The Ivy League's Biggest Scam: Expensive Graduate Degrees That Don't Pay Off

 If you are thinking about enrolling in a pricey Ivy League graduate program, read a recent Wall Street Journal article titled "'Financially Hobbled for Life': The Elite Master's Degrees That Don't Pay Off." 

Reporters Melissa Korn and Andrea Fuller report on a WSJ analysis of student debt owed by people who graduated from prestigious schools like Harvard, NYU, and Columbia. Two years after getting degrees from these toney joints, a high percentage of elite-school graduates were not working in jobs that would allow them to pay off their student loans.

For example, a New Jersey guy got a master's degree in Fine Arts in film at Columbia. Two years after graduating, he owes nearly $300,000 in student loans (including interest) and earns between $30,000 and $60,000 a year. Will this man ever pay off his student loans? Not bloody likely.

And this is not an isolated example. The WSJ reported that the median student-loan debt for Columbia's film program graduates was $171,000 in 2017-2018.  How many of those people are earning $171,000 in their current jobs? How many will ever pay off their student loans?

What attracts bright people to expensive Ivy League graduate programs? As one Columbia film graduate said, "We were told by the establishment our whole lives this was the way to jump social classes."

But we were told wrong. I got an essentially useless doctorate from Harvard, thinking the degree would erase Oklahoma from my vita. But it didn't. I still have range dust in my diction, and I still see the world much like my hard-scrabble ancestors saw it--the ones who lived through the Dust Bowl.

The WSJ analysis focuses mainly on Columbia University's film program and its graduate program in theatre arts. But there are other unindicted co-conspirators.  

Harvard's master of education degree, for example, is a scam.   You can get a master's degree from Harvard Graduate School of Education in only nine months, but the total cost of that experience is $85,000 (including room and board). 

I picked up a Harvard master's degree as I went through Harvard's doctoral program. I was proud of it at the time. I went to the graduation ceremony (very posh) and even framed the diploma.

But I no longer put that degree on my vita, and I lost the diploma somewhere along the way.  Thinking back on that experience, I wonder at my naivete.  I sat in packed classrooms containing as many as 200 students, and most of my teachers were nontenured instructors.  

One of my Harvard professors enjoyed rock-star status while I was there. She gave one two-hour lecture a week for a four-hour course. Her graduate students taught the other two hours.  Office hours? If you wanted to see this professor, you had to submit a written petition to one of her graduate students explaining why your appointment was worth this professor's precious time.

I say again. If you are thinking about taking out loans to get an Ivy League master's degree, read the WSJ article first.  If you still want to pursue that path, consult a good therapist--because you are delusional.

If you are from Oklahoma, a Harvard degree won't take the range dust out of your diction.

The Parent Plus Program was a policy blunder that hurts low-income and African American families: Shut It down

Our government's Parent PLUS Program is an insidious scheme to lure low-income parents into taking out student loans so their kids can go to colleges they can't afford.

 Insider Higher Ed's Kery Murakami tells the story of Ewan Johnson, whose mother owes $150,000 in Parent PLUS loans--money she borrowed so her son could get a degree from Temple University in strategic communications and political science.

As Johnson related, he comes from "a low economic background." Will his mother will ever pay off her Parent PLUS loans? I doubt it.

Johnson's mother is one of 3.6 million parents who collectively owe more than $96 billion in Parent PLUS loans. For the most part, parents aren't taking out these loans so their kids can attend elite
private schools like Harvard. "Rather," as Wall Street Journal reporters Andrea Fuller and Josh Mitchell observed, "they include art schools, historically Black colleges and private colleges where parents are borrowing nearly six-figure amounts to fulfill their children's college dreams . . "

Indeed, African American parents are hurt the most by the Parent PLUS Program. The WSJ reported that 20 percent of African American parents who took out Parent PLUS loans in 2003-2004 defaulted on their loans by 2015.  

Default rates for some colleges are exceptionally high. A New America study found that 30 percent of Parent PLUS borrowers at 15 institutions default within two years!

Should all this debt--nearly $100 billion--be forgiven? President Biden proposes to knock $10,000 off of every federal student loan, but it is unclear with his plan includes people with Parent PLUS loans. 

Policymakers worry that forgiving all Parent PLUS debt will unfairly benefit wealthy families who have the resources to pay back their loans.  Sandy Baum, a student-loan expert, said that forgiving all Parent PLUS debt would be "outrageous."

Hardly anyone suggests that we just eliminate this dodgy government boondoggle that exploits low-income and minority families.  

So why don't we just make one straightforward reform? Let's allow parents who wrecked their financial futures so their kids could attend the wrong college to discharge their Parent PLUS loans in bankruptcy. 

Parent Plus Loans at Historically Black Colleges: Should Parents Jeopardize Their Financial Future so their Children Can Go to an HBCU?

Andrea Fuller and Josh Mitchell of the Wall Street Journal have done some excellent reporting over the years on the student-loan crisis. Fuller and Miller recently published a WSJ article about poor and middle-class parents who take on substantial debt to help pay their children's college expenses. Most of these parents signed up for Parent Plus loans offered by the U.S. Department of Education.

You might think that parents whose children are enrolled at elite private colleges would be the ones with the biggest Parent Plus loans, but you would be wrong. According to Fuller and Mitchell,

The schools with the largest parent debt burdens aren't world-famous Ivy League schools . . . Rather, they include art schools, historically Black colleges and small private colleges where parents are borrowing nearly six-figure amounts to fulfill their children's college dreams . . . .

According to the article, the college where parents borrowed the most money for their children's schooling was Spelman College in Georgia, a historically Black institution.  Among parents who took out federal loans for their kids, the average amount was $112,127.  Among low-income families, the average amount was more than $83,000.

Keep in mind that the money parents borrow through the Parent Plus program is in addition to the student loans that their children took out themselves. 

Fuller and Mitchell's article contains a handy feature that allows readers to type in the name of an American college and learn the average amount of parent debt at that institution. I ran the numbers for some prominent HBCUs, and parent debt at several of these institutions is quite high.

Median By School	All Recipients	Low-Income Recipients
Spelman College, GA	$112,127	$83,894
Morehouse College, GA	$79,000	$48,862
Howard University, DC	$66,728	$52,145
Hampton University, VA	$73,244	$47,974
Clark Atlanta University, GA	$66,359	$40,095
Johnson C. Smith University	$28,586	$20,166

These numbers are disturbing. Perhaps even more disturbing is the fact that the Wall Street Journal's school-reporting mechanism had no figures at all for several HBCUs.  For example, the feature reported no data for Jarvis Christian College in northeastern Texas; Huston-Tillotson University in Austin, Texas; and Miles College in Alabama. All three colleges are HBCUs.

As reported by the Wall Street Journal, 20 percent of African American parents who took out  Parent Plus loans in 2003-2004 defaulted on those loans by 2015. In other words, Black parents who take out Parent Plus loans to help their kids pay for college are running a one-in-five chance of being financially ruined.

All progressive-minded people support the historically Black colleges and universities and believe they should be adequately funded. But we should also think about the students who attend HBCUs and their parents as well. 

Perhaps the best thing we could do to protect African American parents from risking their own financial security would be to eliminate the Parent Plus loan program altogether.

Department of Education is slow to forgive loans of student borrowers defrauded by Corinthian Colleges: State Attorneys General urge DOE to move more quickly

Yesterday, nineteen state attorneys general and the Director of the Hawaii Office of Consumer Protection delivered a letter to Betsy DeVos, U.S. Education Secretary, urging the Department of Education to quickly process fraud claims brought by former students of Corinthian Colleges.

The state AGs asked DeVos to approve "swift automatic group discharge" to students in Corinthian cohorts where fraud has been found. Alternatively, the AGs asked DeVos to process individual fraud claims faster.

Corinthian Colleges closed and filed for bankruptcy in 2015, leaving behind more than 350,000 former students who took out loans to pay Corinthian's tuition. Many of these student borrowers were induced to attend Corinthian through fraud, and the nineteen AGs claim there are defrauded Corinthian students in all 50 states.

So far, DOE has discharged 27,000 borrowers from their federal loan debt, but that number is a small fraction of the former students who are entitled to debt relief. Thousands have filed "borrower defense" claims, asking DOE for loan forgiveness, but DOE is not processing these claims quickly. Meanwhile, many Corinthians students are still paying on their loans or defaulted and are subject to having their wages garnished and their credit ruined.

According to the state AGs, DOE notified 23,000 Corinthian student borrowers in January that their loan forgiveness applications had been approved and that "forgiveness should be completed within the next 60-120 days." It's been nearly 180 days since that announcement, and these loans have still not been discharged.

What's going on?

I think the Department of Education is simply overwhelmed by the meltdown of the student loan program. Almost half the people in a recent cohort of students who attended for-profit colleges defaulted within five years. According to a recent article in the Wall Street Journal, half the students who attended more than 1,000 colleges and schools have not paid down one dime of their student loans seven years after their repayment obligations began.

In addition, the first beneficiaries of the Public Service Loan Forgiveness Program will be eligible for debt relief before the end of this year, and DOE has no idea how many people are eligible to have their loans discharged under that program.

Personally, I think Secretary DeVos should adopt the AGs' suggestion and grant swift automatic group discharges to all Corinthian students who were in DOE's "Designated Fraud Cohorts." Or better yet, I think DOE should forgive the loans of all 350,000 former students.

Admittedly, there are probably some people who completed a Corinthian program and actually got a good job, but I'll bet there aren't many. Undoubtedly, the default rate for Corinthian students is extraordinarily high largely due to the fact that Corinthian's students did not get well-paying jobs at the conclusion of their studies.

I recognize there are risks associated with a mass loan forgiveness program. If all 300,000 of Corinthian's former students are granted a discharge, then ITT Tech's former students will ask for blanket loan forgiveness. ITT Tech also closed and filed for bankruptcy, and it has 200,000 former students.

It is shocking to contemplate, but millions of Americans will never pay back their student loans. In addition to the for-profit college students, there are the law graduates who accumulated mountains of debt and can't find law jobs. And then there are the poor saps who got liberal arts degrees from expensive liberal arts colleges; many of them will never pay back their loans.

The 19 state AGs are right to urge Secretary DeVos to grant automatic group discharges for thousands of former Corinthian students. But Corinthian Colleges is the tip of the iceberg. Millions of student borrowers will never pay back their loans, and the ultimate loss to taxpayers will be in the billions.

References

Andrea Fuller. Student Debt Payback Far Worse Than Believed. Wall Street Journal, January 18, 2017.

Tamar Lewin. Government to Forgive Student Loans at Corinthian. New York Times, June 9, 2015, p. A11.

Adam Looney & Constantine Yannelis, A crisis in student loans? How changes in the characteristics of borrowers and in the institutions they attended contributed to rising default rates. Washington, DC: Brookings Institution (2015).

Andrew Kreighbaum. State AGs Want Action on Student Loan Discharge. Inside Higher Ed, June 6, 2017.

Lisa Madigan, Illinois Attorney General. Letter to Betsy DeVos, US. Secretary of Education, June 5, 2017.

Department of Education inflated student-loan repayment rates for nearly every school and college in the United States! Playing for Time

The Wall Street Journal published a story a few days ago that is truly shocking.  Based on WSJ's analysis, the Department of Education has inflated student-loan repayment rates for 99.8% of all colleges, universities, and trade schools in the United States.

Earlier this month, DOE acknowledged that a "coding error" had caused the Department to mistakenly under report the student-loan default rates at many schools and colleges. But the magnitude of the error wasn't generally known until the Journal published its own analysis.

According to WSJ, at least half the students who attended more than a thousand colleges and trade schools had either defaulted on their student loans within 7 years of beginning repayment or failed to pay down even one dollar of their student loan debt.

This news is shocking, but not surprising. DOE has been misleading the public for years about  student-loan default rates.  Last autumn, for example, DOE reported a 3-year default rate of about 10 percent, a slight decrease from the previous year. But that figure did not take into account the people who had obtained forbearances or deferments and weren't making payments.  The five-year default rate for a  recent cohort of  student debtors is more than double DOE's three-year rate: 28 percent.


And last September, DOE mislead the public again. The Department  identified 477 schools where more than half the students had defaulted or failed to pay down their loan balances 7 years into repayment. But we now know the figure is more than double that number: 1029.

The implications of this new data are staggering. Obviously, the federal student-loan program is a train wreck. Millions of people have student loans they will never pay back. Eight million have defaulted and millions more are making payments so low that their loan balances are growing due to accruing interest.

Several large for-profit colleges have closed under allegations of fraud.  Corinthian Colleges and ITT together have a half million former students. DeVry, which just reached a settlement with the Federal Trade Commission, has a total of more than a quarter of a million students who took out federal loans to finance their studies. Accumulated debt for DeVry students alone is more than $8 billion.

Like the inmate musicians of Auschwitz, DOE's response to this calamity has been to play for time. It has encouraged millions of people to sign up for income-drive repayment plans (IDRs) under terms such that IDR participants will never pay off their loans.  And DOE has set up a cumbersome procedure whereby students who believe they were defrauded by a college can apply to have their student loans forgiven.

But there is only one way out of this nightmare: bankruptcy relief. Ultimately Congress will have to repeal the "undue hardship" provision in the Bankruptcy Code, which has made it virtually impossible for overburdened student debtors to discharge their loans in bankruptcy.

Until that happens, President Trump's Department of Education should modify its harsh stance toward bankrupt student loan debtors. DOE must stop insisting that every bankrupt student borrower should be pushed into an IDR that stretches loan payment periods out for 20 or 25 years.

Student loan debtors who are honest and broke should be able to discharge their student loans in the bankruptcy courts. Within a couple of years that simple truth will be apparent to everyone. Why not start now to relieve the suffering of millions of Americans who got in over their heads with student loans and can't pay them back?

And let's not sell the Trump administration short. Liberals have assumed that Donald Trump will protect the for-profit colleges because of his history with Trump University. But I am not so sure. President Trump knows how to read a financial statement and he understands the value of bankruptcy. He might just do the right thing and turn this calamity over to the federal bankruptcy courts. 

Playing for Time

References

Andrea Fuller. Student Debt Payback Far Worse Than Believed. Wall Street Journal, January 18, 2017.

Memo to Parents: For God's Sake, Don't Borrow Money to Pay For Your Kids' College Education

Are you a parent who is thinking about taking out a loan to pay for your child's college education? Before you do, read Murphy v. Educational Credit Management Corporation, a recent federal court decision.

In 2002, Robert Murphy lived in Duxbury, Massachusetts and was the president of a corporation. Unfortunately, he lost his job after the corporation was sold and its operations were moved overseas. Although he had diligently looked for a new job, he was still unemployed in 2014.

Between 2001 and 2007 Murphy took out 12 loans to finance a college education for each of his three children. This is remarkable, since he was unemployed during most of this six-year period. Apparently, Murphy had no difficulty borrowing money for his children's education even though he was out of a job. By May 2014, when a federal court issued its appellate opinion on his bankruptcy case, Murphy owed more than $240,000 on these loans.

By this time, Murphy was 63 years old, unemployed for almost 12 years, and in dire financial circumstances. He owed $700,000 on a home that was only worth $500,000, and his home was going into foreclosure. Although Murphy had once owned an IRA worth about a quarter of million dollars, he had cashed it out  to cover expenses. The court did not report on Murphy's family income in 2014, but it noted that Murphy and his wife had only earned about $13,000 in both 2010 and 2011, money his wife had earned as a teacher's aide.

Pretty sad story, you might think.  Nevertheless, a federal court upheld a bankruptcy court's decision to deny Murphy's request to have his children's student loans discharged.  Although the court admitted that Murphy had no current ability to pay off the loans, it noted that Murphy was in good health and might still find a high-earning job that would allow him to pay off his enormous debt.

Ending its opinion on a remarkably callous note, the court observed that Murphy had struck a bargain with the government when he borrowed money to pay for his children's college education.  "All bargains contain risks," the court pointed out, and Murphy's bargain was especially risky since he had been unemployed during the time he took out most of the loans. 

In short, the court ruled, Murphy's situation did not present "truly exceptional circumstances" that would permit him to shed his student-loan debt.  Thus, the federal court agreed with the bankruptcy court's  decision to deny Murphy relief in bankruptcy for his children's student loans.

The Murphy decision serves as a warning to all parents who are thinking about borrowing money to help their children get a college education. Whether the parent takes out a federal student loan or borrows money from a private bank, a college loan cannot be discharged in bankruptcy unless the parent can show "undue hardship."

Mr. Murphy was unable to show undue hardship in spite of the fact that he had been unemployed for 12 years, had liquidated his retirement account and was in the process of losing his house in foreclosure.

According to a recent article in the Huffington Post, parents currently owe an accumulated $62 billion in Parent Plus Loans, which are guaranteed by the federal government. And this figure doesn't include loans parents took out with private banks that are not federally guaranteed.  A  2012 Huffington Post article reported that about one million Parent Plus loans were taken out during 2011, totally more than $10 billion in just that one year.

Parents who guarantee their children's college loans or who take out loans to pay for their children's education put their financial futures at grave risk.  Before borrowing to pay for your children to go to college, you should think about Mr. Murphy. Sixty-three years old, unemployed, and living on an income near the poverty level, Mr. Murphy is burdened by almost a quarter million dollars of student-loan debt.  That's a pretty scary story.

References

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

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