shop around more for the best deals, like in any business transaction. But Fordham's Tetlow says higher education needs to be more than just the business of getting a degree. Otherwise it's easy to lose sight of the costs to the country and communities. Fewer social workers, fewer nurses and fewer teachers.
- [42:49]
Tanya Tetlow
It matters that if you know the profession of your dreams, that is absolutely what you want. It's not a high paying one that you're careful about how much debt you take on. But education is broader than that, right And I say that not because families themselves should think about the values of democracy and citizenship and making that personal decision, but society should, right? Education is infrastructure as much as roads and highways are, and the countries against whom we compete are investing heavily in education, not just pushing the price of that onto individual families.
- [43:25]
David Westin
Coming up, Canada is back in President Trump's crosshairs. We hear from our special contributor Chrystia Freeland about how big a problem the latest round of tariffs could be for Canada and for the United States.
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David Westin
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- [46:43]
David Westin
This is a story about deja vu all over again. This week, the White House announced yet another round of tariffs on Canadian goods, this time charging 50% on imports of a range of items including milk, hockey equipment, equipment, beer and plywood, but specifically excluding energy and potash, a critical fertilizer used by American farmers. Our special contributor, Chrystia Freeland served as Canada's finance minister and deputy prime minister. So, Chris, we have an announcement now that the Trump administration wants to impose a new round of tariffs, 50% up to 50%, on certain goods from Canada next month. What are these tariffs and why does the Trump administration say they need to be put into place?
- [47:26]
Chrystia Freeland
So a proclamation has been signed, or three proclamations, and they are due to come into force on August 19, 30 days after the proclamation. The official rationale is in reaction to Canadian treatment of U.S. alcohol, U.S. dairy and U.S. cars and car parts. But we have to be careful about believing the official rationale because just before the proclamation came out, the complaint was that Canada needed to be punished for the Canadian wildfires, which is a hard thing to figure out, how Canada should stop them. And I think we really have to recognize that this is happening against a backdrop of what is turning out to be a very contentious Renegotiation of the USMCA, formerly known as NAFTA trade agreement governing the U.S. canadian and Mexican trade relationship.
- [48:31]
David Westin
Well, you were right in the center of negotiating the USMCA the last time around when you were part of the government. What has been announced is on specific categories of goods. How big a deal is that in terms of the amount of trade between the United States and Canada?
- [48:44]
Chrystia Freeland
People have calculated that it's about $20 billion worth worth of goods. That's not a killing blow for the Canadian economy. But it is significant in and of itself. And I think the other thing, what is really important about this is it shows that this is going to be a truly contentious negotiation. It shows that Donald Trump wants to punish Canada and, and Canada now has to decide how to respond.
- [49:16]
David Westin
Do we think it's punish Canada or use some leverage on Canada? As I understand it by reports, the United States is farther along with Mexico in negotiating on the USMCA than is with Canada. I'm not sure Canada's engaged that much. Is it possible this is just a way to get Canada to the table?
- [49:31]
Chrystia Freeland
I actually, David, agree with you about most things, but I don't think that's a fair interpretation at all. Canada has been ready, willing and able to negotiate any place, any time. The US did not have to impose tariffs to get Canada to negotiate. Canada wants to talk. Canada wants a deal. In fact, Canada has made a number of concessions, sort of bargaining against itself in advance, I guess, to show willingness to negotiate. Canada last year dropped the digital services tax. Canada has dropped most of its retaliation against the illegal and unjustified U.S. 232 tariffs.
- [50:09]
David Westin
One area where I think there's been some very specific purposeful discrimination is alcohol. We've heard a lot about Canadians just not wanting to buy US alcohol. Does Donald Trump have a point when it comes to alcohol?
- [50:22]
Chrystia Freeland
Absolutely not. What has happened on alcohol is at a provincial level in response to the 2, 3, 2 tariffs on Canadian steel, aluminum, cars and car parts. And those tariffs, let's remember, are imposed allegedly on national security grounds. So we have to think that Canada is a national security threat to the United States. They are being imposed against goods that we should have free trade in, according to the usmca, our trade deal. So those were imposed last year, and regular Canadians and the premiers of a lot of Canadian provinces were very angry. And so the premiers of some of Canada's largest provinces took the decision that provincially owned liquor stores would not buy US Alcohol. That is a wildly popular decision. And the premiers of Quebec, Ontario, British Columbia would face a huge public backlash if they backed down. And in fact, they've been very clear and they've said, absolutely not. We're sticking with this boycott.
- [51:35]
David Westin
All of which leads us to what do we think the Canadian response is likely to be to this latest round of tariffs?
- [51:42]
Chrystia Freeland
Canada is in a challenging position right now, David, because on the one hand, public sentiment is very, very angry. Canadians feel that they are a good, reliable neighbor, ally, and trading partner for the United States. It wasn't so long ago that we went through the drama of renegotiating our trade deal, and we got a deal with Donald Trump. And notwithstanding that, we keep on getting hit by wave after wave of punishment. First the 232 tariffs, now this round of tariffs. And even when Canada has sort of tried appeasement, tried to get along, dropped the dst, it doesn't make any difference. In fact, the US Comes back for even more. So public opinion is very, very angry. In fact, something that I never thought I would see in my lifetime is that we are now seeing that more Canadians see the United States as a threat than China. Canadians, for the first time in this polling, see China as a more reliable partner than the United States. Communist, authoritarian China, a country that just a few years ago illegally imprisoned two innocent Canadians, ironically, to punish Canada for honoring our extradition treaty with the United States. Yet this country, Canadians feel, is more reliable and trustworthy than the United States.
- [53:16]
David Westin
You wrote a piece in the Financial Times about this problem of accommodation versus retaliation in dealing with the Trump administration on trade. If indeed the Canadian government decided we have to go the retaliation route, what sorts of levers does it have?
- [53:31]
Chrystia Freeland
I do think that the lesson that the Trump administration is teaching the world that the only countries that ultimately get to a good place with this administration are countries that stand strong. You know, I think the best approach to this administration is do not escalate. Don't look for a fight. If you can find an area to agree on, that's great, but do not back down. And if you get hit, you do have to fight back and stand firm. That's very, very hard. But I think it's the only way to deal with this administration. If Canada wanted to do that, Canada has a lot of leverage. Canada is actually the largest export market for the United States. If you take goods and services, a market of well over $400 billion, Canada matters. And as these tariffs themselves demonstrate, some of the things that Canada sells are critically important to the United States. Things like energy, things like potash.
- [54:46]
David Westin
The new tariffs on Canadian goods leave out an important category. Fertilizers. The US Relies on Canada for potash and other agricultural products made more expensive by the closing of the Strait of Hormuz earlier this year. We spoke with businesses that were getting a firsthand look at the impact of the conflict. We have seen a major impact on global nitrogen phosphate values. Josh Linville is vice president of fertilizer at financial services firm Stonex. Most farmers will tell you those prices have skyrocketed, and it's based on the fear of the lack of supply that's out there we have seen because of the shutdown of the Persian Gulf, the global S and D for nitrogen and phosphate as well, which isn't getting as much traction, not as much attention. We are seeing both of those get extremely tight. So everybody is talking about the oil and the gas and everything else that flows through there. Few people know urea being the most commonly traded nitrogen product of the world. About a third of the world's product flows through that Strait of Hormuz. When you look at the top 10 list of global urea exporters, three of them sit behind the Strait of Hormuz. That's Iran, that's Qatar, and that's Saudi Arabia. Those three nations represent three of the 10 largest anhydrous exporting nations. And even on the phosphate side, not a lot of people understand this. Saudi Arabia is one of the world's top five exporting nations for phosphate exports around the world. And again, all of these products are stacked up and backed up, and production is suffering. Until the Strait of Hormuz has reopened. To save traffic, one solution might come from closer to home. Nitrogen based fertilizers like urea are not the only options available. US Farmers also rely heavily on fertilizers like potash, much of which comes from western Canada. Pam Schwan is the president of the Saskatchewan Mining Association.
- [56:32]
Bloomberg Reporter / Narrator
Potash is one of the main fertilizers that's used to help make crops healthy and grow larger yields. So as the world grows to 10 billion people by 2050 on less arable land, we need to be able to grow crops more effectively and more efficiently that have higher crop yields. So potash is one of those three ingredients, along with phosphorus and nitrogen, that make crop yields much improved.
- [56:58]
David Westin
What is the role of potash in Canada's economy?
- [57:01]
Bloomberg Reporter / Narrator
It's very significant, particularly in Saskatchewan. 100% of all the potash produced in Canada is produced in Saskatchewan.
- [57:08]
David Westin
Of the potash that is generated in Saskatchewan, how much of it's consumed domestically in Canada?
- [57:13]
Stephen Rattner
Canada.
- [57:13]
David Westin
How much of it's exported and to whom?
- [57:16]
Bloomberg Reporter / Narrator
Yeah, very little is used in Canada and very little in Saskatchewan. So there's probably over 98% of what is produced in Canada, and again, all in Saskatchewan is exported to global markets. So of that, about 50% goes into the United States to help farmers there grow, you know, corn, soybean, and oats, and the rest is exported out to countries like China. China, India, Indonesia and Brazil are probably the main customers.
- [57:44]
David Westin
Fortunately for US Farmers and for Canada's miners. Canadian potash has been kept free from tariffs, something former Deputy Prime Minister Freeland considers wise for all concerned, two of
- [57:56]
Chrystia Freeland
the world's other leading potash producers after the full scale Russian invasion of Ukraine. So I'm going to offer a little Canadian editorial here, a particularly bad time to have a trade war with Canada. There are lots of reasons a trade war with Canada is a bad idea. You need Canadian aluminum, for example, for US Manufacturing. And aluminum is basically electricity in solid form. But the fact that Canada is such a major producer of potash is another good reason that we're a great trading
- [58:31]
David Westin
partner that does it for us. Here at Wall Street Week, I'm David Westin. See you next week for more stories of capitalism.
- [58:49]
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Chrystia Freeland
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Bonjour.
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Chrystia Freeland
Bonjour. I'm traveling with my Wells Fargo Autograph
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Chrystia Freeland
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Chrystia Freeland
Is the room Ready?
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David Westin
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