Tuesday, October 29, 2013

Things Universities Don't Want to Talk About: It's Time for a Freedom of Information Act for American Colleges That Participate in the Federal Student Loan Program

LSU President King Alexander recently told a Rotary Club audience that the cost of attending Louisiana State University is very reasonable.  For the many students who receive one of Louisiana's TOPS scholarship, the cost is only about $1,000 a year for housing and other costs, according to President Alexander.
LSU President King Alexander:
It only costs a TOPS student a thousand bucks a year to attend LSU.  Really?
But that's not accurate. In a letter to the editor of the Baton Rouge Advocate, Elizabeth Welsh, a Baton Rouge homemaker, corrected LSU's president.  The true cost for a TOPS student attending LSU is between $2,000 and $3,000 per semester, Welsh pointed out--at least four times President Alexander's figure. 

How did Ms. Welsh figure out Alexander's numbers were wrong? By drawing on her family's own experience with a child in college and by looking at housing costs posted online at LSU's web site.

President Alexander's recent misstatement is just another example of the modern university's tendency to hide the truth.  LSU, after all, is the same university that refuses to disclose the names of people who applied for the LSU president's job that Alexander now holds.

Some more examples? George Washington University recently admitted that it had not told the truth when it represented that it had a needs-blind admission policy.  Sorry about that.

UC Davis refused to explain the circumstances under which Lieutenant John Pike, the guy who pepper-sprayed non-offending students in November,2011, left university employment.  Was he fired? Did UC Davis pay him off? Who knows? UC Davis won't talk.

And then there's Ohio State University, which was embarrassed to disclose how much it was paying OSU President Gordon Gee.  It took an Ohio newspaper about a year to pry that information out of the university after it filed a Freedom of Information request.

And remember Harvard Law School's refusal a few years ago to disclose which of its professors was a Native American, although it represented that one faculty member was an Indian? Why the reticence? I suspect it was because it was counting Professor Elizabeth Warren as a Native American, when in fact she is not.  Oops!

Finally, there's the College Board, which speaks for higher education in general.  In a report issued earlier this month, it actually represented that the cost of attending a private nonprofit college had  gone down over the past ten years, in spite of the fact that tuition at a private college has gone up almost every year for the past 30 years.

How did the College Board justify that whopper?  By distinguishing between the sticker price of attending college (going up) and the so-called net price, which the College Board said has gone down a bit after tax benefits, grants, scholarships, and inflation are taken into account. Of course not every student gets those scholarships, grants, and tax breaks.  You--Mr. and Ms. sucker--are probably paying the sticker price.

Why do colleges and their constituent organizations continually hide the facts about their activities? Two reasons.  First, they are accountable to no one and don't care if they get caught in a misstatement or an embarrassing activity. Do you think King Alexander cares about being corrected by a Baton Rouge homemaker?

Second, the upper echelons of American higher education are contemptuous of the American people.  Like Colonel Jessup who screamed "You can't handle the truth!" in A Few Good Men, they don't think Americans deserve to know the facts about the way their universities are being run.

That's why we need a federal Freedom of Information Act that requires all colleges and universities receiving federal funds to publicly disclose a whole range of their activities including the way they choose their executive leaders, their affirmative action practices, their admissions policies, and the way they distribute scholarships and student aid.

Until they are required by law to do so, American universities will continue to behave like Lois Lerner, the IRS administrator who assured Congress she had nothing wrong and then took the Fifth Amendment.
 
Lois Lerner of IRS
Not taking any questions

References

Koran Addo. LSU President calls for reinvestment in higher education. The (Baton Rouge) Advocate, October 17, 2013. Accessible at: http://theadvocate.com/home/7336360-125/lsu-president-calls-for-reinvestment

Elizabeth Welsh. LSU cost numbers don't add up. The (Baton Rouge) Advocate, October 29, 2013, p. 8B.

 

Sunday, October 27, 2013

Ivy League graduates are smarter, more ethical, and more competent than the average American: That's why we let them run the government!

President Obama graduated from Harvard Law School and Michelle graduated from Princeton.  All nine Supreme Court Justices graduated from Harvard's law school or Yale's.  More of Obama's top aides have graduate degrees from Oxford than from any American public university. Secretary of State John Kerry and former Secretary of State Hillary Clinton--both Ivy Leaguers.

Don't call me, Barack. I'll call you.
These are the people who run our government or greatly influence it. And that's as it should be because people who graduated from America's elite colleges are smarter, more high minded, and more competent than the average American--some guy who graduated from Kansas State University, for example.  That's why we put Ivy Leaguers in charge.

How's that working out for us?

Under Barack Obama's leadership,  American prestige has never ebbed lower.  The U.S. has managed to offend all of Europe's top leaders, including German Chancellor Angela Merkel and French President Francois Hollande.  Vladimir Putin, President of Russia, looks like he doesn't want to be in the same room with President Obama when the two presidents are photographed together. Three South American countries offered asylum to Edward Snowden,whom the United States government describes as a traitor and a defector--something that would never have happened under previous American presidents.

Let's let Toni's company build
the Obamacare website: How
hard could it be?
In the Middle East, Saudi Arabia, one of America's staunchest allies, turned down a seat on the UN Security Council out of anger toward the U.S.  Libya, where President Obama dabbled by ordering air strikes on Muammar  Gaddhafi, has been flooded by jihadists; and terrorists killed our ambassador in Benghazi.

And now we learn that Toni Townes-Whitley, Michelle Obama's college  roommate at Princeton, is Vice President of CGI Federal, the company hired by the Obama administration to construct the Obamacare website.  CGI got a no-bid contract to perform the work, and so far the website it constructed has been a disaster. Oh yeah, and CGI is a big Obama campaign contributor.  Are the Obamas really all that high minded?

When will Americans get the message?  Our Ivy League colleges do not teach their students to be problem solvers, to be competent, or even to be patriotic.  Instead, they produce graduates who are arrogant, narrow-minded, and contemptuous of traditional American values.

Personally, I'd rather give Joe Six-Pack a chance to run the country than continue with the bozos whom Barack Obama has accumulated around him.  Honestly, I think we would be better off if we limited all presidential candidates to people who reside in Pocatello, Idaho rather than continue to allow these Ivy League losers to drive our once great nation into the ditch.

References

Fox News. Michelle Obama's Princeton Classmate Was ObamaCare's Web Site Builder. Fox Nation web site. Accessible at: http://nation.foxnews.com/2013/10/27/michelle-obamas-princeton-classmate-was-obamacare-website-builder

Brian Resnick & Brian McGill. More Top Obama Officials Have Graduate Degrees from Oxford Than Any Public University in the United States. National Journal, July 19, 2013. Accessible at:
http://www.nationaljournal.com/decision-makers/more-top-obama-officials-have-graduate-degrees-from-oxford-than-any-public-university-in-the-united-states-20130719

Only suckers pay the sticker price. The College Board says college costs at private colleges went down over the past 10 years. Really?

I think the hand-wringing about the trend [in college costs] is greatly exaggerated.

                                                  Sandy Baum, College Board

Year after year, College Board faithfully delivers two messages.  First, college is a fabulous investment when you consider the life-time difference in earnings between college graduates and high school graduates. 

Second, a college education does not cost as much as most people think it does. In fact, last week the College Board issued a report that said the inflation-adjusted cost of attending a private college is actually cheaper than it was ten years ago!  That's right. Even though college costs have risen faster than the rate of inflation for the past 30 years, the cost of attending a private college actually went down over the past ten years, according to the College Board.

Sandy Baum of College Board
It is true, the College Board admitted, that the sticker price of a college education has gone up over the past ten years, but only suckers pay the sticker price. When grants and tax benefits are calculated, the so-called actual price is only 57 percent of the sticker price. Adjusted for inflation, the net price has remained virtually unchanged from what it was 10 years ago.

To put it another way, college costs haven't gone up that much for some groups of people.  Colleges grant huge discounts to preferred customers.  Applicants with high SAT scores get scholarships or grants, because these students help raise colleges' rankings by the various rating entities like U.S. News and World Report.

And low-income students are eligible for Pell Grants.  As Andrew Kelly pointed out in a recent blog, Pell grant spending more than doubled between 2008 and 2011, growing from $16 billion to $37.5 billion in just three years.  The number of Pell Grant recipients grew by more than 80 percent between 2006 and 2012. 

And let's not forget affirmative action.  Not only do the leading colleges give minority applicants preference for admission, they generally give these students scholarships and grant aid--particularly at the elite colleges.

Who then pays the sticker price--the sucker price--to attend all these expensive elite colleges?  If you are a white person from the middle class with lackluster SAT scores, it's you. Citing a federal study, the College Board acknowledged that families in the second highest quartile of family income saw the cost of attending a private college go up by 8 percent from 2003-2004 to 2011-2012 (as reported by NY Times).

References

College Board. Trends in College Pricing 2013. Accessible at: http://trends.collegeboard.org/college-pricing

Andrew P. Kelly(2013, October 24. New data on tuition prices: Is it possible it's even worse than we thought? AEI Ideas blog. Accessible at: http://www.aei-ideas.org/2013/10/new-data-on-tuition-prices-is-it-possible-its-even-worse-than-we-thought/

Richard Perez-Pena (2013, October 25). Despite Risking Stick Prices, Actual College Costs Stable Over the Decade, Study Says. New York Times, p. A14.

 

Thursday, October 24, 2013

Lack of Accountability in Higher Education: Revisiting the UC Davis Pepper-Spray Incident

People complain all the time about American higher education. They say it is too expensive and the quality is declining. Reports come out frequently that unfavorably compare the skill level of American workers to the skill levels of workers in other countries. Nevertheless, for the past 30 years, the cost of higher education in the U.S. has risen faster than the annual inflation rate.


I contend that a lot of higher education's troubles stem from lack of accountability.  Colleges and universities demand more and more every year, and yet we don't hold college and university leaders accountable for their actions. The UC Davis pepper spray incident supports my point.

You recall what happened. In November 2011, Lieutenant John Pike, a UC Davis police officer, pepper-sprayed non-threatening students who were sitting on a sidewalk as part of an Occupy Wall Street demonstration.  The incident went viral, and a You Tube video of the event was visited more than a million times.

The  University of California produced two lengthy reports to examine what happened, one at the campus level and one by the UC system.  Experts and lawyers were hired, and both reports concluded that UC Davis officers acted wrongly when they pepper sprayed students.  In fact, the officers had not be trained how to use the  particular form of pepper spray that was used in the attacks.

The student victims sued, and UC settled with them for about $1 million.  Lieutenant John Pike, the chief offender, was put on administrative leave and later left university employment under undisclosed terms.  The local district attorney determined there were insufficient grounds to prosecute him.

And now we learn that the University of California paid Lieutenant Pike $38,000 in settlement of his Worker Compensation claim.  Yes, Pike filed a claim for unspecified psychiatric and nervous system damages arising from the pepper spray incident that he himself initiated.  Lieutenant Pike should have been fired.  Instead he gets a check for $38,000.

Of course this is outrageous.  And it is also outrageous that UC Davis Chancellor Linda Katehi was not held accountable for this shameful incident.

UC Davis had already been sued for misusing pepper spray in a 2004 incident in which Timothy Nelson, a UC Davis student, lost sight in one eye after being hit by pepper spray projectiles fired by UC Davis police officers.  The Ninth Circuit ruled that reasonable law enforcement officers would have known in 2004 that it was constitutionally unreasonable to fire pepper spray projectiles at nonthreatening college students.

Apparently UC Davis learned nothing from the 2004 incident because in 2011 UC Davis police used pepper spray again on nonthreatening students--pepper spray UC Davis had not trained its officers to use.

No one was held accountable for this disgraceful event, although President Katehi did apologize. "I feel horrible for what happened Friday," Katehi told a group of students.  "If you think you don't want to be students of the university we had on Friday, I'm just telling you, I don't want to be the chancellor of the university we had on Friday."  Then she lawyered up and appointed a commission to study the event.

So if you want to know why American higher education is in trouble, just reflect on the UC Davis pepper spray incident.  A university president should be held accountable for incidents like the one that happened in November 2011.  Yet President Katehi is still in charge. 

And what is Chancellor Katehi's salary? She makes about $400,000 in base salary, twice as much as the Governor of California.

References

Christopher Edley & C. F. Robinson 2012). Response to Protests on UC Campuses. University of California. http://campusprotestreport.universityofcalifornia.edu/documents/protest-report-091312.pdf
 Richard Fossey. Nelson v. City of Davis: Campus Police Officers Who Injure Nonthreatening Student with Pepper Spray May be Committing a Constitutional Offense. Teachers College Record Online, October 5, 2012. Accessible at: http://www.tcrecord.org/content.asp?contentid=16894

Gordon, L. (2012, September 13). UC to pay settlement in Davis pepper spray case. Los Angeles Times (online edition). http://articles.latimes.com/2012/sep/13/local/la-me-uc-pepper-spray-20120914
Steve Gorman. University of California cop who pepper sprayed student protesters awarded $38,000. Reuters, October 23. Accessible at: http://usnews.nbcnews.com/_news/2013/10/23/21105239-university-of-california-cop-who-pepper-sprayed-student-protesters-awarded-38000
Judy Lin. Linda Katehi, UC Davis Chancellor, Apologizes for Pepper Spray Incident. Huffington Post, November 22,2013.  Accessible at: http://www.huffingtonpost.com/2011/11/22/linda-katehi-uc-davis-cha_n_1107303.html

Nelson v. City of Davis, 685 F.3d 867 (9th Cir. 2012).
Smith, D. (2012, September 20). Yolo DA won’t file charges in UCD pepper-spraying. Sacramento Bee (online edition).  http://www.sacbee.com/2012/09/20/4836866/yolo-da-wont-file-charges-in-ucd.html#mi_rss=Our%20Region
Stripling, J. (2012, April 11). Scathing report on UC-Davis pepper-spray incident faults chancellor and police.Chronicle of Higher Education (online edition). http://chronicle.com/article/UC-Davis-Pepper-Spray-Report/131496/


A For-Profit College president is charged with a felony: Should Taxpayers Be Supporting Dade Medical College?

Last week, Miami prosecutors charged Ernesto Perez, President of Dade Medical College, with failing to report criminal arrests on a government form, which is a felony offense.  Specifically, Perez was charged with failing to report his conviction for battery and exposing himself to a child for a 1990 incident that took place in Wisconsin. He also failed to report his arrest in 2002 for aggravated assault. In addition, prosecutors charged Perez with two misdemeanor counts of perjury.

Ernesto Perez
Former President of Dade Medical College

Prior to this bump in the road, Perez was doing pretty well for himself.  He had twice  been appointed to the Florida Commission on Independent Education, the state agency charged with regulating for-profit colleges in Florida.  Last summer the South Florida Business Journal gave him an Ultimate Miami CEO Award for his "significant contributions to the local community." Not bad for a guy who dropped out of high school to join a heavy metal band.

Dade Medical College is a for-profit college with  2,000 enrolled students on five campuses. In 2012, the college received 87 percent of its revenues from federal aid--$33 million (according to a story in Huffington Post). The college attracts low-income Hispanics and African Americans who pay high tuition.  The vast majority of DMC students receive federal loans or Pell grants, and  25 percent of student borrowers default on their federal student loans within three years of beginning repayment.

Do Dade Medical College students receive good value for their tuition? Maybe not. The Florida Nursing Board put two of its campus nursing programs on probation this year due to low pass rates by DMC graduates on state licensing exams. One student who was interviewed by the Broward/Palm Beach/New Times said she had taken out $48,000 in federal student loans and yet she had professors who merely gave Powerpoint presentations or read from a book.

 Dade Medical College is a prime example of what's wrong with for-profit colleges in the United States.  Run by a high-school dropout and lavishly funded by the federal government, the college has high failure rates on nursing exams and high student-loan default rates.

Why is the federal government funding for-profit institutions like Dade Medical College? Maybe because the for-profit college industry is politically powerful.  Mr. Perez and his wife are big campaign contributors and have made contributions to Barack Obama, Mitt Romney, Harry Reid, and Marco Rubio. 

President Obama and Congress can talk all they want about quality controls on higher education. But the federal government is pumping billions of dollars a year into for-profit colleges and universities that prey on low-income students, provide poor quality education and have high student-loan default rates.  This is a huge scandal that our politicians refuse to address.

References

Patricia Born & Jay Weaver. Homestead mayor's ties to downtown redeveloper probed. Miami Herald, June 8, 2013. Accessible at: http://www.miamiherald.com/2013/06/08/v-fullstory/3441091/homestead-mayors-ties-to-downtown.html


Read more here: http://www.miamiherald.com/2013/06/08/v-fullstory/3441091/homestead-mayors-ties-to-downtown.html#storylink=cpy
Francisco Alvarado. Dade Medical College Has Powerful Friends but Struggling Students.  Broward/Palm Beach  New Times, August 29, 2013.  Accessible at: http://www.browardpalmbeach.com/2013-08-29/news/dade-medical-college-has-powerful-friends-but-struggling-students/

Dade Medical College.  Ernesto Perez to be Honored at SFBJ CEO Awards. 2013. Accessible at: http://www.dademedical.edu/rightnow/ernestoperezbehonoredsfbjceoawards

David Halperin. $33 Million Per Year of Your Tax Money to For-Profit College Whose CEO Hid Criminal Record. Huffington Post, October 21, 2013. Accessible at: http://www.huffingtonpost.com/davidhalperin/33-million-per-year-of-yo_b_4136451.html

Michael Vasquez. Amid criminal charges, CEO of Dade Medical College Resigns. Miami Herald, October 23, 2013. Accessible at: http://www.miamiherald.com/2013/10/23/3706821/ernesto-perez-resigns-as-head.html

 



Read more here: http://www.miamiherald.com/2013/10/23/3706821/ernesto-perez-resigns-as-head.html#storylink=cpy

 

Tuesday, October 22, 2013

The Brookings Institution Makes A Proposal for Student Loan Reform: Let's Turn College Graduates Into Sharecroppers

The Hamilton Project, a public policy initiative sponsored by the Brookings Institution, issued a report this month that offers some promising ideas for reforming the federal student loan program. At the same time, not all of the ideas are good.

The Hamilton Project Proposal in a Nutshell

In a nutshell, the Hamilton Project proposes a simple income-based repayment plan for student borrowers that will replace the hodgepodge of repayment options now in place. Students will make loan payments based on a percentage of their income for a maximum of 25 years. Any unpaid balance owing at the end of this 25 year period will be forgiven with no tax consequences for the debtor.

Loan payments would be paid through a payroll deduction similar to Social Security deductions and debtors would be free to make larger loan payments than the minimum if they want to pay off their loans early. The proposal calls for the government to manage the repayment program instead of contracting out this work to private loan servicers.

In addition, the Hamilton Project recommends the elimination of interest subsidies for low-income borrowers while they are in school. The authors point out that these subsidies do nothing to increase the number of low-income students who enroll for college since the subsidy doesn't really benefit them until they enter the loan-repayment phase.  In the authors' opinion, money spent on subsidizing interest rates should be directed toward grants.


Long-Term Student-Loan Repayment Plans Will Create a New Class of Sharecroppers
Sharecropper cabin, 1936
Photo by Carl Mydans


Finally, the Hamilton Project proposes important reforms for the private student-loan industry.  Most significantly, the Project recommends the repeal of a 2005 Bankruptcy Code provision that makes it almost impossible for borrowers to discharge private student loans in bankruptcy.  The Project recommends that private student loans be treated like any other unsecured debt in bankruptcy.

The Hamilton Project's Proposal Contains Some Good Ideas

I like some of the Hamilton Project's proposals.  First of all, I heartily endorse the Hamilton Project's proposal for providing better bankruptcy protection for people who took out private loans from the banks. Congress made a mistake when it amended the Bankruptcy Code in 2005 to make it almost impossible for debtors to discharge their private student loans in bankruptcy. As I have said before, repealing the 2005 provision would probably have the salutary effect of driving the banks out of the private student- loan business.

I also like the Hamilton Project's proposal for simplifying the process for student debtors to participate in an income-based repayment plan and for having the government handle loan repayments through payroll deductions rather than having private student-loan servicers manage the repayment process.  Some of the private loan servicers are harassing delinquent student-loan debtors, and I would like to see their operations shut down.

Flaws in the Hamilton Project's Proposal

But  the Hamilton Project's proposal has some flaws.  First and most importantly, the plan calls for student-loan repayment obligations to stretch out for as long as a quarter of a century. In essence then, student-loan debtors will become sharecroppers for the government, paying a portion of their wages over most of their working lives in return for the privilege of going to college. I am opposed to lengthy income-based repayment plans as a matter of principle.

And, as I have said before, income-based repayment plans reduce students' incentives to borrow as little as possible and they reduce the colleges' incentives to keep their costs down.

The Hamilton Proposal is Based on a False Assumption

The Hamilton Proposal is based on the premise that most students don't borrow that much money, and thus they should have no trouble paying off their loans under an income-based repayment plan in just a few years. It points out that almost 70 percent of student-loan debtors borrow less than $10,000.

But as the Hamilton Project acknowledged in footnote 7 of its report, by the time people go into default, they owe considerably more than they borrowed due to penalties and accruing interest. If interest rates accrue for low-income borrowers while they are in school or if low-income borrowers' income-based payments are too low to cover accruing interest, then the amount of their debt will become larger--probably much larger--than they originally borrowed.

Conclusion: Some of the Hamilton Project's Proposals Have Promise, But We Should Avoid Putting Student Loan Debtors in Long-Term Repayment Plans

Some of he Hamilton Project's proposals have promise.  Restoring bankruptcy protection for private student-loan borrowers and eliminating the private student-loan repayment servicers are good ideas.

But the people who have been hurt the most by the federal student loan program are young people who attended for-profit colleges. As the Hamilton Project pointed out, people under 21 years of age have the highest loan default rates of any age group, and we know from many sources that people who attended for-profit colleges have the highest student-loan default rates.

The Hamilton Project's proposal is likely to put a lot of young, low-income people into long-term repayment plans they will never pay off.  And many of these long-term debtors--perhaps most of them-will be people who attended expensive for-profit colleges.

We simply must shut down the for-profit colleges.  Otherwise, the Hamilton Project's proposal for putting student-loan debtors in 25-year repayment plans will likely created a 21st century version of indentured servants--people who attended for-profit colleges that were too expensive and who will spend the majority of their working lives paying for college experiences that did not enable them to earn a salary large enough to quickly pay off their student loans.

References

Susan Dynarski and Daniel Kreisman. Loans for Equal Opportunity: Making Borrowing Work for Today's Students. Hamilton Project, Brookings Institution, October 2013. Accessible at: http://www.brookings.edu/~/media/research/files/papers/2013/10/21%20student%20loans%20dynarski/thp_dynarskidiscpaper_final.pdf

Monday, October 21, 2013

Another Day Older and Deeper in Debt: A Sobering Report on Student Indebtedness from the National Center for Education Statistics

If young people will just go to college, the higher education industry assures us, everything will work out fine for everyone.

 Indeed that was the message delivered in a recent New York Times op ed essay. Jonathan Cowan and Jim Kessler,  executives of Third Way, a so-called "centrist" policy organization, argued that the problem of stalled wages and growing income equality in the U.S. is being solved  because more people are going to college.

But reams of studies and reports cast doubt on this Pollyannaish notion. Earlier this month, the National Center for Education Statistics (NCES) released a report indicating that the economic
Pollyanna:
Just go to college and
everything will work out fine.
picture for college graduates is getting worse. Here are some highlights from the report, authored by Jennie Woo.
  • The percentage of college graduates who borrowed for their undergraduate education went up from 49 percent among people who graduated in 1992-1993 to 66 percent for people who graduated in 2007-2008.

  • Among college graduates, the average amount borrowed went up from $15,000 for the 1992-1993 cohort to $24,700 for people who graduated in 2007-2008

  • Among people who graduated from for-profit institutions in 2007-2008, 90 percent had taken out student loans.

  • In 2001, about two-thirds of college graduates were making payments on their loans one year after graduating. In 2009, that figure had dropped to 60 percent. The other 40 percent had either obtained a forbearance or were in default.

  • Among college graduates who were employed, average annual salaries went down from $39,300 in 2001 to $34,400 in 2009 (measured in 2009 dollars).
To summarize: Over a 13 year period, more Americans were  borrowing to attend college, and they were borrowing more money. At the same time, salaries for college graduates went down and fewer graduates were making payments on their loans one year after graduating.

 Unfortunately, the data analyzed in Ms. Woo's NCES report are old.  She was reporting on the financial situation of people who graduated five years ago. But there is no indication that the financial outlook for college graduates has gotten better in the last five years.  On the contrary, the student-loan default rate has gone up substantially in that time period.

Does this trend have a happy ending? I don't think so. I don't have a sure-fire formula for getting college costs under control or for reducing the amount of money college students need to borrow. Nevertheless, we could brighten this dreary picture if we shut down the for-profit colleges and encouraged low-income students to attend low-cost community colleges and state institutions. And we could ease the burden on overstressed student-loan debtors if we allowed them reasonable access to the bankruptcy courts.

But almost no one is talking about serious reforms in higher education. Instead, we just keep telling ourselves that a college degree is a good investment--no matter what it costs.

References

Jonathan Cowan & Jim Kessler.  "The Middle Class Gets Wise." New York Times, October 20, 2013. Sunday Review Section, p. 4.

Jennie H. Woo. Degrees of Debt: Student Borrowing and Loan Repayment of Bachelor's Degree Recipients 1 Year After Graduating: 1994, 2001, and 2009. Washington, DC: National Center for Education Statistics, October 2013. Accessible at: http://nces.ed.gov/pubsearch/pubsinfo.asp?pubid=2014011

Thursday, October 17, 2013

Surprise, Surpise! Student Loan Ombudsman Reports Problems in Private Student Loan Industry

 I admit that I have been pleasantly surprised by the quality of the reports coming out of the Student Loan Ombudsman's office. Rohit Chopra, the Student Loan Ombudsman for the Consumer Financial Protection Bureau, is doing good work.  Mr. Chopra's reports on student loans are clear, concise, and helpful.

Mr. Chopra's latest report, released this week, focuses on complaints against the private student loan industry.  About 13.7 million people have outstanding balances on private student loans, which total well over $100 billion.  Students who attend for-profit colleges are most likely to take out private student loans. In 2008, almost half of all undergraduate students who attended a for-profit college (46 percent) had at least one private student loan.

Last year, the Consumer Financial Protection Bureau received 3,800 complaints against private student-loan lenders, which is a highly concentrated industry. Almost all the complaints were made against eight private lenders, including Wells Fargo, JP Morgan Chase, Citibank, and KeyBank.  Almost half of the complaints were made against one lender--Sallie Mae.

Here are some of the chief complaints that student-loan borrowers reported:

  • Borrowers had trouble paying off their loans early.  They had difficulty getting an accurate payoff number. And when they attempted to pay their loans off early by making additional payments, these additional payments were often not properly credited to them.

  • Late fees were charged even when borrowers paid their monthly payments on time.

  • When borrowers ran into financial trouble and only made partial payments, these payments were credited to maximize the penalties against them.
A few comments. First, some private student-loan lenders are getting out of the business, and that is a good thing.  For Example, JP Morgan Chase, which once loaned billions of dollars a year to student borrowers, announced last month that it shutting down its private student-loan operation.

Second, there is no valid reason why private student-loan borrowers should be having the problems that the CFPB reported. People with home mortgages have no difficulty paying off their loans early by making extra payments and they have no difficulty getting an early payoff amount.  So why are student-loan borrowers having a problem?  My guess is that the banking industry runs its student-loan operations to maximize profits and has no interest in helping their borrowers pay off their loans early.

Third--and most importantly, the banking industry got its toadies in Congress to amend the Bankruptcy Code in 2005 to make private student loans as difficult to discharge in bankruptcy as federal student loans.  Several respected commentators have recommended that this provision be repealed.

If Congress would repeal its 2005 Bankruptcy Code provision and allow distressed student-loan borrowers to discharge their private student loans in bankruptcy like any other unsecured debt, the private student-loan industry would disappear almost immediately.

The banks are in this business because it is very profitable, and their borrowers have almost no access to bankruptcy or to effective consumer protections.  Students who attend for-profit colleges are most vulnerable to these voracious institutions. I say it is time to shut this pernicious industry down.

References

Rohit Chopra. Annual Report on the CFPB Student Loan Ombudsman. Washington, DC: Consumer Financial Protection Bureau. October 16, 2013. Accessible at: http://www.consumerfinance.gov/reports/annual-report-of-the-cfpb-student-loan-ombudsman/

Alan Collinge. Commentary of the Day-May 2, 2012: What Congress Can do to Fix the Student Loan Crisis. Posted on Irascible Professor Website. accessible at: http://irascibleprofessor.com/comments-05-02-12.htm

Kimberly Hefling. Lender problems target student loan complaints. The Baton Rouge) Advocate, October 17, 2013, p. 8A.
JP Morgan Chase to stop making student loans. USA Today, September 5, 2013. Accessible at:
http://www.usatoday.com/story/money/personalfinance/2013/09/05/jpmorgan-chase-student-loans/2772509/

JP Morgan Chase to stop making student loans. USA Today, September 5, 2013. Accessible at:
http://www.usatoday.com/story/money/personalfinance/2013/09/05/jpmorgan-chase-student-loans/2772509/

Private Student Loans. Finaid web site. Accessible at:  http://www.finaid.org/loans/privatestudentloans.phtml

Private Student Loans. Report to Report to the Senate Committee on Banking, Housing, and Urban Affairs, the Senate Committee on Health, Education, Labor, and Pensions, the House of Representatives Committee on Financial Services, and the House of Representatives Committee on
Education and the Workforce. August 29, 2012. Accessible at: http://files.consumerfinance.gov/f/201207_cfpb_Reports_Private-Student-Loans.pdf

Private Loans: Facts and Trends. Report updated in July 2011. Project on Student Debt. Accessible at: http://projectonstudentdebt.org/files/pub/private_loan_facts_trends.pdf

Tuesday, October 1, 2013

How high Is the student loan default rate? Buddy, you don't really want to know.

 How many people have kissed my girlfriend, Eddy Arnold asked in one of his greatest hit songs. "How many, how many, I wonder. But I really don't want to know."

No, Eddy decides he would rather remain ignorant. In fact he instructs his girlfriend not to tell him about her former lovers, even if he asks.  "So always make me wonder," Eddy Arnold crooned. "Always make me guess. And even if I ask you, darling please don't confess."

Eddy Arnold
"I really don't want to know."
That's kind of the way the Department of Education feels about the federal student loan program.  Every autumn, DOE reports on the federal student-loan default rate.  But DOE's measure vastly understates the true default rate.  Like Eddy Arnold, DOE really doesn't want to know the truth. Or maybe DOE knows the truth and doesn't want us to know.

Nevertheless, let's look at DOE's latest report on student-loan default rates. According to DOE, 14.7 percent of students who began repayment in the 2010 fiscal year defaulted within three years. As usual, the default rate is highest in the for-profit college sector.  About one in five people who attended for-profit colleges  (21.8 percent) defaulted within three years of beginning repayment.

I've said this many times, but it bears repeating: The true student-loan default rate--the percentage of students who default over the lifetime of their entire loan-repayment period--is probably double the rate that DOE announced this week. In other words, the true default rate for all student borrowers is about 30 percent and the rate for people who took out loans to attend for-profit colleges is at least 40 percent.

As Senator Tom Hawkins' Senate Committee Report on for-profit colleges spelled out, the for-profit colleges are very sophisticated when it comes to managing their institutional default rates. They encourage former students who are in danger of defaulting during the first three years of repayment to apply for economic hardship deferments. Borrowers who get deferments are not counted as defaulters even though they are not making their loan payments. And these deferments are very easy to get.

How many people have obtained some kind of deferment or forbearance on their student loans? Almost nine million people, according to the Consumer Financial Protection Bureau. That's nine million people who are not making loan payments but who aren't counted as defaulters.

Of course some people who get economic hardship deferments will eventually make their loan payments, but a lot of them will not. And those people are not included in DOE's default rate.

When we look at all the evidence, it is hard to escape the conclusion that the federal student-loan program has wrecked the lives of about 30 percent of the program's participants. Isn't it time we confront this stark reality?

But DOE, Congress, and the higher education community don't want to face the truth.  And so DOE continues to post its misleading student-loan default rates and the total amount of student-loan indebtedness continues to rise.  

References

Nick DeSantis. Default rate on federal student loans climbs again. Chronicle of Higher Education, September 30, 2013. Accessible at: http://chronicle.com/blogs/ticker/default-rate-on-federal-student-loans-climbs-again/66985?cid=pm&utm_source=pm&utm_medium=en