Showing posts with label Brookings Institution. Show all posts
Showing posts with label Brookings Institution. Show all posts

Monday, October 3, 2022

I Got a Sweet Deal! Is Biden's new income-driven repayment plan too generous?

 College debtors definitely have a friend in President Biden.  So far, his administration has approved $25 billion in loan forgiveness. In addition, it paused student borrowers' monthly payment obligations until the end of 2022.

More relief is on the way. President Biden announced loan cancelation of up to $20,000 per student borrower.  The Congressional Budget Office predicts the program will cost $400 billion.

And that ain't all. The U.S. Department is working on a more generous income-based repayment plan (IBRP), which--for some borrowers--will amount to a free college education. 

Adam Looney, writing for the Brookings Institution, analyzed Biden's new IBRP; his findings are astonishing. As Mr. Looney explains, undergraduate borrowers can enter into an IBRP that only requires them to pay 5 percent of their annual income over $33,000.         

For example, unmarried college graduates who make $50,000 a year will only be obligated to pay about $70 per month on student loans--regardless of how much they borrowed.

What if the monthly payment isn't enough to cover accruing interest? No problem! The government will forgive the unpaid interest, so loan balances don't grow.

Now that's a sweet deal!

On average, Looney concludes, student borrowers can expect to pay back only 50 cents on every dollar borrowed, and some will never make a single loan payment. 

Looney predicts the new IBRP will lead to increased borrowing. Why? "Because when . . . students are offered a substantial discount by paying with a federal loan, they will borrow billions more each year."

As Looney pointed out in his report, students can take out student loans to cover their tuition and living expenses. Students who receive checks for living expenses can deposit them in their bank accounts, knowing they may not have to pay back their student loans.

As Looney put it, "Some people will use [student] loans like an ATM, which will be costly to taxpayers and is certainly not the intended use of the loans."

Looney also predicts that Biden's incredibly generous IBRP will lead to tuition inflation. 

He thinks the new IBRP will prompt colleges to create new and expensive programs to juice their revenues. "My fear," he wrote, "with regards to overall college costs, is that institutions will have an incentive to create valueless programs and aggressively recruit students into those programs with promises they will be free under an IDRP plan. 

I'm in favor of student-loan relief. Millions of Americans are saddled with crippling debt for college degrees that did not benefit them financially.  Let's give those folks a break.

But President Biden's new IDRP program goes too far. Adam Looney is right: Biden's poorly-designed IBRP will encourage students to borrow more and more money to attend college, knowing they will not be obligated to pay back their loans.



A  student-loan bonanza is coming soon to your hometown.









Tuesday, September 27, 2022

Flagship Universities Are Enrolling More Out-of-State Students: That May Be A Good Thing

 Aaron Klein, writing for Brookings Mountain West, reported recently that public flagship universities admit more out-of-state students now than they did twenty years ago.

Klein's research revealed that the share of out-of-state students at the states' premier universities went up an average of 55 percent between 2002 and 2022.  At some flagship universities, 20 percent of their students are non-residents.

What accounts for this trend? Klein posits that the flagships are enrolling more out-of-state students because they can charge those students a higher tuition rate. Indeed that partly explains the phenomenon.

 He also points out that most out-of-state students must take out higher student-loan amounts to pay out-of-state tuition. Thus, the flagships' tendency to enroll more outer-state students who pay higher tuition prices contributes to rising levels of student debt.

Also, Klein notes, many in-state students who are pushed out of their flagship universities to make room for more out-of-state students may elect to enroll at less-prestigious regional universities, which Klein points out, may lower their lifetime earnings.  If so, that is unfortunate.

Nevertheless, generating more tuition revenue isn't the only reason that flagship universities are recruiting out-of-state students. As Klein observed, recruiting students is a zero-sum game.  Fewer students are going to college than just a few years ago, and universities across the U.S. desperately compete to attract enough students to keep their enrollments up. 

Thus, flagship schools are luring more out-of-state students because they need them to maintain optimum enrollment levels.  They particularly want to attract out-of-state students with impressive GPAs and ACT/SAT scores.

To attract these students, the flagships frequently offer generous scholarships to out-of-state students. In fact, high academic achievers might be able to attend an out-of-state flagship for less money than if they had enrolled at a school in their home state.

I recently talked to a man whose granddaughter had a perfect ACT score and a stellar academic record at a prestigious high school. She received no scholarship offers from Louisiana State University but got a beautiful offer to enroll at Auburn University in Alabama.

For this student, going to school in Alabama was cheaper than attending LSU. Thus, she enrolled at Auburn.

This is my point. Students with impressive academic records and dazzling standardized test scores should apply for admission to flagship universities outside their home state. They may find that studying at an out-of-state flagship is cheaper than attending an in-state school.

In addition, there can be enormous intangible benefits to enrolling at a college outside one's home state. I'll give my own experience as an example.

I grew up in rural Oklahoma and got a bachelor's degree from Oklahoma State University in the small Oklahoma town of Stillwater. Later, I went to graduate school at the University of Texas in Austin.

Not only did I receive an excellent education at UT, but I also immersed myself in Austin's music scene. I was introduced to the history and literature of the South and the Southwest. I even discovered new cuisines: Tex-Mex, Czech kolaches, and Texas barbecue.

My Texas educational experience opened up opportunities I would have never had if I had stayed in the state where I grew up.  I shudder to think what my life would have been if I had not gone to Texas.

Attending college is the first opportunity most young people have to begin exploring the world. My advice is to leave your home state to get your college degree--especially if you can get a scholarship that makes an out-of-state university affordable.





Tuesday, February 8, 2022

A student-debt strike to pressure Congress for wholesale student-loan forgiveness simply won't work

Student Debt Strike, an online Reddit community, advocates for a mass student-debt strike as the best way to pressure Congress to grant wholesale student-loan forgiveness.  I totally support this group's goals.

Economist Stephanie Kelton and others have argued persuasively that forgiving all federal student-loan debt would stimulate the economy. Relieved of burdensome student loans, more than forty million Americans would be free to buy homes, start families, and save for their retirement. 

Furthermore, I agree with Professor Kelton, who believes the federal government can handle massive student-loan forgiveness without wrecking the economy. The feds can simply select one of its many accounting gimmicks to absorb the loss, much as it dealt with the savings-and-loan crisis in the 1980s, the real-estate turmoil of 2008, and Puerto Rico's bankruptcy.  

After all, $1.7 trillion in outstanding student-loan debt is peanuts to a nation with a federal deficit that tops $30 trillion. What's $1.7 trillion among friends?


Nevertheless, it is dangerous for people to participate in a student-loan strike by refusing to make their monthly loan payments.


First, defaulting on a student loan is catastrophic for the individual debtor. Interest and penalties add up and get added to the loan balance. Over time, a student-loan defaulter's loan balance can double, triple, and even quadruple.


Moreover, student-loan defaulters rarely get free of student-loan debt in bankruptcy.  Congress inserted the "undue hardship" rule into the Bankruptcy Code to discourage bankruptcy relief. Many bankruptcy judges interpret "undue hardship" quite harshly and refuse to discharge student debt even when the debtor is in desperate circumstances.

Secondly, I do not believe a student-loan strike will have the desired effect on Congress. Thus far, Congress has shown little appetite for reforming the federal student loan program. Political pressure from the higher education industry (including the for-profit colleges) has blocked reform.

Besides, a significant percentage of college borrowers are already on strike because they have defaulted on their student loans. In a 2018 report, the Brookings Institution calculated that 40 percent of student borrowers may ultimately default on their student-loan obligations. If that is not a strike, I don't know what is.

If I thought a student-debt strike had any chance of succeeding, I would support it 100 percent. But I'm afraid strikers will simply be labeled as deadbeats without moving the needle on reform or loan forgiveness.

Much as I hate to admit it, I think the best option for an overburdened college-loan debtor is to sign up for the most generous income-based repayment plan that is available.

Someday, the student-loan crisis will become so massive and so scandalous that Congress will be forced to act--either by canceling all student debt or easing the path to bankruptcy relief. 

Unfortunately, I think that day is a long way off. 




Friday, August 20, 2021

Online teaching sucks: Don't pay $50,000 a year to take classes in your pajamas

 American universities are in a tight spot. When the coronavirus pandemic hit in March 2020, almost all of them closed their campuses and switched to online instruction.

Result? Students filed hundreds of lawsuits against the colleges, claiming--rightly in my opinion--that online teaching is inferior to face-to-face instruction and wasn't what they paid for. In many of these cases, students were paying tuition priced north of $25,000 a semester, yet they could not personally interact with a single professor.

Now, as the 2021 fall semester approaches, colleges must decide what to do.  Basically, they have three choices:

First, they can continue with online instruction, hoping that students will consent to another year of taking courses on their home computers.

Second, colleges can reopen their campuses but require students to wear masks and maintain social distancing. But such a policy imposes onerous burdens on students, which many of them probably won't accept.

Third, colleges and universities can reopen their campuses for face-to-face learning while insisting that all students get the COVID vaccine.

In my opinion, most colleges have no real choice--they've got to get professors and students back in the classroom under more or less normal conditions, and they've got to require everyone in the campus community--students, instructors, and staff-- to get vaccinated. 

If colleges continue teaching in an online format, they will experience significant losses in enrollment.  Why? Because online learning sucks, and everyone knows it.

 A recent report by the Brookings Institution confirmed what everybody already knew: "Online coursework generally yields worse student performance than in-person course work." Moreover, the Brookings researchers reported, "The negative effects of online course-taking are particularly pronounced for less academically prepared students and for students pursuing bachelor's degrees."

College bureaucrats may worry about getting sued if they make professors and students get vaccinated.  But the Seventh Circuit, in a decision issued in early August, ruled that Indiana University can require its students to be vaccinated as a condition of enrollment.

So--the bottom line is this--universities have the legal authority to require students to get vaccinated against COVID and refuse admission to students who won't get their shots.

And that's what they had better do. Because students and their parents won't put up with another year of online instruction that costs 25 grand a semester.

College professors: They're alive! They're alive!

References

Klaassen v. Trs. of Indiana Univ., No. 21-2326, 2021 WL 3281209 (7th Cir. Aug. 2. 2021).




Friday, January 15, 2021

Teaching wild hogs to dance: Brookings says for-profit college system is broken and thinks it know how to fix it

 The Brookings Institution published a report this week calling attention to the for-profit college system's enormous abuses. "For-profit colleges have a long history of engaging in manipulative behavior to preserve the flow of [federal money] to their schools while providing their students with a poor education," authorsAirel Gelrud Shiro and Richard Reeves wrote.

In this report (and in an earlier paper released last November), Brookings researchers ticked off a litany of problems in the for-profit college industry:

  • The for-profits only enroll 10 percent of postsecondary students, "but they account for half of all student-loan defaults."
  • For profit-schools are about four times more expensive than community colleges.
  • Black and Latino are overrepresented in this expensive college sector. Although they make up less than a third of all college students, "they represent nearly half of all who attend for-profit colleges."
  • Black students who take out student loans to attend a for-profit have very high default rates. "Almost 60 percent of Black students who took on student debt to attend a for-profit school in 2004 defaulted on their loans by 2016 . . ."
  • Research suggests a for-profit college education may be no better than no college at all. "Students may even incur net losses from for-profit attendance when debt is factored in."
OK, I'm convinced--the for-profit colleges are bad boys.  In fact, I was convinced back in  2012, when Senator Tom Harkin's committee released a scathing report on the for-profit college industry. 

But what are we going to do about it? 

Brookings researchers recommend more effective federal regulations. For example, Brookings wants to reinstate the "gainful employment" rule that the Obama administration introduced. Colleges whose students don't reach a certain debt-to-employment ratio would lose federal funds. And it wants a more transparent "College Scoreboard" for reporting the for-profits' student outcomes. 

But let's face facts.  Trying to reform the for-profit college industry is like trying to teach wild hogs to dance.  It ain't happening.

Postsecondary education should be inexpensive, and it should lead to good jobs.  Under that standard of measurement, the for-profits have failed.

So why doesn't Congress just shut them down?

Or failing that, why doesn't Congress at least allow the naive people who took out student loans to attend overpriced for-profit colleges and didn't benefit to discharge their student loans in bankruptcy?

How could anyone object to such a simple avenue of relief for the countless victims of the for-profit college scandal?

References

U.S. Senate Committee on Health, Education, Labor and Pensions. For-Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success. 112 Congress, 2d Session, July 30, 2012. 

Let's do the "Gainful Employment" dance!






Saturday, February 1, 2020

Urban Institute: Thirty percent of student debtors are enrolled in Income-driven repayment plans

The federal student-loan program is in crisis, but it is hard to figure just how big the problem is.

The Department of Education annually reports the percentage of student borrowers who default three years after beginning repayment. That figure--about 10 percent in recent years--is concerning but not alarming.

Non-governmental studies (Pew Foundation and Brookings Institution) have found that the 5-year default rate for recent cohorts is double the 3-year rate: about 25 percent.  In other words, 1 out 4 student-loan debtors default on their loans within five years of beginning repayment.  Now that is alarming.

But the situation is a lot more dire than that.  A recent report from the Urban Institute (authored by Kristin Blagg, Laurie Goodman, and Kelia Washington) noted that 8 million student-loan debtors are in income-driven repayment plans (IDRs).  According to this report, that amounts to about 30 percent of all college borrowers.

That's really scary because almost no one among those IDR participants is paying down the principal on his or her debt.  Instead, just about all of these 8 million people are making very small monthly payments based on their income--not the amount that they borrowed.

It is always dicey to compare one student-loan analysis to another because we are always measuring apples and oranges. Some of the people counted as 5-year defaulters in one study may be the same people identified as IDR payers in another. (And the Brookings and Pew studies examined cohorts, not the entire student-debtor population.)

Nevertheless, it is clear that when the 5-year defaulters and the IDR participants are considered together, about half of all student-loan borrowers are not paying off their loans.  In my opinion, that's a meltdown.

You may love Senator Bernie Sanders and Senator Elizabeth Warren or you may hate them, but both deserve credit for putting a serious proposal on the table to address the student-loan crisis.  Forgiving all student debt (Bernie's plan) or $50,000 of a borrower's debt (Elizabeth Warren's plan) are reasonable ideas.

One thing seems clear (at least to me): The student-loan program is out of control and it is kicking millions of people out of the middle class. The program hinders overburdened debtors from buying homes, having children, getting married, and saving for retirement.

And who benefits? Our corpulent, incompetently run colleges and universities whose leaders say the universities need more federal money.

Greedy colleges: "Feed me, Seymour!"





Monday, November 18, 2019

Pew Foundation says one out of four student-loan borrowers default within 5 years: But we already knew that.

The Pew Foundation issued a report recently with this snoozer title: Student Loan System Presents Repayment Challenges.  Really? That's like saying that icebergs posed a challenge to the Titanic.

The Pew Foundation's most interesting finding--picked up by the media--was this: Almost one out of four student-loan debtors default on their loans within five years.  But this should not be a shocker. Looney and Yannelis reached basically the same finding five years ago in their report for the Brookings Institution. These researchers reported that the five-year default rate for the 2009 cohort of borrowers was 28 percent (p. 49, Table 8).

And the Pew study probably understates the crisis. The report itself acknowledged that for-profit colleges were underrepresented in its study (p. 5), and we know that almost half of the students who attend for-profit colleges default within five years.

Most importantly, the Pew study did not address the "challenge" faced by more than 7 million college borrowers who are in income-based, long-term repayment plans (IBRPs). IBRP participants are not paying off their student loans even though they are in approved repayment programs. Why? Because people in IBRPs aren't making monthly payments large enough to pay down loan accruing interest, and this interest is capitalized and rolled into their loans' principal.

As much as it pains me to say this, Education Secretary Betsy DeVos gave a clearer picture of the student-loan crisis than the Pew Foundation.  A year ago, DeVos publicly acknowledged that only one out of four student borrowers are paying down principal and interest on their loans and that 43 percent of student loans are "in distress."

For me, the most disappointing thing about the Pew report was its tepid, turgid, and tedious recommendations for addressing the student-loan crisis, which I will quote:
  • Identify at-risk borrowers before they are in distress . . .
  • Provide [loan] servicers with resources and comprehensive guidance . . .
  • Eliminate barriers to enrollment in affordable repayment plans, such as program complexity . . .
Thanks, Pew Foundation. That was really, really helpful.

Note that the Pew Foundation said nothing about bankruptcy relief for distressed college borrowers, tax penalties for borrowers who complete their IBRPs, or the government's shameful practice of garnishing elderly defaulters' Social Security checks. Moreover, Pew said nothing about the Education Department's almost criminal administration of the Public Service Loan Forgiveness program.  And we didn't read anything about the out-of-control cost of higher education.

Let's face it.  College leaders, the federal government, and so-called policy organizations like the Pew Foundation refuse to acknowledge that the federal student-loan program is destroying the lives of millions of Americans. Instead, they are content to tinker with a system that is designed to shovel money to our bloated and corrupt universities.

America's colleges are addicted to federal money. Like a drug addict hooked on Oxycontin, they must get their regular fixes of federal cash.  After all, they've got to fund the princely salaries of college administrators and lazy, torpid professors.

Like first-class passengers on the Titanic who were sipping champagne when their ship hit an iceberg, the higher education industry thinks the flow of student-loan money will go on forever.  But a crash is coming.

Unfortunately, the people who created the student-loan crisis will be the ones floating away in the lifeboats--living off their cushy pensions and obscene retirement packages. The people who were exploited by the federal student-loan program, like the third-class passengers on the Titanic, will go down with the ship.

Lifeboats reserved for college presidents and DOE senior administrators


Tuesday, May 21, 2019

Brookings Institution researcher criticizes federal student-loan program: "It is an outrage"

Last month, Adam Looney of the Brookings Institution released a paper that is chock full of ideas for fixing the federal student-loan program. Looney began his paper with a withering condemnation of the program in its present form, which he accurately described as an outrage. I am quoting his critique verbatim, just putting his words into a bullet-style format:
  • "It is an outrage that the federal government offers loans to students at low-quality institutions even when we know those schools don't boost their earnings and that those borrowers won't be able to repay their loans."
  • It is an outrage that we make parent PLUS loans to the poorest families when we know they almost surely will default and have their wages and social security benefits garnished and their tax refunds confiscated . . ."
  • "It is an outrage that we saddled several million students with loans to enroll in untested online programs, that seem to have offered no labor market value."
  • It is an outrage that our lending programs encourage schools like USC to charge $107,484 . . . for a master's degree in social work (220 percent more than the equivalent course at UCLA) in a field where the median wage is $47,980."
All these failures, Looney charges, "are entirely the result of federal government policies." 

Nevertheless, for all its faults, Looney thinks the federal student loan program is worth fixing, and he makes several interesting reform proposals:

First, Looney recommends a cap on loans to graduate students. Currently, graduate students in the Grad PLUS program can take out student loans to pay the entire cost of their studies, no matter what the cost, which is nuts. 

This "sky is the limit" loan policy has led to the escalating cost of getting an MBA or law degree. In fact, the American Bar Association estimates that the average student at a private law school takes out  $122,000 in student loans. 

Second, Looney recommends applying an "ability-to-pay" standard to parent loans or eliminating them altogether. In my view, the Parent PLUS program should be shut down. It is insane to lure parents into financing their children's college education by taking on massive student-loan debt--debt which is almost impossible to discharge in bankruptcy.

Third, Looney recommends the REPAYE program as the default student-loan repayment plan for all students. Unless a student opts out, all student-loan borrowers would be automatically enrolled in the REPAYE program when they begin repaying their student loans.

REPAYE, introduced by the Obama administration, allows student debtors to pay 10 percent of the discretionary income (income minus 150 percent of the poverty level) for 20 years rather than attempt to pay off their loans in the standard 10-year repayment plan.

In conjunction with automatic REPAY enrollment, Looney calls for voiding all fees, capitalized interest, and collection costs on current borrowers--costs and fees they wouldn't have suffered if they had been automatically enrolled in REPAYE. In addition, he proposes to cancel all student-loan debt that is 20 years old or older--without regard to the status of these loans.

Finally, Looney calls for a halt in wage and Social Security garnishment, and an end to the Treasury Offset program--the program that allows the government to capture defaulted borrowers' tax refunds.

These are all good proposals, but I have reservations. First, is it good public policy to automatically enroll all student-loan debtors in REPAYE--a 20-year income-based repayment plan? If we go that route, we will be creating a massive class of indentured servants who will be paying a percentage of their income to the government for the majority of their working lives.

Moreover, most people in those plans will never pay back the principal on their loans and could wind up with huge amounts of forgiven debt after 20 years, which would be taxable to them as income.

Secondly, Looney's proposals--all good, as I have said--are complicated, and the Department of Education has a dismal record managing just about every aspect of the student-loan program. For example, individuals enrolled in the Public Service Loan Forgiveness program have been applying for debt relief, and the Department of Education has rejected 99 percent of all claims.

So these are my revisions to Mr. Looney's proposals:
  • Amend the Bankruptcy Code to allow distressed student-loan debtors to discharge their student loans in bankruptcy like any other consumer debt.
  • Shut down the Parent PLUS program immediately, and allow parents who took out Parent PLUS loans or cosigned private loans for their children to discharge those loans in bankruptcy.
  • Finally (and this is basically Mr. Looney's proposal) wipe out all penalties, fees, and capitalized interest for all 45 million student-loan borrowers and stop garnishing wages, tax refunds, and Social Security checks of student debtors in default.
My proposals, Mr. Looney's proposals, and for that matter, Senator Warren's debt-forgiveness proposal are shockingly expensive. Any policy that grants student-loan forgiveness to the millions of people who deserve it will cost billions--a quarter of a trillion dollars perhaps or even more.

But let's face facts. Millions of student borrowers are not paying back their loans under the present system. Indeed, Secretary of Education Betsy DeVos acknowledged last November that only one debtor out of four is paying down principal and interest on student loans.

Let's admit that the student-loan program is a catastrophe, grant relief to its victims, and design a system of higher education that is not so hideously expensive.


Image credit: Quora.com


References

Adam Looney. A better way to provide relief to student loan borrowers. Brookings Institution, April 30, 2019.






Thursday, May 24, 2018

The Public Service Loan Forgiveness Program is a train wreck, and $350 million won't fix it.

The Public Service Loan Forgiveness program (PSLF), created by Congress in 2007, allows people in public service jobs to make income-based student-loan payments for ten years. If they make 120 payments, their loan balances will be forgiven and the amount of the forgiven debt isn't taxable to them.

Such a deal!

Thousands of student debtors relied on PSLF to manage huge debt burdens. In fact, as Paul Campos correctly noted in his book Don't Go to Law School (Unless), people who graduate from bottom-tier law schools with six-figure student debt have only one option for paying off their student loans: the PSLF program.

Last fall, the first wave of PSLF participants became eligible to have their loan balances forgiven, but Betsy DeVos' Department of Education put impediments in the way and told some student debtors they were not eligible. The American Bar Association sued DOE after it declined to honor an application by ABA employees for public-service loan forgiveness.

Prompted by Democratic legislators--notably Senator Elizabeth Warren--Congress set aside $350 million to pay off student loans owed by people who failed to qualify for PSLF through no fault of their own.

That's a good first step, but $350 million won't fix this problem. As Jason Delisle explained in a 2016 report for the Brookings Institution, the PSLF program has problems DOE didn't anticipate, and those problems will be expensive to fix.

First of all, public service employment as Congress defined it includes anyone who works for federal, state, or local government and anyone who works for a 501(c)(3) nonprofit entity. As Delisle pointed out  (p. 3), that definition encompasses about one quarter of the American workforce.

In fact, nearly all the doctoral students I've taught over the last 25 years work in public sector jobs; and most of them have student-loan debt, which they expect to shed through the PSLF program. For example, one of my recent doctoral graduates accumulated $140,000 in student-loan debt on her journey to obtaining an Ed.D. degree. PSLF is her only escape hatch for shedding this enormous debt.

Without any question, the PSLF program was poorly designed. The category of eligible participants was defined far too broadly.  Although program defenders say PSLF is intended to aid firefighters, police officers, and teachers, it also benefits public-service lawyers, lobbyists, and accountants.

Furthermore, Congress placed no cap on the amount of student debt that can be forgiven under PSLF. At roughly the same time Congress enacted the PSLF program, it approved the Grad PLUS program, which allows graduate students to borrow the entire cost of their graduate or professional education with no dollar limit.

Apparently DOE was surprised by the enormous debt loads carried by people seeking to shed their student loans through PSLF.  But it should have been obvious to everyone that law-school and business-school graduates with $200,000 in student-loan debt and no prospect of a well-paying private-sector job would look to PSLF to manage their debt.

In short, DOE underestimated the number of people eligible for PSLF and the amount of money they owe. Taxpayers are going to spend a lot more on PSLF than DOE anticipated.

So what to do?

In my view, the Department of Education should forgive student-loan debt for everyone who has accumulated 10 years of public service since the PSLF program was enacted in 2007--regardless of whether the PSLF applicant filled out the proper paperwork. And it should allow everyone currently working in  a public service job to participate in the PSLF program and receive loan forgiveness after they've made 120 payments.

And then Congress needs to amend the program to put a cap on the amount of student-loan debt that can be forgiven under PSLF, and it should limit future participation to people working in hard-to-fill public sector jobs--police officers, fire fighters, teachers, etc.

No doubt about it--PSLF is a colossal train wreck; and it will cost the federal government billions of dollars to fulfill the promises Congress made eleven years ago. The Congressional Budget Office estimates that PSLF and income-based repayment programs together will cost taxpayers $12 billion over the next ten years (as reported by Jason Delisle). The $350 million Congress appropriated last March is but a small down payment.

The Public Service Loan Forgiveness Program is a Train Wreck.

References

Stacy Cowley. Student Loan Forgiveness Program Approval Letters May Be Invalid. New York Times, March 30, 2017. 

 Jason Delisle. The coming Public Service Loan Forgiveness bonanza. Brookings Institution Report, Vol 2(2), September 22, 2016.

Andrew Kreighbaum. New Fix for Public Service Loans. Insider Higher Ed, May 24, 2018.

Andrew Kreighbaum. Senate Democrats want Public Service Loan Forgiveness Fix in budget agreement. Inside Higher Ed, February 16, 2018.

Jordan Weissmann. Betsy DeVos Wants to Kill a Major Student Loan Forgiveness ProgramSlate, May 17, 2017.

Tuesday, May 8, 2018

Baby Boomers are stealing from the Millennials: Stocks and bonds for grandma and grandpa; perpetual debt for their grandchildren

Baby Boomers are stealing from the Millennials. People in their 60s and 70s are retiring comfortably in sunny Florida or taking luxury river cruises down the Danube. Meanwhile, their grandchildren are struggling with massive student-loan debt they will never pay off.

As John Rubino put it, "we baby boomers have rigged the system in our favor at the expense of pretty much everyone else," forcing younger generations to take out student loans to get their college degrees. "[S]tudent loans--barely necessary when most boomers graduated 40 years ago--have become a life-defining problem for our kids and grandkids."

Rubino is right. The people who run this country--judges, legislators, college presidents, and the captains of industry--got their college degrees for a modest sum; and most graduated with little or no student debt. But their grandchildren will take out massive student loans to get their postsecondary credentials, and many will remain indebted for decades.

According to a Brookings Institution report, most student borrowers with large loan balances are not defaulting on their loans; they just aren't paying them back. Millions have their loans in deferment, allowing them to skip their loan payments without being put into default.  Six million are now enrolled in some type of income-based repayment plan (IBR) that allows them to make smaller loan payments but keeps them indebted for 20 or 25 years.

Millions more are simply defaulting on their loans--which means their credit is shot and their loan balances have shot upward due to default penalties and accrued interest on their unpaid debt. According to the New York Times, college borrowers defaulted at the rate of 3,000 a day in 2016.

Rubino sees only one solution to this mess:"massive devaluation" of our currency to allow student debtors to pay off their loans with cheaper money. But that won't work unless Millennials' salaries rise high enough so that current debt loads are no longer burdensome. And there is no sign this is happening.

Total outstanding student-loan indebtedness is now about $1.5 trillion, or $1.6 trillion if you include private student-loan debt. About half of this amount will never be paid back. We really only have two options. We can forgive billions of dollars in uncollectable student-loan debt or we can continue to allow millions of Americans to slip out of the middle class--dragged down by their student loans and unable to buy homes or save for their retirement.



References

Adam Looney & Constantine Yannelis. Most students with large loan balances aren't defaulting. They just aren't reducing their debt. Brookings Institution, February 16, 2018.

Josh Mitchell. The Rise of the Jumbo Student Loan. Wall Street Journal, February 16, 2018.

John Rubino. Loan Shark Nation: Forcing Our Kids To Choose Between Student Loans And Everything Else.

The Wrong Move on Student LoansNew York Times, April 6, 2017.

Tuesday, April 3, 2018

Betsy DeVos and the Republicans wants to dump the Public Service Loan Forgiveness Program: Big Mistake

Betsy DeVos and the Republicans want to dump the Public Service Loan Forgiveness Program (PSLF)  because the program is too expensive. According to the Department of Education's Inspector General, costs of the government's various loan forgiveness programs shot up from $1.4 billion in 2011 to $11.5 billion in 2015--about a nine-fold jump.

In fact, all the Department of Education's loan-forgiveness programs are bleeding red ink. As the Government Accounting Office reported in November 2016, the Department underestimated the cost of these programs. For one thing, DOE assumed that student-loan debtors would sign up for a repayment plan and not switch.

But that's not what happened. Many college borrowers tried to repay their loans under DOE's standard 10-year plan but couldn't find jobs that paid enough to service their monthly loan payments. Millions then switched to income-driven repayment plans (IDRs), which lowered their monthly payments, but those payments were not large enough to cover accruing interest. In my estimation, most of the people in IDRs will never pay back their loans because interest is accruing on loan balances with every passing month.

PSLFs have specific problems, which make them particularly expensive for taxpayers.  First, the PSLF program, which was approved by Congress in 2007, defined eligibility far too broadly.  Anyone working for the federal, state or local government and anyone working for a nonprofit charitable corporation is eligible. As Jason Delisle observed in a Brookings Institution report, about a quarter of America's entire workforce is eligible for a PSLF plan.

PSLF advocates sometimes say the program was designed to encourage people to enter hard-to-fill public service jobs: police officers, fire fighters, ambulance drivers, and inner-city school teachers. But that description is misleading. Accountants, lawyers, public relations people--anyone working for the government or a non-profit--is eligible. 

And there's a second problem with PSLFs: Congress put no cap on the amount a PSLF participant can borrow. DOE apparently calculated costs based on the assumption that most PSLF beneficiaries had relatively low loan balances. But a lot of people applying for the program are people who accumulated massive debt from attending graduate school. A typical lawyer, for example, graduates law school with an average of $140,000 in accumulated student loans.

PSLF participants--including lawyers, accountants and MBA graduates--will make monthly payments based on a percentage of their adjusted income for 10 years, with the unpaid balance being forgiven when their 10-year repayment plans expire.  But most PSLF participants won't come close to paying off their loan balances after 10 years, and American taxpayers will be picking up the bill.

Thus, Trump and the Republicans have valid concerns about IDRs and PSLF programs.Nevertheless, I do not think these programs should be eliminated.

Why? Because 44 million Americans have student-loan debt and about half of them will never pay it back.  Congress has blocked bankruptcy relief for most of these people, which means they have two choices: default or sign up for an income-based repayment plan.

In my view, then, DOE's income-based repayment plans and the PSLF program should be continued  because the only other option for millions of distressed college borrowers is default.

But ultimately, there is only one way out of the student-loan morass. First. we must either allow insolvent student borrowers to discharge their college loans in bankruptcy or we must forgive the debt en masse. Second, we must shut down the venal and corrupt federal student-loan program and allow all Americans to get a free undergraduate education at a public college or university.

I realize this is a hard reality, which our government is refusing to face. But face reality it must; and the longer it waits to do so, the more people will be harmed by a student-loan program that is totally out of control.


Representatives Virginia Foxx: Republican Chair of the House Education Committee
References

Douglas Belkin, Josh Mitchell, & Melissa Korn. House GOP to Propose Sweeping Changes to Higher EducationWall Street Journal, November 29, 2017. 

Ryan Cooper. The case for erasing every last penny of student debt. The Week, February 8, 2018.

Stacy Cowley. Student Loan Forgiveness Program Approval Letters May Be Invalid. New York Times, March 30, 2017. 


Danielle Douglas-Gabriel. GOP higher ed plan would end student loan forgiveness in repayment programs, overhaul federal financial aid. Washington Post, December 1, 2017.

Scott Fullwiler, Stephanie Kelton, Catherine Ruetschlin, & Marshall Steinbaum. The Macroeconomic Effects of Student Loan Cancellation. Levy Economics Institute. Bard College, February 2018.

Jason Delisle. The Coming Public Service Loan Forgiveness Bonanza. Brookings Institution Report, Vol 2(2), September 22, 2016.

Andrew Kreigbaum. GAO Report finds costs of loan programs outpace estimates and department methodology flawedInside Higher Ed, December 1, 2016.

Eric Levitz. We Must Cancel Everyone's Student Debt, for the Economy's Sake. New York, February 9, 2018.

Amanda Palleschi. Student Loans Are Too Expensive To Forgive. fivethirtyeight.com, March 27, 2018.


US. Government Accounting Office. Federal Student Loans: Education Needs to Improve Its Income-Driven Repayment Plan Budget Estimates. Washington, DC: U.S. Government Accounting Office, November, 2016. 

Jordan Weissmann. Betsy DeVos Wants to Kill a Major Student Loan Forgiveness ProgramSlate, May 17, 2017.







Saturday, January 27, 2018

Student loans--the other debt crisis. Credit Slips essay by Alan White

Student loans - the other debt crisis

posted by Alan White at creditslips.org
In a low unemployment economy, an entire generation is struggling, and millions are failing, to repay student loan debt. As many as 40% of ALL borrowers recently graduating are likely to default over the life of their student loans, according to a recent Brookings Institute analysis. Total outstanding student loan debt is approaching 1.5 trillion dollars, exceeding credit card debt, exceeding auto loan debt. Two other key points from the Brookings analysis: 1) for-profit schools remain the primary driver of high student loan defaults, and 2) black college graduates default at five times the rate of white college graduates, due to persistent unemployment, higher use of for-profit colleges and lower parental income and assets.
The rising delinquency (11% currently) and lifetime default rates are all the more disturbing given that federal student loan rules, in theory, permit all borrowers to repay based on a percentage of their income. Most student loans are funded by the U.S. Treasury, but administered by private contractors: student loan servicers. Study after study has found that student loan borrowers are systematically assigned to inappropriate payment plans,  yet the U.S. Education Department continues renewing contracts with these failing servicers. The weird public-private partnership Congress has created and tinkered with since the 1965 Higher Education Act is broken.
Unmanageable student loan debt will saddle a generation of students with burdens that will slow or halt them on the path to prosperity. Student loan collectors have supercreditor powers, to garnish wages and seize tax refunds without going to court, to charge collection fees up to 40%, to deny graduates access to transcripts and job licenses, and to keep pursuing debts, zombie-like, even after borrowers go through bankruptcy and discharge other debts. Recent graduates cannot get mortgages to buy homes, even if they are not in default, because their student loan payments are taking such a bite out of their monthly incomes. State legislatures have piled on educational requirements for a variety of entry-level jobs (nurse's aides, child care workers, teachers, etc.) while cutting state funding for public colleges and increasing tuition: unfunded job mandates. Finally, the combination of high debt and the harsh consequences of default are widening the racial wealth and income gaps.
Current reform proposals would make a bad situation worse. For example, it is difficult to see how increasing the percentage of income required for income-based repayment plans will help student borrowers, nor how extending the repayment period before loan retirement would reduce defaults. What is needed instead is to 1) deal with the for-profit school problem, 2) restore the state-level commitment to funding public colleges, 3) fix the broken federal student loan servicer contracting, 4) rethink the collection and bankruptcy regime for student loans and 5) repeal the student loan tax, i.e. the above-cost interest rates college graduates pay to the Treasury. Among other things. More on these themes in later posts.

Tuesday, November 8, 2016

Black students and the student loan crisis: African Americans suffer most

Judith Scott-Clayton and Jing Li published a report for the Brookings Institution last month on the disparity in student-debt loads between blacks and whites. Essentially, Scott-Clayton and Li told us us what we should already know, which is this: African Americans are suffering more from student-loan debt than whites.

Scott-Clayton and Li's findings

Here are the report's key findings:
  • On average, blacks graduate from college with $23,400 in college loans compared to whites, who graduate with an average debt load of $16,000.
  • The disparity in debt loads between blacks and whites nearly triples four years after graduation. By that time, the average debt load for African Americans  is $52,726, compared to $28,006 for white graduates.
  • Four years after graduation, black graduates are three times more likely to default on their student loans than whites. For African Americans the rate is 7.6 percent; among whites, only 2.4 percent are in default.
  • Four years after graduation, almost half of African American graduate (48 percent) owe more on their undergraduate student loans than they did when they graduated.
  • Although African Americans are going to graduate school at higher rates than whites, blacks are three times more likely to be in a for-profit graduate program than whites. Among whites, 9 percent enroll in for-profit graduate programs; for blacks, the rate is 28 percent.

Growing debt loads for black graduates and high numbers of blacks attending for-profit graduate programs: Disturbing

In my mind, Scott-Clayton and Li's most disturbing findings are set forth in the last two bullet points. First, almost half of African American college graduates owe more on their undergraduate loans four years after graduation than they did on graduation day,  What's going on? 

Clearly, people who are seeing their total indebtedness grow four years after beginning the repayment phase on their loan are not making loan payments large enough to cover accruing interest.  Those people either defaulted on their loans, have loans in deferment/forbearance, or are making token payments under income-based repayment plans that are not large enough to pay down the principle on their loans.

Surely it is evident that people with growing student-loan balances four years after graduation are more likely to eventually default on their loans than people who are shrinking their loan balances.

Scott-Clayton and Li's finding that a quarter of African American graduates students are enrolled in for-profit colleges is also alarming. We know for-profit colleges charge more than  public institutions and have higher default rates and dropout rates. It should disturb us to learn that blacks are three times more likely than whites to be lured into for-profit graduate programs.

Income-Based Repayment Plans do not alleviate the high level of student indebtedness among African Americans

The Obama administration and the higher education community tout long-term income-based repayment plans (IBRPs) as the way to alleviate the suffering caused by crushing levels of student debt. But as Scott-Clayton and Li correctly point out, new repayment options such as  REPAYE "may alleviate the worst consequences of racial debt disparities," but they fail "to address the underlying causes."

Lowering monthly payments and extending the repayment period from 10 years to 20 or 25 years does not relieve African Americans from crushing levels of student debt. We've got to shut down the for-profit college sector to eliminate the risk that people will enroll in overpriced for-profit graduate programs that are often of low quality..And we've got to fundamentally reform the federal student-loan program so that African Americans and indeed all Americans can graduate from college without being burdened by unreasonably high levels of debt.

References

Judith Scott-Clayton and Jing Li. Black-white disparity in student loan debt more than triples after graduation. Evidence Speaks Reports, Vol. 2, #3, Brookings Institution, October 20, 2016. Available at https://www.brookings.edu/research/black-white-disparity-in-student-loan-debt-more-than-triples-after-graduation/





Friday, November 4, 2016

Psychological Costs of Student-Loan Debt: A Critique of Game of Loans by Beth Akers and Matthew Chingos

As I have pointed out more than once, several policy organizations argue tirelessly that worries about the nation's student-debt crisis are overblown. In particular, scholars at the the Urban Institute and the Brookings Institution have repeatedly published articles that minimize the magnitude of what I have long called a crisis.

It is not surprising then that Beth Akers, a fellow at the Brookings Institution, and Matthew Chingos, a fellow at the Urban Institute, published a book recently called Game of Loans, that essentially argued that the federal student-loan program is basically sound and under control.

In my view, Akers and Chingos widely missed the mark regarding the student loan crisis. They did not misrepresent the data about this problem or say anything that is technically inaccurate. Rather, in my view, they seriously misinterpreted data that warn of a coming catastrophe.

I won't attempt to articulate all my criticisms of Game of Loans in this essay. Rather I will focus on one point that Akers and Chingos made in Chapter 5, where they admit that "education debt is having negative psychological impacts on borrowers" (p. 95).

Of course this is true.  As Kathryn Hancock explained in a 2009 law review article, "Studies have consistently found that socioeconomic status and debt-to-income ratios are strongly associated with poor mental health." Student loans, in particular, Hancock wrote, "can be a chronic strain on an individual's financial and emotional well-being." Indeed, "[t]he mere thought of having thousands upon thousands of dollars worth of debt can severely impact those with already fragile mental health, especially if they will carry that debt for the rest of their lives" (Hancock, 2009, 160-161, internal quotation marks omitted).

But what solutions do Akers and Chingos offer for this problem? Solution number one, they say, is to dial down the rhetoric about the student loan crisis.  We need "to change the tone of the public discourse on this issue," Akers and Chingos counsel. In their mind, the "hysterical treatment" of the student-loan problem has caused some borrowers to worry more about their student loans than they should.

And solution number two? Akers and Chingos suggest that the psychological costs of student indebtedness could be reduced by creative repayment plans, including income-driven repayment plans.

In essence, Akers and Chingos are aligned with the Obama administration when it comes to addressing the student-loan crisis. Let's pretend there is no crisis and shove more students into long-term repayment plans.

Thanks, Ms. Akers and Mr. Chingos. You've been a big help.

References

Beth Akers and Matthew Chingos. Game of Loans: The Rhetoric and Reality of Student Debt. (Princeton, NJ: Princeton University Press, 2016).


Katheryn E. Hancock, "A Certainty of Hopelessness, Depression, and The Discharge of Student Loans Under the Bankruptcy Code," 33 Law & Psychology Review 151, 160-161 (2009) (internal citations and internal quotation marks omitted). psychology 


Saturday, June 18, 2016

Student-Loan Default Rates Go Down As Enrollment in Income-Driven Repayment Plans Goes Up:" It Hurts So Much To Face Reality"

Earlier in the week, the Department of Education issued a press release that contains good news about the student loan program. Or does it?

DOE reported that enrollment is increasing in the Department's various income-driven repayment plans (IDRs), including PAYE, REPAYS and six other income-based student loan repayment programs.  About 5 million are now enrolled in IDRs, up 117 percent from March of 2014.

At the same time, student-loan hardship deferments, loan delinquencies, and new defaults are going down.  According to DOE:
As of March 31, 2016, about 350,000 [Direct Loan] recipients were deferring their payments due to unemployment or economic hardship, a 28.6 percent decrease from the prior year. In that same time period, there was a 36.6 percent decrease in the number of FFEL recipients in a deferment status due to unemployment or economic hardship.
DOE also reported that delinquency rates are down 10.6 percent from last year, and student-loan default rates are also down.

Is this good news? Yes and no.

Obviously, a trend toward fewer economic-hardship deferments, fewer student-loan defaults, and fewer lower delinquencies is a good thing. It is especially heartening to see a decline in the number of people who have loans in deferment, because these people see their loan balances go up due to accruing interest during the time they aren't making loan payments.

But this good news comes at a cost. DOE's report is a clear indication that more and more people are signing up for long-term income-based repayment plans that stretch out their repayment period for as long as 20 to 25 years.  According to DOE, five million people are in IDRs now, and DOE hopes to enroll 2 million more by the end of 2017. Clearly, long-term repayment plans has become DOE's number one strategy for dealing with rising student-debt loads.

What's wrong with IDRs? Four things.

Growing Loan Balances. First, as I have said many times, most people in IDRs are making payments based on a percentage of their income, not the amount of their debt; and most people's payments are not large enough to cover accruing interest on their loan balances. Thus, for almost everyone in a 20- or a 25-year repayment plan, loan balances are going up, not down.

This was starkly illustrated by a recent Brookings Institution report. According to a paper published for Brookings by Looney and Yannelis, a majority of borrowers (57 percent) saw their loan balances go up two years after beginning the repayment period on their loans. For students who borrowed to attend for-profit instiutions, almost three out of four (74 percent) saw their loan balances grow two years after entering the repayment phase

Reduced Incentives for Colleges to Rein in Tuition Costs.  As more and more borrowers elect to join IDRs, the colleges know that tuition prices becomes less important to students.Whether students borrow $25,000 to attend college or $50,000, their payment will be the same.

In fact, some IDRs actually may act as an inverse incentive for students to obtain more postsecondary education than they need.  I have several doctoral students who are collecting multiple graduate degrees. I suspect they are enrolled in the 10-year public-service loan forgiveness plan, the government's most generous IDR. Since monthly loan payments are based on income and not the amount borrowed, I think some people have figured out that it makes economic sense to prolong their studies.

Psychological Costs of Long-Term Repayment Plans. Third, there are psychological costs when people sign up for repayment plans that can stretch over a quarter of a century, a cost that some bankruptcy courts have noted. And these psychological costs are undoubtedly higher for people who sign up for IDRs in mid-life. Brenda Butler, for example, who lost her adversary proceeding in January of this year, signed up for a 25-year income-based repayment plan when she was in her early 40s, after struggling to pay back her student loans for 20 years. As the court noted in Butler's case, her loan obligations will cease in 2037--42 years after she graduated from college. That's got to be depressing.

A Drag on Consumer Spending. Finally, people who are making loan payments for 20 years have less disposable income to buy a home or a car, to marry, to have children, and to save for their retirement.  In fact, in the Abney case decided in late 2015, a bankruptcy court in Missouri rejected DOE's argument that a 44-year old truck driver should enter a long-term repayment plan to service loans he took out years ago for a college education he never completed.

As the court pointed out, Mr. Abney was a truck driver who was not likely to see his income increase markedly. Forcing him into a long-term repayment plan would diminish his ability to save for retirement or even to buy a car.

"It Hurts So Much To Face Reality"

As Robert Duvall sang in the movie Tender Mercies (the best contemporary western movie of all time), "it hurts so much to face reality."

Without a doubt, DOE is refusing to face reality by huckstering college-loan debtors into long-term student-loan repayment plans. DOE has adopted this strategy to keep student-loan defaults down, but IDRs do not relieve the burden of indebtendess for millions of student borrowers. Lowering monthly loan payments by stretching out the repayent period makes rising tuition more palatable, but it does nothing to check the rising cost of a college education--which has spun out of control.

In short, IDRs are creating a modern class of sharecroppers, whereby millions of people pay a percentage of their incomes over the majority of their working lives for the privilege of getting a crummy education from a college or university that has no incentive to keep tuition costs within the bounds of reason.

Image result for tender mercies movie
"It hurts so much to face reality."

References

Abney v. U.S. Department of Education540 B.R. 681 (W.D. Mo. 2015).

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 ratesWashington, DC: Brookings Institution (2015). Accessible at: http://www.brookings.edu/about/projects/bpea/papers/2015/looney-yannelis-student-loan-defaults

U.S. Department of Education, Education Department Announces New Data Showing FAFSA Completion by District, State. Press release, June 16, 2016. Accessible at http://www.ed.gov/news/press-releases/education-department-announces-new-data-showing-fafsa-completion-district-state