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

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.

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.