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

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

Wednesday, June 8, 2016

Morley Winograd and Michael Hais recommend free college in a Brookings paper less than 24 hours after Bernie Sanders lost the California primary


The Brookings Institution is a cowardly, sniffling organization committed to preserving the status quo in higher education. And here is another indication of that.

On June 8, the morning after Hillary beat Bernie in California, Brookings posted an essay by Morley Winograd and Michael Hais about how the Democrats can win back  the young voters who went for Bernie Sanders over Hillary by 3 or 4 to 1. 

In case you haven't heard of them, Morley Winograd and Michael Hais are two old coots who profess to be experts on the millennial generation. Judging by their photos, Winograd and Hais are not millennials themselves, but they have written some books about millennials and that makes them experts.

In their essay for Brookings, Winograd and Hais cooed approvingly about Hillary's stand on the student-loan crisis:  "[Hillary] has already spoken out forcefully on the need to lift the burden of student debt from this generation," the authors wrote. They note that sheendorses the idea of allowing college-loan borrowers to refinance their loans and she favors loan forgiveness for people who were defrauded by "unscrupulous lenders or schools." 

Big friggin' deal. Allowing distressed debtors to refinance their loans will not solve the student loan crisis. There are 43 million people with outstanding college-loan debt, and most have signed multiple promissory notes. There must be at least 200 million individual debt instruments floating around--maybe twice that many.  Is the federal government really going to refinance all those loans at lower interest rates? In your dreams, Mike and Morley.

And as for the notion that defrauded students should have their loans forgiven, I've got news for you, Mike and Morley. The Department of Education already has a debt forgiveness program in place. The problem is that the process is so cumbersome that very few loans have actually been forgiven.

But here's the money quote.  Mike and Morley recommend a free college education for everybody.
 "[M]illennials and the generations that come after them should be able to get their higher education debt free," Winograd and Hais wrote, "because that’s the level of education they—and America—will need to be successful both in today’s economy and in the years ahead."

Hey, that's exactly what Bernie Sanders said at his first debate with Hillary last fall. If this is such a good idea, why didn't Mike and Morley, the so-called millennial experts, suggest it sooner? Why didn't Hillary endorse this idea? And, more to the point of this commentary, why didn't the Brookings Institution publicize this idea before the California primary rather than after the votes were counted and Bernie was defeated?

I'll tell you why--because Hillary, the Brookings Institution, and the Democratic Party are committed to the status quo in higher education. If Americans could get a free college education from a public college in the same way they get a free high school education, the for-profit colleges would shut down almost overnight and the elite private colleges would be forced to slash their tuition rates.

Hillary is not going to let that happen. She and Bill have made too much money off the higher education industry, and so have Democratic Party insiders like Debbie Wasserman Schultz.  That's why Mike and Morley's whispered suggestion about a free college education didn't surface until after Hillary had defeated Bernie. And my prediction is this: the Brookings Institute will never allow this very good idea to be floated again in any of its publications.

Image result for morley winograd and michael hais
Morley Winograd & Mihael Hais: Experts on millennials

 Note: The Winograd and Hais essay is dated June 3, 2016, but it first appeared for public viewing on the Brookings web site on June 8, 2016. The same essay appeared on the Mike and Morley web site on June 6. 

References

Morley Winograd and Michael Hais. The Democrats' Generation Gap. Brookings Institution, Jun 3, 2016. Accessible at http://www.brookings.edu/blogs/fixgov/posts/2016/06/03-millennials-democrats-election-2016-winograd-hais?utm_campaign=Brookings+Brief&utm_source=hs_email&utm_medium=email&utm_content=30380706&_hsenc=p2ANqtz-8kyQSbZyUfxh-t2hnsxhvRRXvUp2j0eORShy09EK-7-HQpeIdEwoZaQ1CXQ3fR5CAxWRHk2cBWPTT6cCkIOO74q4BLUw&_hsmi=30380706

 Morley Winograd and Michael Hais. The Democrats' Generation Gap, Mike and Morley web site, June 6, 2016. http://www.mikeandmorley.com/the_democrats_generation_gap


Saturday, May 7, 2016

Susan Dynarski, Brookings Institution, and the U.S. Housing Market: Lies, Damned Lies and Statistics

Larry Summers, former Secretary of the Treasury and President Emeritus of Harvard, has expressed concern about growing student-loan indebtedness, which he linked to a slowdown in home ownership in the United States. Joe Stiglitz, Nobel Prize winner in economics, and the Federal Reserve Bank in New York have also expressed the view that growing levels of college-loan debt is hurting the housing market.

But Susan Dynarski, writing for the Brookings Institution, says this is nonsense. Crunching the data from the Federal Reserve System in a different way than the Federal Reserve Bank, she came to this conclusion: education levels, not student-loan indebtedness, explain the difference in home-ownership rates among Americans. In a nutshell, here are Dynarski's conclusions:
Those who borrow for college do have a slower start to homeownership than those who went to college debt-free. . . . But by the time people are in their thirties, when the typical borrower would have finished paying off her student loans, the home ownship rates of the two college-educated groups are statistically indistinguishable. The striking, large gap is between the college-educated and those who stopped with high school.
I have two observations to make about Dynarski's paper for the Brookings Institution.  First, if Dynarski disagrees with Larry Summers, Joe Stiglitz and the Federal Reserve Bank of New York, I"m inclined to be persuaded by these eminences rather than Dynarski.

Second, speaking purely as a layperson with no expertise in economics, Dynarski's arguments simply defy common sense. How can she say that rising levels of student-loan indebtedness has no impact on home ownership given what we know about the massive hardship that millions of college-loan borrowers are suffering?

As the New York Times noted several months ago, 10 million people have either defaulted on their student loans or are in delinquency. Can anyone say this group of people have not been shut out of the housing market?

Another 5 million people have been shoved into long-term income-based repayment plans that stretch out for 20 years or more; and the Obama administration hopes to increase that figure by another 2 million people by the end of 2017. Can anyone argue that having a 20-year financial obligation hanging around one's neck has no impact on the ability to buy a home?

Susan Dynarski and the Brookings Institution have published numerous papers that basically contend  that the student-loan program is under control. Like those cops at a murder scene in a 1950s detective movie, they constantly mutter, "Move along, folks; nothing to see here; move along."

But everyone from Joe the Plumber to Larry Summers knows the federal college-loan program is out of control, with millions of people unable to make their loan payments. In my view, the Brookings Institution and many of its researchers are nothing more than shills for the higher education industry, which desperately needs large infusions of federal cash to keep the doors open.

Like all of higher education's apologists, Dynarski repeats the old bromide that people who graduate from college make more money than people who only hold a high school diploma. Of course that is true. But this platitude doesn't excuse higher education for running up tuition costs at twice the rate of inflation. It doesn't justify the behavior of the for-profit universities, which charge far too much for substandard programs and have shockingly high student-loan default rates.

In my opinion, policy makers and the public in general should discount almost everything the Brookings Institution says about the student-loan crisis, which by and large the Brookings people don't even acknowledge.  We should listen to the Vermont House of Representatives, which adopted a resolution a few days ago calling on Congress to lift restrictions on bankruptcy for student-loan debtors. After all, the small-town legislators in the Green Mountain State live in the real world, which is not the world that Susan Dynarski and her Brookings colleagues live in.

References

Micahel Bielawski. Vermont House asks Congress to let student-loan borrowers file for bankruptcy. VermongtWatchdog.org, May 3, 2016.  Accessible at http://watchdog.org/264079/legislature-requests-student-debt-relief-bankruptcy/

Editorial, "Why Student Debtors Go Unrescued." New York Times, October 7, 2015, A 26. Accessible at: http://www.nytimes.com/2015/10/07/opinion/why-student-debtors-go-unrescued.html

Susan Dynarski. The dividing line between haves and have-nots in home ownership; Education, not student debt. Brookings Institution, May3, 2016. Accessible at http://www.brookings.edu/research/reports/2016/05/03-dividing-line-between-haves-have-nots-home-ownership-education-not-student-debt-dynarski


Wednesday, April 27, 2016

A Bernie Sanders Supporter Who Will Vote For Donald Trump: Cry Havoc!


You ask me if I'll get along.
I guess I will, someway.
I don't like it but I guess things happen that way.

Guess Things Happen That Way
Johnny Cash

I am a die hard Bernie Sanders fan. As I said in an earlier blog, I will support him until the last dog dies, right through the California primary election.  I have harshly criticized Donald Trump on my Catholic blog site because I think Donald's stand on immigration is contrary to Catholic teaching. And I'm not taking my anti-Trump posts down.

But here's a message for Hillary. If I am faced with a choice between Donald Trump and Crooked Hillary, I'm voting for the Donster.

Hillary claims to be a progressive but her brand of progressivism allows her to collect a quarter million dollars a pop making secret speeches to corporate oligarchs. 

Hillary's brand of progressivism is Secretary of the Treasury Jacob Lew's brand of progressivism. Lew took more than two thirds of a million dollars as an exit bonus when he left New York University, the most venal and expensive higher education institution in America. But he's a progressive because he wants Harriet Tubman's face on the dollar bills he lines his pockets with.

Hillary's brand of progressivism is Arne Duncan's brand of progressivism. He bleated repeatedly about the student-loan crisis but did nothing to rein in the for-profit college industry while he was Secretary of Education. In fact, at the direction of his boss, Duncan cynically constructed a modern-day form of serfdom whereby millions of distressed student-loan debtors pay a percentage of their income to the federal government for 20 and even 25 years.  And when he finished picking his nose at the Department of Education, Duncan toddled off to the Brookings Institution, where he will probably write policy papers defending the status quo in higher education and rake in money sitting on corporate boards.

Hillary's brand of progressivism is the New York Times' brand of progressivism, which tells the people of North Carolina how to go to the bathroom while it organizes Luxury Conferences and peddles obscenely expensive New York real estate in its advertising pages.

Hillary's brand of progressivism allows her to think Americans are so stupid that she can mock Donald Trump for flying in a private jet, while she flies in a private jet that is almost identical.

Yes, and Hillary's brand of progressivism is Barack Obama's brand of progressivism, which allowed Barack to  cozy up to Wall Street for eight years while the death rate for working-class white people went up--driven by suicide, liver disease, and drug abuse.

In short, I reject Hillary and all her empty promises.  I would much prefer to vote for Bernie Sanders in November, but if I must choose between Hillary Clinton and Donald Trump, I'm pulling the lever for Trump. As Johnny Cash put it, "I don't like it, but I guess things happen that way."

Will Donald Trump bring chaos to the United States? Perhaps. But I think Hillary and the political elites are going to find that millions of Americans would rather risk chaos than be manipulated by an old political hack and her Ivy League cronies for the next four years.  

Indeed, Shakespeare expresses my sentiment exactly: "Cry 'Havoc!"

Image result for "jacob lew"
Jacob Lew, Secretary of the Treasury: I want my cash in small bills, preferably with Harriet Tubman's picture on it


References

Andrew J. Chirlin. Why Are White Death Rates Rising? New York Times, February 22, 2016. Accessible at http://www.nytimes.com/2016/02/22/opinion/why-are-white-death-rates-rising.html

Danny Hakim. Obama's Treasury Nominee Got Unusual Exit Bonus on Leaving N.Y.U. New York Times, February 25, 2013. Accessible at  http://www.nytimes.com/2013/02/26/nyregion/lew-treasury-nominee-got-exit-bonus-from-nyu.html?_r=0




Friday, January 15, 2016

"Oh what a tangled web we weave": The Department of Education's three-year student-loan default rates are deceptive

Oh, what a tangled web we weave
When first we practice to deceive!

Walter Scott            

Last September, the Department of Education announced three-year default rates for the most recent cohort of student-loan borrowers.  According to DOE, three-year default rates went down dramatically over a two-year period.   The overall student-loan default rate for the FY 2012 cohort of borrowers was 11.8 percent, significantly lower than the FY 2010 cohort default rate, which was 14.7 percent.

Indeed, the for-profit sector saw a spectacular drop in three-year student-loan default rates--from 21.8 percent for the FY 2010 cohort down to 15.8 percent--a 25 percent drop. Amazing!

But of course DOE's three-year default rates are meaningless, particularly for the for-profit schools. The for-profits have kept their three-year student-loan default rates down by aggressively encouraging their former students to obtain economic-hardship deferments, which keep borrowers off the default roles even though they are not making loan payments.

When we look at the 5-year default rate across all sectors, the default rate is twice as high as the three-year rate. Twenty-eight percent of student borrowers defaulted on their loans within five years of beginning repayment, compared to DOE's 11.8 percent three-year rate. In other words, more than one out of four postsecondary students default on their student loans within five years.

In fact, the student-loan default rate and nonpayment rate for the for-profit sector are truly alarming. Forty-seven percent of for-profit students default on their loans within five years.

Although the for-profit sector has the highest default rates, many public colleges also have shocking numbers.  Kevin Carey of the New York Times examined the percentage of students who had paid nothing on the principal of their loans after five years and discovered that the nonpayment rate at several public universities is 20 percent or more: University of Houston, University of Cincinnati, and the University of Louisville among them. At the University of Memphis, Carey reported, 35 percent of former students in a recent cohort had not paid back a dime on their loans five years after entering repayment.

Historically black colleges and universities (HBCUs) have very high student-loan nonrepayment rates. "Of the 25 private colleges with the worst nonrepayment rates, 22 are historically black," Carey wrote. Lane College, a HBCU located in Tennessee, had a five-year student nonrepayment rate of 78.2 percent.

No one who contemplates these numbers can reach any other conclusion other than this: the federal student-loan program is a catastrophe. And, although millions of people have improved their lives by borrowing money to obtain postsecondary education, millions more have been ruined.

Who has been hurt the most by the federal student loan program?

  • Students who attended for-profit institutions, where almost half of former students default on their student loans;
  • Students who attended HBCUS, which have very high student-loan default rates;
  • People who borrowed money to get law degrees or MBA degrees from second- and third-tier institutions;
  • People who obtained liberal arts degrees from high-priced private institutions and who acquired no skills that will enable them to get a decent job;
  • People who started postsecondary programs and didn't finish them.

The media has reported widely that Americans are carrying $1.3 trillion in outstanding student-loan debt. But this underestimates the reality. This number does not include accumulated interest, loans from private banks, and credit-card debt that students run up while they are in college. Accumulated indebtedness associated with postsecondary education  is at least $1.5 trillion.

That's $1.5 trillion dollars in debt carried by just16 percent of the American adult population--the 16 percent least able to bear the burden. And because the consequences of default are so draconian, this significant percentage of Americans is greatly suffering.

And what is the higher education community's solution to this calamity? Long-term income-based repayment plans that will keep borrowers indebted for the majority of their working lives!

If the federal government had devised a plan to intentionally destroy higher education, shrink the middle class and cripple our economy, it could not have invented a better plan than this.

References

Kevin Carey. Student Debt Is Worse Than You Think. New York Times, October 7, 2015. Accessible at: http://www.nytimes.com/2015/10/08/upshot/student-debt-is-worse-than-you-think.html?_r=1

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
loan defaults. Brookings Institution, September 15, 2015. Accessible at: http://www.brookings.edu/~/media/projects/bpea/fall-2015_embargoed/conferencedraft_looneyyannelis_studentloandefaults.pdf



Sunday, December 20, 2015

Harvard Economist N. Gregory Mankiw Provides a Lazy and Self-Serving Answer to Why College Costs So Much

Harvard Professor N. Gregory Mankiw wrote a lazy and self-serving op ed essay in the New York Times today, in which he purported to explain why college costs so much.

Like most of higher education's shills (Sandy Baum, Susan Dynarski, Catharine Hill, etc.), Professor Mankiw began his pitch by assuring us that college is still a good investment. The median wage for a college graduate, Mankiw reminds his readers, is about twice as much as the median wage for a worker with only a high school education.

Of course it is true that college graduates generally make more money than people with only a high school education, but that fact doesn't justify skyrocketing costs across almost all sectors of higher education. Nor does it justify the ever-increasing amount of money people are borrowing in order to attend college.

Mankiw then goes on to give three explanations for why college costs are going up--all bogus:

First, Professor Mankiw instructs us, we have "Baumol's cost disease."  According to Mankiw, Baumol recognized that as wages rise across all sectors of society, salaries rise even for services that have seen no increase in productivity.

Of course everyone knows that. It costs more for a haircut today than it did a generation ago, even though barbers haven't grown more efficient. Likewise, the cost of higher education has gone up. We used to call that phenomenon inflation, but Professor Mankiw prefers to call it Baumol's cost disease.

But of course this blather does not explain why the cost of higher education has gone up three times the rate of inflation over the past 30 years.

Second, Mankiw argues, higher education seems more expensive due to rising inequalities in society as a whole.  Here I'll let Mankiw explain this argument in his own words:
Educational institutions hire a lot of skilled workers: It takes educated people to produce the next generation of educated people. Thus, rising inequality has increased not only the benefit of education but also the cost of it.
OK, Professor Mankiw, what you say may be true. But again, how does that argument explain why college costs have risen much faster than inflation?

Finally, Mankiw explains, college costs haven't gone up as much as the public thinks because most students aren't paying the sticker price.  Colleges engage in "price discrimination," with only the suckers paying full price. And of course this is true. On average, private liberal art colleges are only collecting about 60 percent of the sticker price because they give discounts in the forms of grants and scholarships to preferred students.

In other words, Professor Mankiw is trying to assure Mr. and Mrs. America that when their children go to college, they'll probably get some sort of brother-in-law deal and won't be paying full price.

All this is pure horse manure. At bottom, Professor Mankiw is merely defending the status quo in higher education, just as Vassar's Catharine Hill did a couple of weeks ago in the Times when she argued against free college education. In fact, when you read Professor Mankiw's essay closely, which he hopes you won't do, he really isn't saying anything at all.

The reality is this: the cost of higher education has gone up for a variety of reasons, and many of those reasons are tied to greed and laziness.  At the elite universities, tenured professors are teaching fewer classes--ostensibly to have more time to do more important things.  College costs could go down if every professor taught the typical teaching load of 30 years ago.  I would be surprised, for example, if Professor Mankiw teaches more than three courses a year.

Moreover, the cost of attending for-profit colleges is especially high, much higher than a comparable educational experience at a community college or public university.  Students who attend these rapacious institutions borrow more money than students who go to public schools. and their student-loan default rates are shocking. According to the Brookings Institution, the five-year loan default rate in the for-profit sector is nearly 50 percent.  But of course, Professor Mankiw didn't even mention the for-profit colleges.

College costs have also gone up because the number of ancillary employees has increased. For example, Harvard was recently ridiculed for printing special placemats that contained instructions to students about how to answer their parents' embarrassing questions when they went home for the holidays.  As if Harvard students are too stupid to know how to talk to their parents or to have their own opinions.

How much, do you suppose, Harvard is paying the person who dreamed up and printed those embarrassing placemats? Well--whatever it is, that amount adds to the cost of Harvard's tuition.

In truth, the cost of postsecondary education is out of control for multiple reasons, and the problem varies in its seriousness across higher education's many sectors. For-profit colleges charge too much; almost all objective commentators agree. Professional education is far too expensive. In particular, the law schools have jacked up tuition prices and are producing about twice as many lawyers as the nation needs. Administrators' salaries have gone up faster than professors' salaries, and numerous frills--fitness centers, luxury student housing, recreational facilities like LSU's "Lazy River"--all this has contributed to the spiraling cost of higher education.

About all these issues, Professor Mankiw had nothing to say.

Personally, I found Professor Mankiw's essay offensive. Millions of people can't pay back their student loans, and most can't discharge those loans in bankruptcy.  Meanwhile, the Department of Education and the policy wonks are urging the expansion of long-term repayment plans that will force Americans to pay on their student loans for 20 or 25 years. In short, the student loan program is a mess, and Professor Mankiw prattles on about Baumol's cost disease!

Professor Mankiw's op essay in the Times was nothing  more than a lazy and self-serving defense of the status quo--a status quo than benefits people like Professor Mankiw.
Professor N. Gregory Mankiw: He likes the status quo.









Friday, December 18, 2015

Deeper into the abyss: Obama introduces REPAYE, yet another income-based student-loan repayment plan designed to turn students into sharecroppers

This week, the Obama administration introduced REPAYE, a new student-loan repayment plan.  Like PAYE ("Pay As You Earn"), REPAYE allows borrowers to pay back their student loans over a 20 year period and to make monthly payments no larger than 10 percent of their discretionary income.  REPAY, however, is available to borrowers who were not eligible for PAYE.

What is the significance of this new development?

It's complicated.  First of all, REPAYE is the federal government's fourth income-based repayment plan. We now have:

  • ICR Plan (Income-Contingent Repayment Plan)
  • IBR Plan (Income-Based Repayment Plan
  • PAYE (Pay  As You Earn Repayment Plan
  • REPAYE (Revised Pay As You Earn Repayment Plan)

Not all borrowers are eligible for all plans, and some plans are more favorable to debtors than others. DOE issued a 26-page set of guidelines called "Income-Driven Repayment Plans: Questions and Answers," but the guidelines are complicated.

Here is a sample passage:
The REPAYE, PAYE, and IBR plans offer an interest benefit if your monthly payment doesn't cover the full amount of interest that accrues on your loans each month. Under the three plans, the government will pay the difference between your monthly payment amount and the remaining interest that accrues on your subsidized loans for up to three consecutive years from the date you begin repaying the loans under the plan. Under the REPAYE Plan, the government will pay half the difference on your subsidized loans after this three-year period, and will pay half the difference on your unsubsidized loans during all periods.
Millions of people are already confused by their student loans. Some don't know if they have private loans or federal loans, some don't know how many loans they have, some don't know how much they borrowed or what they now owe, and some people don't even know that they took out a student loan.

For the 20 million people who aren't able to make loan payments under a standard 10-year repayment plan, REPAYE is not going to offer much relief.  It's just another level of bureaucracy and administrative regulations.

REPAYE is a new sign of desperation. Second, REPAYE is just another sign of the federal government's desperation about the federal student loan program. As the New York Times noted a few weeks ago, 10 million people have either defaulted on their student loans or are delinquent in their payments.  About 4 million are making payments under the government's first three income-based repayment plans; and most are not making payments large enough to cover accruing interest.  And a bunch more have gotten some kind of deferment from making loan payments based on economic hardship.

The government's response to all this chaos and misery is to roll out ever more generous long-term repayment plans.  But this strategy hides the fact that millions of people on these plans will never pay back the principle on their loans and for all practical purposes are in default.

REPAYE is really just a program for turning college students into sharecroppers for the federal government.  But the real problem with REPAYE, with PAYE and with IBR and ICR are that these plans force millions of people to make payments to the federal government for a majority of their working lives in return for the privilege of attending college.  In effect, the government is turning our nation's young people into a generation of sharecroppers.

And remember, for most people, these 20- and 25-year repayment plans don't begin when students graduate from college. Often former students struggle for five years or more with their student loans before they finally sign up for a long-term repayment plan.  And that's when the long-term repayment plan starts.  Thus a person who graduated in 2010 and joins an income-based repayment plan this year, will not be free of student loan debt until 25 or 30 years after first enrolling in college.

President Obama, Arne Duncan, the Brookings Institution, and higher education leaders like Vassar's Catharine Hill hail long-term repayment plans as a solution to the growing student-loan crisis. But of course, these plans are not a solution at all. They're a strategy for turning Americans into indentured servants.

Image result for sharecroppers images
Go to college and become a sharcropper!


Image result for catharine hill vassar
Vassar's Catharine Hill: What the kiddies need is a nice long-term repayment plan!



Tuesday, September 29, 2015

NY Times Urges "Speedy Help for Victims of College Fraud," but the Times Does Not Go Nearly Far Enough

Let's give the New York Times credit: it is on the right side of the argument regarding the federal student loan program. The Times editorializes repeatedly about the plight of people who cannot pay back their college loans. The newspaper has published several fine news articles about individuals who are overwhelmed by student-loan debt. And again and again, the Times editorial writers demand action by the federal government to bring relief to desperate student-loan borrowers.

Unfortunately, the Times does not grasp this simple fact: True relief for student-loan debtors will require radical action, far more radical than the Times is willing to contemplate.

Last Sunday, a Times editorial addressed the issue of fraud in the for-profit college sector. As the Times pointed out, "The federal government's decades-long failure to curb predatory behavior in the for-profit college industry has left untold numbers of Americans with crushing debt while providing useless degrees--or no degrees at all--in return."

The Times then went on to praise the Obama administration for creating new oversight rules for the  for-profit college industry. And the Times expressed approval of the Department of Education's decision to forgive the student-loan indebtedness of some individuals who attended Corinthian Colleges (about 3,000 people so far).

But, as the Times pointed out, DOE has yet to grant relief  to any of the 4,000 people who claim they were defrauded by Corinthian and have asked to have their student-loans forgiven.

The Times expressed the fear that DOE's "legendary bureaucracy will drag its feet and make it difficult for deserving plaintiffs to get relief." And the Times ended its rather tepid editorial by stating vaguely that "the department needs to do a much better job of reaching out to people who have potential [fraud] claims."

The Times editorial is on the right track; obviously DOE needs to speed up the process of reviewing fraud claims by students who attended for-profit colleges. But I don't think the Times recognizes the enormity of the student-loan problem in the for-profit college sector.

A recent study by the Brookings Institution reported that there are almost 1.2 million people who attended the University of Phoenix who have more than $35 billion in outstanding student loans.  According to the Brookings study, 45 percent of a recent cohort of former University of Phoenix students defaulted on their loans within five years.

More alarmingly, for the for-profit sector as a whole, nearly three quarters of students who attended for-profit schools  (74 percent) owed more than they originally borrowed two years after beginning repayment (for the 2009 cohort).  And nearly half the students who attended for-profit schools (47 percent) defaulted within five years of beginning repayment.

And Brookings default data did not take into account the fact that many former students have obtained economic-hardship deferments and are not making their student-loan payments. Those people are not counted as defaulters even though they are not paying down their loans.

For-profit colleges are encouraging their former students to  sign up for economic-hardship deferments as a strategy for keeping their institutional default rates down. Tragically, most of the people who obtain economic-hardship deferments receive only phantom relief because the interest continues to accrue on their unpaid debt. When those economic-hardship deferments come to an end, the people who held them will find that the principal of their loans went up during the deferment period.

IN SHORT, IT IS INDISPUTABLE THAT HALF OF THE PEOPLE WHO TOOK OUT STUDENT LOANS TO ATTEND FOR-PROFIT COLLEGES WILL DEFAULT AT SOME POINT IN THE LOAN REPAYMENT PERIOD. In other words, about half of the federal student-aid money flowing into for-profit colleges will never  be paid back.

If the Times grasped the magnitude of the student-loan crisis in the for-profit college sector it would surely recommend more aggressive action by the Feds.  What is needed is not a more streamlined fraud review process (as the Times recommended), but something close to blanket amnesty for at least half of the people who borrowed money to attend for-profit colleges.

Put another way, DOE needs to craft a secular version of Pope Francis's "Year of Mercy," whereby millions of people who attended for-profit colleges can have their loans forgiven with little or no red tape.

Obviously some case-by-case review needs to occur to make sure student loans aren't forgiven for students who got good value from attending for-profit colleges and can afford to pay back their loans. But--based on the default rates--a majority of the people who attended for-profit colleges should have their loans forgiven.

What is the best process for sorting through this mess? Bankruptcy. Student-loan defaulters who attended for-profit institutions should have their loans forgiven by bankruptcy courts without the necessity of adversary hearings. If a bankruptcy court concludes that a student-loan debtor is insolvent, that person's loans should be forgiven unless the government can show fraud or bad faith.

But the burden should be on the government to show that an insolvent student-loan debtor who attended a for-profit college is not entitled to bankruptcy relief--not on the debtor.

Obviously, I have painted an ugly picture: massive student-loan forgiveness and default on billions and billions of dollars in student-loan debt. But most of the defaulters who attended for-profit colleges will never pay their loans back,  whether or not their loans are forgiven.

It is time to wipe the slate clean. The for-profit college industry should be shut down and the people who were injured by it deserve a fresh start.  We can take action now or we can take action later. But eventually, the federal government will have to face facts: the for-profit colleges are a rogue industry and have ruined the economic prospects of millions of people.

References

Kelly Field, "U.S. Has Forgiven Loans of More Than 3,000 Ex-Corinthian Students, Chronicle of Higher Education, September 3, 2015. Accessible at: http://chronicle.com/article/US-Has-Forgiven-Loans-of/232855/?cid=pm&utm_source=pm&utm_medium=en

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). Accessible at: http://www.brookings.edu/about/projects/bpea/papers/2015/looney-yannelis-student-loan-defaults

Tamar Lewin, "Government to Forgive Student Loans at Corinthian Colleges," New York Times, June 8, 2015. Accessible at: http://www.nytimes.com/2015/06/09/education/us-to-forgive-federal-loans-of-corinthian-college-students.html?_r=0

Speedy Help for Victims of College Fraud. New York Times, September 27, 2015, Times Review Section, p. 10.