Wednesday, December 3, 2014

It is madness to borrow money for six years to get a four-year college degree

Complete College America, a nonprofit public advocacy group located in Indianapolis, issued a report recently entitled Four-Year Myth. The report starkly documents what everyone in higher education already knows: The vast majority of college students do not complete their four-year degrees in four years.

Here are some of the report's key findings:
  • Only 5 percent of students in two-year associate degree programs graduate on time.
  • Only 19 percent of students in four-year programs at non-flagship universities obtain their degrees within four years.
  • At flagship institutions, where the nation's top students attend college, only 36 percent of the students complete their four-year degrees on time.
Moreover, the report points out, a lot of students accumulated significantly more credit hours than they need to graduate.  On average, students at non-flagship institutions have 133 credits on their transcripts although most need only about 120 credit hours to graduate.

The report acknowledges that there are many good reasons why many students cannot graduate on time.  Nevertheless, as the report succinctly stated, "[S]omething is clearly wrong when the overwhelming majority of public colleges graduate less than 50 percent of their full-time students in four years."

The report lists several reasons for the low on-time graduation rates at most public colleges and universities:
  • Lighter course loads.  Many students don't take enough credits while in school to graduate on time.  A full course load at most colleges is 15 credit hours per semester, but only 50 percent of the students at four-year institutions take a full course load.  Only 29 percent of students in two-year programs take full course loads.
  • Remediation courses.  According to the report, 1.7 million students take remediation courses each year but only 1 out of 10 remedial students graduate.
  • Uninformed choices.  Too many students make poor choices when enrolling for classes, which causes them to take courses that won't move them toward on-time graduation.  Part of this problem can be attributed to an inadequate number of counselors at many universities.
/As Four-Year Myth points out, students who take six years to obtain a four-year degree often have significantly more student-loan debt than students who graduate on time.  At the University of Texas, for example, students who graduate on time accumulate on average about $19,000 in debt. Students who take six years to graduate are burdened (on average) with $32,000 in student loans.

Four-Year Myth is a very useful report, but in my mind, it did not place enough emphasis on the role that student loans play in the downward slide of on-time graduation rates.  I believe a lot of unmotivated students are taking just enough credit hours to qualify for student loans without realizing that they are accumulating a lot of unnecessary debt by taking a more leisurely path toward graduation. When a mandatory course is unavailable to them in a given semester, some of them will enroll in an unnecessary course solely to meet the minimum number of hours they need to qualify for student loans.

The report makes several good suggestions for improving on-time graduation rates, which I will not repeat here. But I would like to add an additional suggestion: The federal student loan program should only be available to a student for a maximum of four years of full time study.  Thus, students in four-year programs who take six years to graduate or students who take longer than four years to graduate because they changed colleges or changed majors should be required to pay the cost for delayed graduation out of their own pockets if those costs exceed the cost of being enrolled full time for four years.

Call it tough love if you like. But the federal government is doing America's young people no favor by allowing them to borrow money semester after semester while they wander around colleges and universities for five, six, or seven years when they are enrolled in four-year degree programs.

And we should pay special attention to one of the report's most shocking findings: Only 5 percent of students enrolled in two-year associate degree programs graduate on time.  Our community colleges, which purport to serve disadvantaged students, have fallen down on the job if they cant' get their on-time graduation rates above five percent.

References

Four-Year Myth. Complete College America, 2014. Accessible at: file:///C:/Users/wrf7707/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.IE5/9UM6POWU/4-Year-Myth.pdf

Tamar Lewin. Most Don't Earn Degree in Four Years, Study Finds.New York Times, December 2, 2014, p. A14. 










Tuesday, December 2, 2014

Friends don't let friends go to college in Boston

The New York Times ran a front-page story recently about what it called Edgar Allan Poe's "love-hate relationship with the city of Boston."  Actually, based on what the Times article reported, it doesn't appear that Poe had any love for Boston at all.

Edgar Allan Poe
Bostonians have no soul
According to the Times, "Poe sneered at the city's luminaries," whom he referred to as "Frogpondians"because to Poe's ears, the "moralistic works" of Boston's literary elites sounded "like the croaking of so many frogs."  Poe concluded, rightly I believe, that Bostonians "have no soul," although he conceded that they were "well bred--as very dull persons very generally are."

I gather that Poe's main beef with Boston was that many of its literary figures were "didactic."  In other words, Boston's literati tended to be preachy and self righteous.

Poe is not the only literary figure to disparage Boston. In Mr. Blue, Myles Connolly's deeply Catholic novella about a modern-day St. Francis, the book' narrator makes this observation: "The site of the gold dome of the statehouse above the white trees of [Boston] Common almost made me forget what an incoherent, clique-ridden, unproductive settlement Boston is."

Of course, Poe and Connolly's criticisms are dated. Maybe the city has changed from the way it was when Poe and Connolly were alive.  I don't think so. Just a  year ago, Joe Keohane  summarized the popular view of the city in just a few sentences:
For as long as there’s been a Boston, people have hated Boston. The reasons have been impressively consistent across the past two centuries. Bostonians are smug, puritanical, inhospitable, racist and/or pinko, and hopelessly blinkered and insular, and they go about all this in a manner that makes it next to impossible to tell if they’re suffering from the world’s worst inferiority complex or the world’s most gigantic superiority complex (in reality, probably both at once).
And Keohane quotes Drew Magary, who sums up the city of Boston even more succinctly: “People from Boston labor under the mistaken belief that being a relentlessly cynical asshole makes you tough. Endearing, even. They believe their deliberate misery makes them harder and deeper than you.  It’s all BULLSHIT…. "

I agree with all these criticisms of  Boston; and having lived for a few years in the Boston area, I can tell you that they're all true.  And every flaw in Boston's culture is magnified ten times in the city's colleges and universities, which are more common than liquor stores. Indeed, the academic class that infests Boston's higher education institutions makes up the most insufferable segment of Boston's provincial, condescending and arrogant culture.

All across the United States, people foolishly believe that institutions like Harvard, Yale, Brown, Dartmouth, and a  dozen or so other elite New England universities provide the best quality post-secondary education that money can buy; and hundreds of thousands of young people apply to these institutions every year. They are even willing to borrow large sums of money to finance their studies.

But the elite colleges are empty, hollow, and vain institutions, lacking in all values except the postmodern notion that life is to be lived in the pursuit of fame, wealth, and self-gratification. People should be running as fast as they can from these places instead of clamoring to be admitted.

And Boston, crammed to the gunwales with snooty colleges and universities, is the epicenter of all this. Elitist, self-righteous and preachy, the Boston academic scene represent all that is wrong with American higher education.

And in case you think I am nothing more than an anti-intellectual curmudgeon, I invite you to do a Google search for the words "hate Boston"  (in quotes). You will get more than 31,000 hits.

References

Connolly, Myles (1928). Mr.Blue. Chicago: Loyola Press, 1928.

Seelye, Katharine Q. Edgar Allan Poes' Feud With Boston? Nevermore. New York Times, October 5, 2014, p. 1.

Keohane, Joe. The Burn is Back. Boston Magazine, October 31, 2013.  Accessibel at http://www.bostonmagazine.com/news/blog/2013/10/31/red-sox-win-boston-back-being-loathed/

Monday, December 1, 2014

If you have the right credentials, it's not hard to get into an elite college. But why would you want to do that?

All across America, middle class high-school students are sweating over college applications. If only I can get into an elite college, young people tell themselves, I will make the right connections, get in the right graduate school, marry the right person, and become wealthy.  In short, a lot of high-school students are telling themselves that their lives will be better if they attend a fancy school back east than if they go to the nearby state university.

They shouldn't worry so much. If they have the right credentials--beginning with a very high SAT or ACT score, they are most certainly going to get into a prestigious college. That is the message that Kevin Carey delivered in a recent New York Times essay.  According to Carey, 80 percent of applicants with combined SAT scores of at least 1300 or above and who applied at several institutions will get into at least one elite college.

As Carey explained:
Since there has never been a time when 100 percent of well-qualified students were successful in the college admissions market, the truism that elite colleges are far more difficult to crack than in years gone by can't be correct: 80 percent is too close, mathematically, to nearly everyone.
It's true of course that admission rates at elite colleges have been heading downward, but that is largely because more people are applying to the top-tier schools.  Many applicants will be winnowed out after only a quick glance by pitiless admissions officials. But the applicants with high SAT scores and at least one other attractive attribute (musical talent, outstanding athlete, minority status, etc.) will likely get in somewhere.

What does the perfect Ivy League applicant look like? Meet Kwasi Enin, who received acceptance letters from all eight Ivy League colleges.  That's right: Kwasi was admitted to Harvard, Yale, Brown, Dartmouth, Columbia, Penn, Cornell, and Princeton. He scored in the 96th percentile on his SAT, plays three musical instruments, threw the shot put on his high school track team, and volunteered at a hospital. Kwasi's achievements are remarkable, especially when one considers that he is a first-generation American whose parents immigrated from Ghana.

You may not have all the attractive attributes that Kwasi Enin has; but if you have some of them--starting with a very high SAT score--you are likely to be accepted by at least one top-tier college.

Nevertheless, before you decide to go to an elite American college, you should ask yourself two questions:

How will I pay for my elite college education?

 First, you should ask yourself how you plan to pay for the privilege of attending an elite college.  Ivy League schools now charge around $50,000 a year for tuition, room and board.  It is true that the actual price is often a lot less than the sticker price. You might be offered a financial aid package that will reduce your costs substantially. But unless you have credentials like Kwasi Enin, you are probably going to take out some loans to attend Ivy League U.

So before you say yes to an admissions offer at a fancy East Coast school, ask yourself how much debt you are willing to assume for the right to wear a Dartmouth sweatshirt.  How will you manage a debt load of say $100,000 if you don't get a good job after you graduate or if you go on to graduate school and take on even more debt?

Do I want to become the kind of person that elite schools are producing?

Second, ask yourself an even more important question. Do you want to become the kind of person that our nation's elitist institutions are turning out? Without question, most of the people who teach in  our nation's most prestigious colleges are postmodernists. In other words, they are relativists and secularists. Most professors and administrators who populate our top-tier universities believe there are no ultimate human values and that all values are shaped by self interest or by race, class, and gender. And most of the people who work in our elite colleges are atheists.

Of course it is possible to be an atheist and still care deeply about other people. In fact, most atheistic academics will make that claim. Many prefer to call themselves humanists rather than atheists because the word humanist conjures up a picture of a warm and caring person.  But in my experience, most of the people who don't believe in God are materialists. After all, one has to believe in something in order to avoid nihilism; and a great many atheists have made material things their god.

In addition, I have observed that most postmodernist academicians have another characteristic--they are disdainful of people with traditional American values. Having embraced materialism, atheism and relativism, many postmodernists are contemptuous of  ordinary Americans.

MIT professor Jonathan Gruber is a prime example of elite-college arrogance. He bragged publicly that the Affordable Care Act that he helped design only passed Congress because the American people were too stupid to realize what the law would cost them.

As for the secularist leanings of the nation's most prestigious colleges, it is no accident that some of our most elite institutions have driven Christian student groups off campus even as they appoint atheist chaplains.  That's right--some of our most exclusive and expensive colleges--Harvard, Stanford, and Tufts, for example--have atheist chaplains.  They aren't called atheists, of course; that would be too transparent. Most of these folks call themselves "humanist chaplains." You should check it out. The Harvard humanist chaplain, Greg Epstein, and his Stanford counterpart, John Figdor, have both written books that promote atheism.

So here's the bottom line. Before enrolling in a prestigious and expensive private college, come to terms with two realities: First, you will probably have to borrow a lot of money to get an elite-college degree. Second, you will spend at least four years immersed in an arrogant and materialistic postmodern culture that has rejected religion and is disdainful of traditional American values.

If you accept these two realities and still want to to attend an elitist private college, I say go for it.  

Greg Epstein: Good Without God at Harvard
References

Lex Bayer & John Figdor.  Atheist Mind, Humanist Heart: Rewriting the Ten Commandments for the 21st Century. Lanham, Maryland: Rowman & Littlefield, 2014.

Kevin Carey. The Truth Behind College Admission. New York Times, Sunday Review Section, p. 2.

Frank Eltman. Suburban NY Student Picks Yale Among All 8 Ivies. Huffington Post, April 30, 2014. Accessible at: http://www.huffingtonpost.com/2014/04/30/kwasi-enin-yale_n_5242602.html

Greg Epstein. Good Without God: What A Billion Nonreligious People Do Believe.   New York: Harper Collins, 2009.

Martha Ross. Making case for atheism's friendlier, humanist face. Baton Rouge Advocate, November 29, 2014.



Tuesday, November 25, 2014

When It Comes to Student-Loan Crisis, The Department of Education Is a Wizard of Oz Outfit: No Brains, No Courage, and No Heart

As the The Chronicle of Higher Education reported recently, the U.S. Department of Education has relaxed it standards for regulating student loans in ways that benefit certain segments of the higher education industry at the expense of students.

Specifically, DOE spared two or three dozen colleges from the consequences of having high student-loan default rates, it loosened standards for awarding Parent Plus Loans, and it dropped the "cohort-default-rate metric" from DOE's new "gainful employment" rule--a rule that is intended to rein in for-profit colleges that are not producing good student outcomes.

Relaxing standards for PLUS Loans

First, DOE relaxed standards for receiving Parent PLUS loans, loans parents take out to pay for their children's college educations. This may be good for historically black colleges and universities (HBCUs), which  have lobbied DOE to undo changes in DOE eligibility rules for Parent Plus loans because the stricter eligibility rules had hurt enrollment rates at some HBCUs.

But by relaxing its eligibility standards for PLUS loans, DOE may have hurt parents who are struggling to put their children through college. PLUS loans are a dangerous way to finance a college education because parents who sign them are personally liable along with their children for paying back those loans. And parents who take out PLUS loans will find it almost impossible to discharge those loans in bankruptcy even if health problems or a job loss makes it difficult to pay those loans back.

Dropping the "cohort-default rate" 

Likewise, dropping the "cohort-default rate" metric from DOE's new gainful employment rule will be good for HBCUs and the for-profits, both of which tend to have relatively high student-loan default rates. This change will make it easier for them to continue being elibible for participation in the federal student loan program--their life's blood.

Nevertheless, as critics noted, "the revised rule, which only looks at graduates' debt-to-income ratios, will allow 'dropout factories,' to pass simply by limiting the debt of the few students who finish" (Field, 2014). Allowing dropout factories to continue participating in the student loan program cannot be good for the students who are lured into attending them.

Sparing colleges from consequences of high student-loan default rates

Finally, sparing some colleges from the consequences of their high default rates, as DOE did last fall, is good news for the institutions that were spared (somewhere between 20 and 30).  But to allow a handful of high-default-rate colleges to continue receiving federal student-aid money may not be good news for the students who will continue borrowing money to enroll in colleges where a high percentage of students are unable to pay back their student loans.

DOE's approach to student loan crisis: No brains, no courage and no heart

The US. Department of Education: No brains, no courage, and no heart

The Chronicle quoted Maxwell John Love, president of the United States Student Association, as saying that DOE's actions "reinforces concerns the system is rigged in favor of the industry and special interests" (Field, 2014). And of course Love is right.

President Obama, Secretary of Education Arne Duncan, and the Department of Education's senior officials know that the student loan program is out of control.  Their feeble attempts to rein in the for-profits are evidence of that.

But the for-profits will never be brought under control.  They have consistently fought DOE's efforts to regulate them either by lobbying or through litigation. In fact, the Association of Private Sector Colleges and Universities sued DOE again this month, trying to block DOE's latest reiteration of its gainful employment rule (Field, 2014). This is the industry's third lawsuit against DOE that I know about.

In short, the Obama administration is a Wizard of Oz operation when it comes to confronting the student-loan crisis.  Its approach to fixing this massive problem lacks political courage; its regulatory efforts are cumbersome and unimaginative; and--at bottom--Obama and his minions are without genuine sympathy for the millions of people who have been hurt by the federal student loan program, by the for-profit colleges, and by the banking industry that has made millions in profits by offering private student loans

No brains, no courage, and no heart: this is the epitaph of the Obama administration's pathetic efforts to address the student loan catastrophe.

References

Kelly Field. ON College Accountability, Will Education Dept. Blink Again? The Chronicle of Higher Education, November 20, 2014. Accessible at:


Sunday, November 23, 2014

You can't win if you don't play! Elite colleges engage in "promiscuous" recruiting to get their acceptance rates down

Frank Bruni wrote a provocative op ed essay in the Times awhile back about aggressive recruiting practices by elite colleges and universities.  The spokespeople for these joints say they want to make sure they don't overlook "candidates of great merit" who might miss the golden opportunity to matriculate at tony institutions like Swarthmore.

But, as Bruni pointed out, private colleges maintain their elite status by keeping their acceptance rates low; and the only way elite institutions can lower their acceptance rates is to increase the number of applicants.  So--in essence--colleges are trying to lure as many applicants as possible just to set them up for rejection.

Bruni quoted one person who said Tulane University sends everyone a "VIP application," and Rensselaer invites some applicants to apply with "Candidate Choice status!" (bold type and explanation mark supplied by Rennselaer).

The headline for Bruni's essay is entitled "Promiscuous College Come-Ons," and "promiscuous" is probably the right word. Our elite colleges are engaging in recruiting practices that are basically identical to the gambling industry: "You can't win if you don't play!"

All across America, high school students are sweating over college-application essays that will make them stand out when their applications are scanned by beady-eyed admissions committees at places like Williams, Wesleyan, Hamilton, Colby, Swarthmore, and Smith. Meanwhile, parents are trying to figure out the difference between the sticker price and the real cost of educating little Suzie or Johnny at an elite school after scholarships, grants, and loans are factored in.  Very much like trying to get a good deal on a new Chevy.

And what is the value of the prize that little Suzie and Johnny win if they get into an exclusive college? For many of the people who matriculate at America's elitists institutions, all they will have received when they graduate is an expensive introduction to postmodern cynicism and a lot of student-loan debt.

I think it is time for bright young Americans to make the bold and courageous decision to  just skip the whole elite-college experience. I think it is time for American young people to explore less exalted options for their post-secondary educations and training like attending a foreign university, getting a technical education in the energy field, or just staying near home and attending a nearby state college.

In my view, our brightest and most idealistic young people should be asking themselves if they want to become the kind of people who run our elite universities or who teach at them. I don't think they do.

Our best young Americans want a post-secondary education that will allow them enter occupations that are fulfilling and will pay enough for them to care for their families. They want educational experiences that will help them develop a reasoned basis for making ethical decisions. And I think they want educational experiences that will help them determine the ultimate meaning of their lives--something liberal arts institutions once purported to do.

 It is true, as the higher education community constantly reminds us, that people who graduate from college make more money than people who don't.  But I wonder if people who borrow thousands of dollars to attend our nation's most expensive elite universities make more money or have more fulfilling lives than people who graduate from West Texas University with no debt.


References

Frank Bruni. Promiscuous College Come-Ons. New York Times, November 22, 2014. Accessible at: http://www.nytimes.com/2014/11/23/opinion/sunday/frank-bruni-promiscuous-college-come-ons.html?_r=0




Friday, November 21, 2014

America's Journey into the "Heart of Darkness": MIT Professor Jonathan Gruber, Elite Universities and Obamacare

 Heart of Darkness, Joseph Conrad's tale of one man's journey up a mysterious river into the heart of Africa, is one of those books that has embedded itself in America's postmodern psyche. How many high school students have written theme papers on Conrad's book? How many professors have crammed  Heart of Darkness down the yawning throats of indifferent sophomores imprisoned in mandatory English courses?  How many scholars have quoted the book's most famous line--"The Horror! The Horror!"--and opined on the book's rich commentary on colonialism, racism, and existential doubt?

At its core, however, Heart of Darkness is about greed. The people who ravished Africa in the late 19th  century and who people Conrad's book had nothing more in mind than making money.  Conrad described a group of European adventurers encamped on the bank of an African river as "sordid buccaneers" whose talk was "reckless without hardihood, greedy without audacity, and cruel without courage . . ." When the character Marlow asks an accountant why he took a job that landed him in an African jungle, he scornfully replies, "To make money, of course. What do you think?"

I  thought about Heart of Darkness recently as I read the news about Jonathan Gruber, the MIT professor who was one of Obamacare's chief designers.  Videos came to light in which Gruber basically admitted that Obama's healthcare law was based on deception and the contemptuous belief that Americans are too stupid to understand what the law would cost them.

Prior to passage of the healthcare law, Obama's people bragged about how smart Gruber is.  He was going to craft the most perfect and lovely healthcare system that had ever been designed, we were assured. And now we find out that Gruber was just a cynical academic who made millions of dollars packaging a swindle.

Indeed, Gruber is very much like Kurtz in Conrad's Heart of Darkness, the mysterious man in the heart of a dark continent who accumulated vasts stores of ivory and who acquired a firm hold on the imagination of the novel's central character, a riverboat captain named Marlow.

Marlow's description of Kurtz sounds very much like the Obamacrats' obsequious praise for Professor Gruber:
Hadn't I been told in all the tones of jealousy and admiration that he had collected, bartered, swindled or stolen more ivory than all the other agents together. That was not the point. The point was in his being a gifted creature, and that of all his gifts the one that stood out pre-eminently, that carried with it a sense of real presence, was his ability to talk . . . .
And of course Professor Gruber is just one of the many elitists who surround Barack Obama--all graduates of America's most prestigious colleges and universities. Almost all of them have an air of arrogance and condescension, and an unseemly sense of their own intelligence. Like the characters who grub for wealth in Heart of Darkness, most seem propelled solely by greed or the desire for power and recognition.

For some reason, Americans  have been willing to put the nation's destiny into the hands of these hollow and soulless people, most of whom have done nothing with their lives except attend elitist universities where they learned to do little more than talk. We even want our children to get degrees from the fancy colleges where Obama's bureaucrats have been spawned. We are willing to borrow vast sums of money to pay tuition costs so our children can take classes from professors like Jonathan Gruber.

And so we journey upriver into America's own Heart of Darkness: the elite colleges and universities that suck up our money and produce nothing but emptiness.  "The horror! The horror!" we will say to ourselves when we get our first student-loan bill and find we don't have the money to pay it.

MIT Professor Jonathan Gruber
"The horror! The horror!

Tuesday, November 11, 2014

According to the Federal Reserve Bank of New York, one third of student-loan borrowers in repayment during 2012 were delinquent!

According to the Department of Education's most recent report, 13.7 percent of student-loan debtors in the most recent cohort of borrowers defaulted on their loans within three years of beginning the repayment period.  That's not a good number, but DOE tells us that the student-loan default rate actually went down a bit from the previous year, when the three-year default rate was 14.7 percent.

The DOE's report on student-loan default rates is mildly intersting, but the Federal Reserve Bank of New York drilled down a little deeper into the data; and its findings are alarming.  In a report issued last  April,  FRBNY concluded that about 17 percent of the nation's 39 million student-loan borrowers were in default in 2012. Interestingly, people in the 30 to 49 year-old age bracket had the highest delinquency rates--higher than either younger borrowers or older borrowers.

 Moreover, as the Federal Reserve Bank pointed out, this percentage figure is based on a denominator that includes borrowers who are not in the repayment phase of their loans. Some are still in school, some have deferments, and some are participating in income-based repayment plans.

Among borrowers in the repayment phase (which constitute a smaller denominator), almost one third are in delinquency. This figure should alarm everyone in the higher education community.

Furthermore, the percentage of borrowers transitioning into delinquency on a quarterly basis is going up. The FRBNY report found that 6 percent of non-delinquent borrowers transitioned into delinquency in 2005. "By 2012, that rate had increased to 9 percent." Thus, there has been "an increasing trend of borrowers becoming newly delinquent over time"(Brown, et al., 2014, p. 12).

So what's the bottom line? In 2012, almost a third of student-loan borrowers who are in the repayment phase on their loans are delinquent on their monthly payments.  And that doesn't include millions of people who have economic-hardship deferments that excuse them from making payments. And when we add in all those people in income-based repayment plans who are making monthly payments that are so low that their loan balances are not going down, we can see that the percentage of people who are not paying off their student loans is quite high.

In short , the evidence is all around us. The federal student loan program is in real trouble.

References

Meta Brown, Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw. Measuring Student Debt and Its Performance. Federal Reserve Bank of New York, April 2014. Accessible at: http://www.newyorkfed.org/research/staff_reports/sr668.pdf

Monday, November 10, 2014

Now We're Getting Somewhere: Jason Delisle and Clare McCann Published A Very Useful Essay on Student-Loan Defaults in Forbes.Com

As almost everyone knows, the Department of Education's annual report on student-loan defaults is not very useful.  Every autumn, DOE reports on the percentage of student-loan debtors from the most recent cohort of borrowers who default on their loans within three years of beginning repayment.  Last September, DOE reported a composite default rate of 13.7 percent, down a full percentage point from the previous year.

But of course, DOE's report does not tell us how many borrowers default on their student loans after the three-year period that DOE measures.   Nor does DOE's report gives us any information about the number of people who are not counted as defaulters because they received economic hardship deferments, even though those people aren't paying on their loans.

In short, DOE's annual reports don't tell us what we really want to know, which is this: How many people are not paying back their student loans?

Fortunately, Jason Delisle and Clare McCann published an article recently for Forbes.com that gives us some very useful information about what the student-loan default rates really are. Here are some of the things they found:

First, Delisle and McCann report that cumulative cohort default rates for recent cohorts of borrowers are disturbingly high.  Among students who attended two-year public and nonprofit colleges who began repayment in 2007, about one out of four is in default. Among students who attended two-year for-profit institutions and began repayment in 2007, more than one out of three (36 percent) is in default.

Delisle and McCann also looked at the federal government's budget lifetime default rate, which estimates default rates for cohorts of borrowers over a period of 20 years. "Across all school types," Delisle and McCann wrote, "the Department of Education reported that a little over one in five loans for undergraduate educations will default within two decades."

DOE is encouraging student-loan borrowers to enroll in one of several income-based repayment plans that DOE offers. These plans can lower borrowers' monthly loan payments because these payments are determined based on a percentage of borrowers' income and not the amount they borrowed.  Delisle and McCann wrote that the percentage of borrowers who participate in these plans has grown from 5 percent to 10 percent of people who are making payments on their loans.

But of course, many people in these income-based repayment plans are making payments that are so low that their payments are not covering the interest that is accruing. Thus, many borrowers who are making loan payments based on their income will see their loan balances go up and not down due to negative amortization.

Borrowers in income-based repayment plans may not care if their loan balances are growing because whatever they owe at the end of their repayment period (20 or 25 years) is forgiven. But taxpayers should care.

Delisle and McCann wrote "that the U.S. Department estimates that of about a quarter of borrowers in the most generous of these [income-based repayment] plans will walk away from $41,000 in unpaid loans under a loan forgiveness benefit, based on initial balances of $39,500."

In other words, a significant percentage of people who are enrolled in long-term income-based repayment plans will never pay off the principal of their loans, even if they faithfully make loan payments for 20 years.

The picture that Delisle and McCann have sketched for us regarding student-loan default rates is pretty sobering, and it is based on the federal government's own data. When we consider that the Feds' estimates of lifetime default rates and negative amortization rates are probably overly optimistic, we have real reason to worry.

Of course, we can kick this can down the road, so to speak, as the Obama administration is presently doing. By encouraging borrowers to sign up for long-term income-based repayment plans, the Department of Education is reducing borrowers' monthly payments, which may help keep default rates down. But if people in these plans are not paying off their loan balances, which many of them are not, taxpayers will ultimately wind up paying the bill for a student loan program that is out of control.

Even now, there are things we can do to avert disaster, but we won't begin thinking about these things so long as we are lulled into believing that the student-loan default rate is under control. But it is not under control, and we can thank Jason Delisle and Clare McCann for helping making the true state of affairs a little clearer.

References

Jason Delisle and Clare McCann. Who's Not Repaying Student Loans? More People Than You Think. Forbes.com, September 26, 2014. Accessible at: http://www.forbes.com/sites/jasondelisle/2014/09/26/whos-not-repaying-student-loans-more-people-than-you-think/?utm_content=buffer1e0e0&utm_medium=social&utm_source=facebook.com&utm_campaign=buffer





Tuesday, November 4, 2014

Occasionally, The New York Times Says Something Sensible About the Student Loan Crisis: Bankruptcy Relief for Private Student Loan Borrowers

Last month, the Student Loan Ombudsman for the Consumer Financial Protection Bureau (CFPB)issued a report highlighting the hardships experienced by students who took out private loans to attend college. Unlike the federal student loan program, which offers income-based repayment plans and economic hardship deferments to student-loan borrowers who run into financial trouble, private lenders generally do not offer any type of relief for distressed student-loan borrowers.

What the CFPB did not say in its report is that private student-loan borrowers, like borrowers in the federal student loan program, cannot discharge their student loans in bankruptcy unless they can show "undue hardship," a very difficult standard to meet.
All the CFPB report offered as a remedy to this problem was a form letter that student-loan borrowers could modify and send to their private lenders to beg for relief.  That is really not much of a solution.

Yesterday, however, the New York Times commented on the CFPB report and made a sensible suggestion. The Times proposed that Congress repeal the 2005 "undue hardship" provision that makes it almost impossible for private student-loan borrowers to discharge their loans in bankruptcy. In the alternative, the Times added, legislation should be passed that requires private lenders to modify loan terms for distressed student-loan borrowers. "Now it's time for Congress to fix [the error it made when it passed the 2005 law]," the Times editorialized, "by rescinding the bankruptcy provision or requiring lenders to create clearly advertised flexible payment plans in exchange for retaining it."

Respected commentators have recommended rescinding the 2005 Bankruptcy Code provision for years. In 2009, Rafael Pardo, a law professor and noted researcher on the student-loan crisis, testified before a Congressional committee on the special hardships suffered by individuals who took out private student loans to finance their college studies.  Here is what Professor Pardo said:
Because the costs of private student loans can quickly spiral out of control, and because there exist limited nonbankruptcy options for mitigating the financial distress imposed by such costs, borrowers of private student loans are particularly vulnerable to the negative effects of undue-hardship discharge litigation.  If they end up seeking relief through the bankruptcy system and subsequently fail to prevail in their claim of undue hardship, they will find themselves struggling interminably under an oppressive amount of educational debt with little to no other options for relief.
In short, Professor Pardo told the Congressional committee:
By stripping away the one social safety net that existed for borrowers of private student loans--that is, the automatic discharge of such loans in bankruptcy--Congress has likely condemned certain student-loan debtors to the Sisyphean task of repaying obligations that will never be extinguished. [Emphasis supplied.]
In his testimony, Professor Pardo stated unequivocally that Congress should repeal the 2005 "undue hardship" provision that has made it almost impossible for individuals to discharge their private student-loan debts in bankruptcy.  Pardo testified as follows:
I respectfully urge Congress to restrike the balance between student-loan debtors and lenders of private student loans by restoring the automatically dischargeable status of private student loans in bankruptcy.
Without a doubt, repeal of the 2005 Bankruptcy Code provision is essential to providing relief to distressed college borrowers who took out private student loans.  It is refreshing to see that the New York Times essentially agrees with Professor Pardo on this issue, although the Times equivocated a bit by saying that Congress might pass a law requiring private student-loan lenders to offer flexible payment terms as an alternative to repealing the 2005 Bankruptcy Code provision.

Everyone in higher education should be clamoring for repeal of the Bankruptcy Code's "undue hardship provision for all student-loan borrowers, whether they borrowed from the federal student loan program or borrowed from private lenders.  Literally millions of distressed student-loan borrowers are suffering  because they cannot repay their loans and have no real means of relief in the bankruptcy courts.

But if across-the-board reform cannot be achieved politically, at least Congress should repeal the "undue hardship" provision as it applies to people who took out student loans from the private banks. Even the New York Times, which at times seems almost clueless about the student-loan crisis, has figured that out.

References

Editorial. Driving Student Borrowers Into Default. New York Times, November 3, 2014.

Rafael Pardo. ABI Members Testify on Discharging Student Loan Debt in Bankruptcy. ABI Journal, November 2009, p. 10. Accessible at: http://www.abiworld.org/AM/Template.cfm?Section=Home&CONTENTID=59097&TEMPLATE=/CM/ContentDisplay.cfm


Friday, October 31, 2014

Rohit Chopra and Rich Cordray Should Be Ashamed of Themselves: The Consumer Financial Protection Bureau's Timid Report on Distressed Private Student-Loan Borrowers

Rohit Chopra should be ashamed of himself.
Rohit Chopra, the Student Loan Ombudsman for the Consumer Financial Protection Bureau (CFPB), issued a report earlier this month on the status of distressed private student-loan borrowers.  The report is so timid, so tepid, so lacking in real recommendations for reform that Chopra and Chopra's boss, CFPB Director Richard Cordray, should be ashamed of themselves.

Basically, Ombudsman Chopra's  report analyzed more than 5,000 student loan complaints directed at private lenders.  The report documents that many students who borrowed money from banks to attend college have been driven into default.  Chopra's reported identified these problems:
  • Borrowers who have trouble paying back their private loans receive little information from the banks about their options for modifying their loan terms.
  • People who borrow from the banks often find that there are no loan-modification options available.  
  • Private lenders are sometimes willing to offer borrowers a temporary forbearance from making their loan payments, but these forbearances often only delay default. Moreover, borrowers sometimes have to pay enrollment fees or experience processing delays in order to get nothing more than temporary relief. 
Chopra's report ends on a pathetic note. Although it professes to offer "new tools to help borrowers take action when they run into trouble [with private student loans]," the report offers nothing more than a sample letter "that consumers can edit and send to their student loan servicer to request lower monthly payments and information on available repayment plans."  That's all the CFPB has to offer--a crummy form letter!

Chopra and the CFPB Understate the Harm Caused by the Private Student Loan Industry

Chopra and the CFPB vastly understate the harm done to student borrowers who take out loans from private lenders to finance their college educations.

First of all, many students are ignorant of the difference between private loans and loans obtained through the federal student-loan program. Federal loans give distressed borrowers access to economic hardship deferments, income-based repayment plans, and loan consolidation options.  For the most part, these options are not available to people who borrow money from private lenders to finance their college studies. Moreover, federal student loans generally offer lower interest rates than private student loans.

Many students are so unsophisticated that they do not realize that they are taking out loans from private lenders rather than participating in the federal student loan program. Thus, students often pass up the opportunity to participate in the federal student loan program and fall into the clutches of private banks.

Second, unlike most federal student loan programs, private lenders generally require students to obtain co-signers for their student loans.  In most cases, the co-signer is a student's parent or other relative. Parents who co-sign their children's private student loans become personally liable for the debt--all of it.

Third, students and their parents may not realize that private student loans,like federal student loans, cannot be discharged in bankruptcy absent a showing of undue hardship, which is very hard to establish in a bankruptcy court. Students who take out private loans and are unable to pay them back may see their parents dragged down into financial ruin if their parents are not able pay back the debt. In most cases, the parents will have no recourse to the bankruptcy courts. 

The Federal Government Should Shut Down the Private Student-Loan Industry

The CFPB report is pathetic in terms of its advice to students and their families who find themselves unable to pay back their private student loans.  All Cordray and Chopra could think to do about the rapacious private student-loan industry was draft a form letter that students can use to beg for mercy when they find themselves unable to make their loan payments.

Students don't need sample letters to deal with the private student-loan industry; they need effective relief from private student-loans that many students did not fully understand when they signed the loan documents.

What needs to be done?

Congress needs to repeal the 2005 amendment to the Bankruptcy Code that has made it almost impossible for student borrowers and their co-signers (usually parents) to discharge their private loans in bankruptcy.  

If Congress would take this simple step, the private student-loan industry would almost immediately shut down, which would be a good thing.  The banks are happy to loan students money so long as students' parents co-sign the loans and bankruptcy relief is unavailable.  But if private student loans could be discharged in bankruptcy like any other unsecured debt, the banks would get out of the student-loan business in a hurry.

In the meantime, Rohit Chopra, Rich Cordray and the CFPB need to issue dire warnings to college students and their families not to take out private loans to attend college.  Such loans may make sense for people who are enrolling in expensive but high-quality professional programs in law or medicine. But low-income students have no business taking out student loans from banks and other private lenders.  Too often, taking out a private student loan leads to financial disaster not only for the student but for the student's parents as well.

Mr. Chopra and Mr. Cordray are fully aware of the harm being caused by private student-loan financiers.  “Struggling private student loan borrowers are finding themselves out of luck and out of options," Mr. Cordray acknowledged.  Unfortunately, Mr. Chopra, Mr. Cordray, and the CFPB do not have the courage to propose effective reforms.

Mr. Cordray should be ashamed of himself too.
References

CFPB Report Finds Distressed Private Student Loan Borrowers Driven Into Default. Consumer Financial Protection Bureau, October 16, 2014.




Sunday, October 19, 2014

The New York Times publishes another witless editorial about the student loan crisis

If you don't think the federal student loan program is in crisis, you haven't been paying attention. And speaking of people who aren't paying attention, the New York Times recently published an editorial entitled "What to Do About Student Loan Defaults," which demonstrates that the Times editorial board is totally clueless about the student loan crisis.

The Times began by saying that the student-loan default rate dropped a bit from last year. The Department of Education's most recent three-year cohort default rate (the percentage of people in a cohort  who default within three years of beginning repayment) was 13.7 percent, which is down a percentage point from last year's rate.

The Times neglected to report that the Department of Education calculated a special rate for several schools that were in danger of being kicked out of the federal student aid program because of high default rates in order to bring their default rates down. Which schools received this special favor? The Department of Education won't say.

The Times also neglected to note that the student loan rates are probably going down because colleges with the highest default rates have hired default-management companies to help bring their default rates down. These firms contact former students who are in danger of default and urge them to apply for economic hardship deferments.

Former students who have economic hardship deferments are not obligated to make loan payments but they are not counted as loan defaulters. This keeps colleges' default rates down during DOE's three-year measurement period.

Of course the bad news for student-loan debtors who have economic hardship deferments is that interest continues to accrue on their loan balances. People who defer payments for several years because they are on economic hardship deferments will wind up owing a lot more than they borrowed.

In fact, we really don't know that the true student-loan default rate is. Millions of people have received economic hardship deferments and millions more have signed up for income-based repayment plans that obligate them to make monthly student-loan payments over 25 years.  Almost all of these people are seeing their loan balances negatively amortize--in other words, the amount they owe is getting larger.

The Times knows that millions of student-loan borrowers are in trouble, but what is its solution? More education!

Yes, the Times said that "[t]he government needs to continue pressing both schools and loan servicing companies to educate students on affordable partial payment plans that can keep them out of default." And at the end of the editorial, the Times urges the government to "get out the news about affordable repayment plans that set payments according to borrowers' income, allowing them to eat and pay the rent without falling into default."

So basically what the Times is saying is this: People need to sign up for income-based repayment plans that will negatively amortize for most borrowers and obligate student-loan debtors to make monthly payments for 20 or 25 years!

Of course this is lunacy. And it is deeply discouraging that the New York Times, which bleats continually about income-inequality and the plight of the poor, offers such unimaginative and ineffective solutions to the student-loan crisis, which is destroying the economic future of millions of Americans, not to mention the integrity of America's colleges and universities.

References

What to do about student loan defaults. New York Times, October 2, 2014. Accessible at: http://www.nytimes.com/2014/10/03/opinion/what-to-do-about-student-loan-defaults.html?_r=0








Thursday, October 2, 2014

Senator Tom Harkin is Like a Shade-Tree Mechanic--He Can Tell You What's Wrong With the Student Loan Program, But He Can't Fix It: Veterans, The New GI Bill and the For-Profit Colleges

Photo credit: autoguide.com
Senator Tom Harkin reminds me of the shade-tree mechanics I patronized when I was young and poor and drove old cars,  I would drive my junker up to some Mom-and-Pop mechanic shop, the mechanic would accurately diagnose what was wrong with my car, and then he would say he couldn't fix it.

Senator Harkin did the public a major service when he chaired the committee that reported on the for-profit colleges a couple of years. In a massive report--over a thousand pages when the appendices are included, the Harkin committee spelled out the many abuses in the for-profit college industry.

Since that report was issued, almost nothing has been done to rein in the rapacious for-profit colleges, which suck up about a quarter of all federal student aid money and only enroll about 11 percent of the students.

Last July, Senator Harkinn's Senate Committee has issued a second important report. This one focuses on the way the for--profits have made out like bandits with programs targeted at veterans who have gone to college under the Post-9/11 GI Bill.

Here is a summary of the Harkin Report's findings:

  • Eight of the 10 top recipients of Post-9/11 GI Bill benefits are large, publicly traded companies that operate for-profit colleges. These eight companies received 23 percent of all the Post-9/11 GI bill money for 2012-2013.
  • Seven of those 8 companies are currently under investigation by state attorney generals offices or the federal government for deceptive or misleading recruiting or possible violations of federal law. 
  • The number of veterans attending public colleges has declined between 2009 and 2013 while the number of veterans who attend for-profit colleges has increased.
  • Although overall enrollment at the eight top for-profit beneficiaries of the Post-9/11 GI Bill has declined in recent years , the number of veterans who enrolled at these schools has increased.
Why are veterans so attractive to the for-profit colleges? As the Harkin Report explains, the Higher Education Act requires that the for-profits operate under the 90/10 rule. In other words, they can only receive 90 percent of their revenue from federal student aid money.  However, money received under the Post-9/11 GI Bill is not counted as part of the 90 percent.

Thus, for-profits who are getting 90 percent or close to 90 percent of their revenue from the general federal student-aid program can get that last ten percent of their by enrolling veterans under the Post-9/11 GI Bill.

This would be fine, I suppose, if the for-profits were doing a bang-up job of educating veterans and preparing them for good post-military jobs. But apparently they are not. 

The Harkin Report found that "[a]t the for-profit colleges currently receiving the most benefits, up to 66 percent of students withdrew without a degree or diploma" (p. ii).  The Report also found:
Between 39 and 57 percent of the programs offered by four of the companies receiving he most Post-9/11 GI bill benefits would fail to meet the proposed gainful employment rule, suggesting that the students who attend these institutions do not earn enough to pay back the debt they take on.  (p. ii)
As the Harkin Report put it, some for-profit colleges "appear to be taking advantage of a loophole to use Post-9/11 GI Bill funds to comply with the federal requirement that no more than 90 percent of revenue come from federal student aid" (p. ii).

And of course, this cozy arrangement for the for-profits is costing tax payers, "who are paying twice as much on average to send a veteran to a for-profit college for a year compared to the cost at a public college or university ($7,972 versus $3,914)" (p. ii).

The Harkin Committee Report makes interesting reading, but the Committee made no significant recommendations.  It is the latest in a series of reports showing that students are being ill-served by and large by the for-profit college industry.  These schools charge far more for their programs than comparable programs offered by public universities and community colleges. They have very high student-loan default rates and high student dropout rates, and very often they are enrolling students through deceptive recruiting practices and are putting students into programs that are not likely to lead to well-paying jobs.

Why don't we do something about this?  Because the for-profits have very good lobbyists and lawyers sand they make strategic campaign contributions to key federal legislators.

Thus, in the end, the latest report by Senator Harkin's Committee is very much like my fruitless conversations with the shade-tree mechanics of my youth.  "Buddy, your car is in dire need of repair, but we can't fix it."

References

Health, Education, Labor, and Pensions Committee (Senator Tom Harkin, Chairman). Is the New GI Bill Working?: For-Profit Colleges Increasing Veteran Enrollment and Federal Funds, July 30, 2014.   Washington, DC: United States Senate. Accessible at http://www.harkin.senate.gov/documents/pdf/53d8f7f69102e.pdf



Tuesday, September 30, 2014

Almost by itself, the Student Loan Program is Destroying the American Middle Class: The sad story of Steve and Darnelle Mason

Several newspapers carried a story about Steve and Darnelle Mason, a married couple who co-signed student loans for their daughter Lisa to attend college.  Lisa borrowed a lot of money--$100,000, but it was probably a good investment because she graduated with a nursing degree that led to a job as a critical-care nurse.
Lisa Mason
Photo credit: Steve Mason &
USA Today

Unfortunately, Lisa died at age 27 of liver failure, leaving three young children.  Had Lisa borrowed the money from the federal student loan program, the debt would have been forgiven with her death.

But Lisa borrowed the money from private banks, and loan-service companies that took over her loans didn't forgive the debt. As co-signers on Lisa's loans, Lisa's parents are liable for the full amount.  And with penalties and accrued interest, that debt has  ballooned to $200,000.

This sad story, which has gained national attention, demonstrates the risk parents take when they co-sign student loans for their children's college education, particularly when they co-sign a loan from a private bank. They are on the hook for the full amount. And unlike the federal student loan program, most banks do not have income-based repayment options. Nor do they grant economic hardship deferments.

Jeffrey Dorfman (2014) recently wrote a story for Forbes arguing that there is no student loan crisis. Dorfman would probably say people like Steve and Darnelle Mason are a rare exception, As Dorfman, pointed out, most people borrow fare less money to attend college than Lisa Mason did, often less than a typical car loan.

It is true of course that the Mason's story is exceptional. Most 27 year-old people don't die. But a lot of them are unable to manage their student loans, and parents who co-sign those loans are on the hook to pay them back.  Parents can lose their retirement savings, the equity in their homes, literally everything they've worked for over a lifetime if they co-sign their child's student loan and the student can't pay it back.

What a lot of parents don't realize is that student loans are very hard to discharge in bankruptcy. In 2005, the banks were able to get Congress to amend the Bankruptcy Code to make private student loans nondischargeable unless the debtor could show "undue hardship."  And  the courts have interpreted "undue hardship" very harshly.  Just a few months ago, a 63-year old man's petition to discharge almost a quarter million dollars in student loans for his children was denied, even though the man was unemployed and about to lose his home in foreclosure (Murphy v. Educational Credit Management Corporation, 2014).

Millions of people are suffering from unmanageable student loans.  Although most people don't borrow as much as Lisa Mason did, even a small loan is impossible to pay if the debtor is unemployed.  And the poor souls who fall behind on their payments and default often see their loan balances double because the creditors add accrued interest and penalties to the unpaid debt.

President Obama and Secretary of Education Arne Duncan know how bad the student-loan crisis is,but their efforts to bring this crisis under control have been feeble.  The Department of Education doesn't report the actual default rate and its solution to the overall problem is to encourage student-loan debtors to sign up for long-term income-based repayment plans.

In essence, the Obama administration's response to the student-loan catastrophe has been to obscure the enormity of the problem, hoping it won't blow up before President Obama leaves office.  What needs to be done?

First and foremost, the Bankruptcy Code must be amended to make unmanageable student -loan debts dischargeable in bankruptcy. This one reform would shut down the private student loan business because the banks would not lend money for education if they knew student-loan debtors could wipe out their student loan debt in a bankruptcy court.

Steve and Darnelle Mason, for example, would be able to discharge their debts in bankruptcy if they had maxed out their credit cards to go on expensive vacations or had foolishly invested in some get-rich-quick scheme. But they can't discharge the student-loan debt that Lisa accumulated in good faith to get a college education, even though it is crushing them financially.

 Day by day, the student-loan program is destroying the middle class by making it impossible for young people to buy homes, start families, and save for their retirement.  And many parents who co-signed student loans for their children are now faced with the loss of their entire life savings.

This state of affairs is not right, and we won't truly begin to deal with the student-loan crisis until we give people who are overwhelmed by student debt a fresh start in bankruptcy.

References

Grant, Tim. Private student loan debt can outlive student. Pittsburgh Post-Gazette, September 12, 2014. Accessible at http://www.post-gazette.com/business/2014/09/12/Private-student-loan-can-outlive-student/stories/201409120016.

Dorfman, Jeffrey. Time To Stop the Sob Stories About Student Loan Debt. Forbes, September 18, 2014. Accessible at http://www.forbes.com/sites/jeffreydorfman/2014/09/18/time-to-stop-the-sob-stories-about-student-loan-debt/

Murphy v. Educational Credit Management Corporation, 511 B.R. 1 (D. Mass. 2014).

Serico, Chris. After daughter's death, parents plead for forgiveness of her $200K student-loan debt. USA Today, July 14, 2014. Accessible at http://www.today.com/parents/after-daughters-death-parents-plead-forgiveness-her-200k-student-loan-1D79996678

Marian Wang,  Beckie Supiano, & Andrea Fuller. Parent Plus Loans: How the Government Is Saddling Parents With Loans They Can't Afford. Huffington Post, October 5, 2012. Available at: http://www.huffingtonpost.com/2012/10/05/parent-plus-loan-government-parents-student-debt_n_1942151.html

Marian Wang. As Parents Struggle to Repay College Loans for Their Children, Taxpayers Also Stand to Lose. Huffington Post, April 4, 2014.  Available at: http://www.huffingtonpost.com/2014/04/04/parent-plus-loans_n_5094931.html

Wednesday, September 24, 2014

The Department of Education Dishes Out More Baloney About Student Loan Default Rates

During World War I, it was said the British Army kept three different casualty lists: one list to deceive the public, a second list to deceive the  War Office, and a third list to deceive itself.

Something like that is going on with the Department of Education's latest report on student-loan default rates. According to DOE's latest report, which was released today,the three-year default rate actually dropped a full percentage point from 14.7 percent to 13.7 percent.

However, as Inside Higher Ed reported, DOE tweaked this year's report, adjusting rates for some institutions that were on the verge of losing their student aid due to high default rates. Students at these institutions were not counted as defaulters if they defaulted on one loan but had not defaulted on another. According to Inside Higher Ed, the adjustment will be applied retroactively to college's three-year default rates for the past two years.

Thus, as a Chronicle of Higher Education article noted it's "unclear whether [the adjustments for certain schools] or other factors affected the reported percentages."

The bottom line is this: As of today, we don't know whether student-loan default rates really went down or whether DOE's "adjustments" account for the decline.

Arne is full of it!
But it really doesn't matter.  As everyone in the higher education community knows, many colleges with high default rates have hired  "default management" firms to contact former students who are in danger of default and urge them to apply for economic hardship deferments.  Borrowers who get these deferments--and they are ridiculously easy to get--don't pay on their student loans but they aren't counted as defaulters.

Moreover, Arne Duncan's Department of Education has been pushing students to sign up for income-based repayment plans (IBRPs) that will lower students' monthly payments but will extend their repayment period from 10 years to 20 or even 25 years.  As I've said before, many people who obtained IBRPs are making monthly payments so small that the payments do not cover accruing interest. Thus, these people are actually seeing their loan balances get larger even though they are making payments and aren't counted as defaulters.

In short, we don't know what the true student-loan default rate is if it is defined as people who are not paying down their loan balances. But it is a lot higher than the 13.7 percent rate that DOE reported today.

Why is DOE tinkering with the numbers? One reason may be the high student-loan default rates among the HBCUs.  Last year, 14 HBCUs had three-year default rates of 30 percent--high enough to jeopardize their participation in the federal student loan program. This year, Arne Duncan announced that no HBCUs had default rates that would put them at risk of losing federal aid money.

Abrakadabra!  Arne Duncan tinkers a little with definitions and the student-loan default crisis is solved.

As Robert Cloud and I have argued in a forthcoming law review article, one of the three most important things that needs to be done to solve the student-loan crisis is to accurately report the true default rate.  And these are the other two things we must do: 1) provide easier access to bankruptcy for overburdened student-loan debtors, and 2) implement stronger regulations for the for-profit college industry.

But these things are not being done, and the student-loan crisis grows worse with each passing day. Like the British Army during the First World War, DOE doesn't want to know what the true student-loan default rate is and it doesn't want anyone else to know either.

References

Stratford, Michael. Education Dept. tweaks default rate to help colleges avoid penalties. Inside Higher Education, September 24, 2014.

Thomason, Andy. Student-Loan Defaults Decline in Latest Data, Education Dept. Says. Chronicle of Higher Education, September 24, 2014.




Tuesday, September 23, 2014

A Comment on Susan Dynarski's Op Ed Essay in the NY Times on President Obama's Proposed Federal College Rating System

Susan Dynarski contributed an op ed essay in a recent issue of the New York Times on President Obama's proposed college rating system.  As Ms. Dynarski explained, the President's intent is to rein in college costs.

Ms. Dynarski said up front that she does not think the President's proposal will help bring spiralling tuition costs under control--at least for the public colleges. She urged President Obama to slow down the initiative to put a college rating system in place in order to get it right.

I will go further and say that the President's college rating plan will do nothing to control college costs. Instead, it will simply add another layer of bureaucracy to the nation's higher education sector, which is already burdened with red tape created by efforts to comply with FERPA, the Clery Act, Title IX, the federal student aid program, and a blizzard of "Dear Colleague" letters issued by the Department of Education.

Without a doubt, the nation's elite schools will do just fine under any rating system that President Obama and Secretary of Education Arne Duncan are likely to devise; they have large endowment funds, lobbyists, and lawyers that will make sure they come out on top.  Don't worry about Harvard, Stanford, or Yale.

The HBCUs will also do all right under any rating system that the Obama administration designs; nobody wants to increase pressure on them. And, judging by their past success in fending off effective federal oversight, most of the for-profits will also manage to thrive under any new college rating system that is likely to be put in place.

But, as Ms. Dynarski pointed out, the new rating system will probably hurt the private, nonprofit colleges most, particularly the non-selective nonprofits that do not have large endowments.  Many may be forced to close their doors. She is right to warn that these colleges "will do everything they can to avoid this, including lobbying to tweak the ratings."

I hope President Obama and Secretary Duncan heed Ms. Dynarski's advice and put their college-rating system on the back burner.  If Obama and Duncan want to bring costs under control, they should continue putting the heat on the for-profit college sector, where tuition costs are highest. In my view, the for-profits should be kicked out of the federal student-aid program, which would cause most of them to be shut down. The federal aid money that now goes to the for-profits receive--about $35 billion per year-should be invested in low-cost community colleges.


References

Dynarski, Susan. Why Federal College Ratings Won't Rein in Tuition. New York Times, September 20, 2014. Accessible at:
http://www.nytimes.com/2014/09/21/upshot/why-federal-college-ratings-wont-rein-in-tuition.html

Saturday, September 20, 2014

Time To Stop the Sob Stories About Student Loan Debt, Jeffrey Dorfman Said in a Forbes Article. But Dorfman Failed To Analyze Key Signs of Crisis.

Jeffrey Dorfman wrote an online essay for Forbes this week entitled "Time To Stop the Sob Stories About Student Loan Debt."  Basically, Dorfman argued that there is no student-loan crisis, pointing out that most students have only modest student-loan debt loads, usually smaller than a typical car loan.

Mr. Dorfman is right to point out that the number of people who have borrowed extravagantly to
attend college is relatively small. "In fact," Dorfman wrote, "only four percent of households headed by people between 20 and 40 years old have student loan debt of over $36,000 per person and two-thirds of those have a graduate degree to show for that debt."

But I think Mr. Dorman's article overlooked some key data that are very troubling. First, as Mr. Dorfman pointed out, the three-year student-loan default rate is 14.7 percent, and that number is disturbing by itself.  Student-loan default rates have doubled in just six years.

Moreover, the Department of Education's official student-loan default rate only measures people who default in the first three years of the repayment period.  Many people default on their loans after three years. And the student-loan default rate for people who attended for-profit colleges is more than 20 percent.  That's right--one out of five people who attended for-profit colleges during DOE's latest measurement period defaulted within the first three years of repayment!

And, as Senator Tom Harkin's Senate Committee report pointed out, the for-profit colleges are encouraging their former students to get economic hardship deferments that temporarily excuse debtors from making loan payments.  This strategy helps the for-profits keep their institutional default rates down.

But in reality, many people who obtained economic hardship deferments will never pay back their loans, and their loan balances get larger as interest accrues during the time they are not making loan payments.

In my opinion, the student-loan default rate for people who attended for-profit colleges is probably 40 percent when measured over the lifetime of the loan repayment period, and that should alarm everybody--even Mr. Dorfman.

And Mr. Dorfman did not comment on recent reports that more and more people in their late 20s and early 30s are living with their parents and that more than 40 percent of college graduates hold jobs that don't require college degrees. Nor did he comment on recent efforts by the Obama administration to lure student-loan debtors into long-term income-based repayment plans that will require debtors to pay on their loans for 25 years.  Isn't that a sign that the student-loan program is in trouble?

Finally, although Mr. Dorfman is correct to say that most people with student loans have modest loan balances, even $10,000 is very hard to pay off if you are holding a minimum-wage job.  Many of the people who borrowed money to attend for-profit colleges are from low-income families. If those people dropped out of a for-profit college without getting a degree (and a large percentage of people fall into this category), paying off even a small loan may be impossible.

 The Brookings Institution, which Mr. Dorfman cited, has been downplaying the student-loan crisis even as it advocates for long-term repayment plans.  But the crisis is real.

A lot of people who live in Mr. Dorman's world are making money off the federal student loan program or the private student loan industry. Sallie Mae is making money off of student loans, the banks are making money off of private student loans, the loan servicing companies are making money chasing down student-loan debtors who are in default,and colleges and universities are making money as they raise their tuition every year. Goldman Sachs owns an interest in Education Management Corporation, the entity behind several for-profit colleges, and the Washington Post Company has a stake in Kaplan University.

But millions of Americans are suffering under unsustainable student-loan debt, and the crisis grows larger every day. Mr. Dorfman is living in a fantasy world if he thinks otherwise.


References

Dorfman, Jeffrey. Time To Stop the Sob Stories About Student Loan Debt. Forbes, September 18, 2014. Accessible at http://www.forbes.com/sites/jeffreydorfman/2014/09/18/time-to-stop-the-sob-stories-about-student-loan-debt/

Ashlee Kieler. For-Profit Colleges: Good For Investors. . . Not-So-Good For Students. Consumerist, April 24, 2014. Accessible at: http://consumerist.com/2014/04/24/your-college-education-might-be-a-better-investment-for-goldman-sachs-than-it-is-for-you/









Friday, September 19, 2014

Is it OK to beat a dead horse? The Consumer Financial Protection Bureau sues Corinthian Colleges

According to Chronicle of Higher Education, the Consumer Financial Protection Bureau has sued Corinthian Colleges, accusing the company of "predatory lending and illegal collection tactics." 

As the Chronicle noted, Corinthian is "the crippled for-profit higher-education company that is in the process of winding down its operations."  In fact, Corinthian has entered into a deal with the U.S. Department of Education, whereby the company will sell or close most of its campuses in exchange for continued access to federal student aid money.

The CFPB is accusing Corinthian of some pretty bad stuff. "We believe Corinthian lured in consumers with lies about their job prospects upon graduation, sold high-cost loans to pay for that false hope, and then harassed students for overdue debts while they were still in school," Richard Cordray, the CFPB chief,was quoted as saying in the Chronicle article.

If Corinthian Colleges did the things the CFPB accused it of doing, then it certainly deserves to be sued. But, as the Chronicle of Higher Education pointed out, the company was already in financial trouble. 

I am happy to see the Consumer Financial Protection Bureau take some strong action against the for-profit college industry, which has been wracked by reports of abusive behavior.  Several for-profits have been accused of engaging in unsavory practices. But I would be happier still if the CFPB would go after abusive for-profit colleges that are not teetering on the edge of closure.  

It is OK, I suppose, to beat a dead horse now and then. But I would like to see the CFPB to beat a few live ones.

References

Field, Kelly. Federal Watchdog's Lawsuit Accuses Corinthian Colleges of Predatory Lending. Chronicle of Higher Education, September 16, 2014. 

Thursday, September 11, 2014

But who really cares? Rosemary Anderson, age 57, borrowed $65,000 in college loans and now owes $152,000

Let's take a minute to examine what happened to Rosemary Anderson, a student-loan debtor who was featured in two CNN stories recently. More than twenty years ago, Rosemary began borrowing money to attend college; and she eventually got a bachelor's degree and a master's degree in human resources. She has a job and she makes pretty good money.

Nevertheless, Rosemary is now 57 years old, and the $65,000 she originally borrowed has grown to $152,000! How did that happen?

As for so many Americans trying to survive in today's dog-eat-dog economy, life got in the way. Rosemary experienced a divorce, a job loss, and a family illness. Loans got out of hand, and she stopped making payments for a period of time. Later, she consolidated her loans at an interest rate of 8.25 percent--far higher than the prevailing rate.  Interest accrued, penalties were tacked on to what she borrowed; and now Rosemary owes $$152,000.

Although the CNN article didn't make her current situation entirely clear, apparently Rosemary is now in a 25-year Income-Based Repayment Plan, because CNN reported she will be paying nearly $700 a month until she is 81 years old!

That's right--she will finally finish paying off her student loans more than 40 years after she got her undergraduate degree. "I will be working for as long as I'm employable. I will never be able to retire," Rosemary said in the CNN story.

Is that how the American dream is supposed to work? Is this how higher education is supposed to pay off?

Some people might tell Rosemary that she has no one but herself to blame. You borrowed too much money, they might tell her, or you should never have stopped paying on your loans.

Well, sure, Rosemary probably made some mistakes in financing her higher education, but a lot of people make mistakes. That's what bankruptcy is for. But people like Rosemary will find it very difficult to discharge their student loans in bankruptcy court.

But who really cares? The media is obsessed with what happened in Ferguson, Missouri and the details of Ray Rice's elevator assault on his girl friend. Rosemary Anderson got featured in a couple of CNN stories, but millions of people in similar situations suffer in silence.

Meanwhile, college and universities, both public and private, gorge on federal student loan money and the money students borrow from private banks to pay for their college education. University presidents may pretend to care  about distressed student debtors, but they are focused on raising money to construct more buildings. President Obama pretends to care, but he's not doing anything much to help people like Rosemary Anderson. Maybe Rosemary could get a golf date with the President so she could explain her situation to him personally.

No sensible person can read Rosemary Anderson's story without coming to the conclusion that people like Rosemary need easier access to bankruptcy. But that's not going to happen any time soon. Why? Because the people who have the power to come to Rosemary's aid don't really care about people like Rosemary.

And that's pretty scary to think about because there are literally millions of distressed student-loan debtors, and the number grows larger every day.

References

Blake Ellis. Student Loan Debt Surges for Senior Citizens. CNN, September 11, 2014. http://finance.yahoo.com/news/student-loan-debt-surges-senior-211900000.html

Patrick M. Sheridan. I'm 57 and owe $152,000 in student loans. CNN, August 14, 2014. http://money.cnn.com/2014/08/13/news/economy/older-student-debt?source=yahoo_hosted



The General Accounting Office's Report on Student Loan Indebtedness Among Elderly Americans: Scary Reading

The General Accounting Office released a report this week on elderly Americans with student loan debt. The report is 30 pages long but can be summarized in a few paragraphs.

First, the percentage of people aged 65 through 74 who have outstanding student loans is small but growing. In 2004, only 1 percent of people in this age category still owed on student loans. By 2010, that percentage had grown to 4 percent.

Second, the amount of student-loan debt held by elderly Americans is also growing. It grew six fold between 2005 and 2013--from $2.8 billion in 2005 to $18.2 billion last year.

Third, the number of elderly Americans who are having their Social Security Checks garnished because they defaulted on student loans has increased dramatically in recent years. In 2002, only 31,000 people had Social Security benefits garnished because they had defaulted on their student loans. That number has ballooned five fold in just 11 years; 155,000 Americans saw their Social Security checks reduced in 2013 because they had defaulted on student loans.

On one level, the GAO's report is no big deal. Currently, there are 39 million people with outstanding student loans. The number of elderly student-loan defaulters who are having their Social Security checks garnished---155,000--is only a drop in the bucket.

But that number will undoubtedly grow larger in the coming years. GAO reported that 6.9 million people who are 50 years old or older are carrying student-loan debt. That number has gone up 130 percent since 2005.

Moreover, the GAO pointed out that the amount of student loan debt held by elderly Americans grew much faster in recent years than it did for the general population. Between 2005 and 2013, the total amount of student loan indebtedness more than doubled, from $400 million to $1 trillion. But for people in the 65 to 74 age group, the amount of student loan debt grew six fold during those years.

And here's the scary part. Elderly student-loan debtors have higher default rates than younger people. Only 12 percent of federal student loans held by people in the 25 to 49 age bracket are din default. Among people 75 or older, more than half are in default!

I will make just a couple of points about this useful report.

First, in my view, a humane society should not garnish people's Social Security checks because they defaulted on their student loans. As I have said many times, Congress needs to amend the law to stop the garnishment of Social Security checks of elderly student-loan defaulters.

Let's face it, taking a small portion of people's Social Security checks (a maximum of 15 percent) probably won't even put a dent in individual debtors' total loan balances. Undoubtedly, most of them owe far more than they borrowed due to accruing interest and penalties.

Second, the Obama administration's proposal to encourage student-loan debtors to sign up for 20- and 25-year Income Based Repayment Programs (IBRPs) will only make this problem worse. A lot of people will be in their late 20s, early 30s, or even older when they begin paying off their student loans under 25-year repayment plans. Without a doubt, the percentage of people who enter retirement with outstanding student loan debt is going to increase as more and more people elect IBRPs to service their student loans.

The Department of Education, the Brookings Institution and several other education policy groups have endorsed IBRPs as a good way to help people manage their burgeoning student-loan obligations; and the New York Times also seems to like IBRPS.

But IBRPs are a terrible idea. Our nation cannot prosper economically if we have a high percentage of Americans paying on their student loans over the majority of their working lives.

It will take political courage to solve the student-loan crisis, and we won't solve it until we begin reducing the amount of money people borrow to attend college.

But we are going in the wrong direction. Every year, Americans borrow more and more money to attend college, and every year the average amount of individual indebtedness goes up. Encouraging people to pay off their loans over 25 years instead of 10 years just postpones the day when Americans will finally admit that the federal student loan program is out of control.

The federal student loan program is slowly destroying our economy and the integrity of higher education in the United States. And--with the advent of IBRPs--the number of elderly Americans who will see their retirement years blighted by student-loan debt is going to go no direction but up.

References

General Accounting Office. Older Americans: Inability to Repay Student Loans May Affect Financial Security of a Small Percentage of Borrowers. GAO-14-866T. Washington, DC: General Accounting Office. http://www.gao.gov/products/GAO-14-866T




Monday, September 8, 2014

There's No Fool Like an Old Fool: The New York Times Just Doesn't Get It When It Comes to the Student Loan Crisis

Today, the New York Times published an editorial on the Obama administration's efforts to encourage student-loan  servicers to be less rapacious.  According to the Times, the government is changing the incentive structures so that loan-collection companies have a financial incentive to help rehabilitate student loans that are delinquent instead of pushing borrowers into default.

The Times approves of reforms that will encourage students to sign up for Income-Based Repayment Plans, plans that will have borrowers paying a percentage of their income for the next 25 years. Some reform!  The Times also likes the new rule that will give more weight to customer satisfaction surveys "in determining how well servicers do their jobs."  That idea is about as radical as Aunt Sadie's Buick Regal.

The Times editorial then goes on to say that Obama's reform efforts don't go far enough. So what does the Times suggest? "More should be done to improve competition and transparency [among loan servicers]," the Times recommends.  Borrowers should be able to jump from one loan servicer to another, the Times adds, and "set significant penalties for poor practices and create a portal where borrowers can get information about their accounts and report abuses to the Education Department instead of to the abusers."

This is the kind of timid advice you would expect from a newspaper that gets a lot of its revenue from advertising luxury goods that are targeted at its fat cat readers. I'm glad the Times wasn't in charge of negotiating with Adolph Hitler during World War II. It probably would have editorialized that Hitler needed to paint the concentration-camp barracks a more soothing color.

The Times does not seem to realize that people who fall into the hands of the student-loan servicers are dealing with truly heartless entities.  Here are some examples:

  •  Educational Credit Management Corporation (ECMC) opposed bankruptcy relief for a 63-year old man who had been unemployed for 12 years, whose home was going into foreclosure, and who had been living with his wife below the poverty level.  This man had accumulated student-loan debt in the neighborhood of $240,000. Murphy v. Educational Credit Management Corporation (2014). 
  •  ECMC opposed bankruptcy relief for an elderly student-loan defaulter who had chronic health problems and who was living solely on Social Security checks of less than $800 a month. Roth v. Educational Credit Management Corporation (2013). 
  •  ECMC opposed bankruptcy relief for another elderly woman with student-loan debt that was more than twenty years old and who had a salary of about $500 per month and a history of homelessness. Stevenson v. Educational Credit Management Corporation (2011).

How much do ECMC executives pay themselves to chase down poor and elderly student-loan debtors? A lot. Bloomberg reported in 2012 that Richard Boyle, ECMC's Chief Executive at the time, made $1.1 million  in 2010. I could not find more recent compensation information on Educational Credit Management Corporation's new CEO, a guy named Dave Hawn, but I'll bet that Hawn is making at least as much as Boyle made four years ago.

So, New York Times editorialists, take your tepid and inadequate editorial recommendations and stick them "where the sun don't shine"--which is within your timid and obsequious little hearts.

You want to clean up the student-loan collection business? Here are some suggestions:

1) First, President Obama and Secretary of Education Arne Duncan should instruct all the student-loan servicers not to oppose bankruptcy relief for any elderly student-loan debtor who is living solely on Social Security, who has suffered long-term unemployment, or who has no real prospect of every paying off student-loan debt.  And they should follow up with regulations or legislation that would make those instructions stick.

2)  The government needs to put an upper-limit on fees and accrued interest that get tacked on to student-loan defaulters' total loan obligations.  Several bankruptcy decisions have documented that debtors' original student loan balances had more than doubled by the time they filed for bankruptcy due to accrued interest, penalties and fees.

3) The Obama administration should propose amendments to the bankruptcy laws that will allow distressed student-loan debtors who took out loans in good faith to discharge their student loans in the bankruptcy process without going through expensive and traumatic adversary proceedings.

4) Obama should propose legislation to reinstate a reasonable statute of limitation on the collection of delinquent student-loan debt--say six years, which is the same time period that applies to the collection of most monetary obligations.

5) The President should demand legislation that would stop the federal government from garnishing the Social Security checks of elderly student-loan defaulters who are totally dependent on their Social Security pensions.

6) All the companies participating in the student-loan servicing industry should be required to post the compensation of all its senior executives online so that Americans can see just how much money so-called non-profit agencies are making on the suffering of student-loan debtors.

All these recommendations are reasonable and all are more humane than the puny little recommendations the Times made in its editorial page.  If the Times can't offer any suggestions more robust than it offered in its September 8th issue, then it should keep its mouth shut about the student-loan crisis and admit that all it is really concerned about when it comes to domestic economic issues is supporting Barack Obama and maintaining Democratic control of the White House.

References

A Fairer Shot for Student Debtors. New York Times, September 8, 2014, p. A16. 

John Hechinger. Taxpayers Fund $454,000 Pay for Collector Chasing Student Loans. Bloomberg.com, May 15, 2013. Accessible at: http://www.bloomberg.com/news/2012-05-15/taxpayers-fund-454-000-pay-for-collector-chasing-student-loans.html

Brown, M., Haughwout, A., Lee, D., Mabutas, M., and van der Klaauw, W. (2012). Grading student loans. New York: Federal Reserve Bank of New York. Accessible at: http://libertystreeteconomics.newyorkfed.org/2012/03/grading-student-loans.html

Krieger v. Educational Credit Management Corporation, 713 F.3d 882 (7th Cir. 2013).
Lockhart v. United States, 546 U.S. 142, 126 S. Ct. 699 (2005).

Murphy v. Educational Credit Management Corporation, 511 B.R. 1 (D. Mass. 2014).

Roth v. Educational Credit Management Corporation, 490 B.R. 908 (9th Cir. BAP 2013).

Stevenson v. Educational Credit Management Corporation, 463 B.R. 586 (Bankr. D. Mass. 2011).