High-Income Married Couples Can Get $117,000 a Year In Social Security Benefits: What the Hell!

 Our politicians and federal apparatchiks say they care about the poor and despise the rich. 

Nevertheless, I notice that our government gives out a lot of dough to rich people who don’t need federal handouts. For example, the Cato Institute reported yesterday that high-income married couples receive as much as $117,000 a year in Social Security benefits. Quoting Forbes writer Andrew Biggs, the Cato report points out:

[America’s Social Security program] produces . . . unnecessarily generous benefits for the highest earners, who easily could save more for retirement on their own, while shortchanging the Americans most at risk of poverty in old age because they received low pay during their working years.

This is outrageous when we consider that the average Social Security check is less than $ 1,800 and that 40 percent of older Americans depend almost solely on their Social Security checks to fund their retirement.

 

Put another way, Mitt Romney and Nancy Pelosi will get bigger Social Security checks than a Mississippi school teacher or some guy who worked all his life as an attendant in a nursing home.

Cato recommends that the U.S. follow Great Britain’s example and pay a flat-rate benefit to everyone—causing benefits to rise for low-income earners and shrink for the rich.

 

Britons receive about $34,000 in retirement benefits—regardless of lifetime earnings. If the U.S. switched to the British model, millions of low-income Americans would have a more comfortable retirement, and our Social Security program costs would decrease.

 

There's just one drawback: the British model for government retirement pensions would piss off  American rich people. And that's something Congress would never do.

 

Does Nancy need a big Social Security check?

 

 

 

 

Close, But No Cigar: Presidential Candidate Jeb Bush's Plan For Funding Higher Education Will Not Fix the Student Loan Crisis

"Close, but no cigar," a Google search tells me, means an attempt that is not quite successful. This should be our response to presidential candidate Jeb Bush's plan to fix the student loan crisis.

Briefly, here is Governor Jeb Bush's plan:

• He proposes to scrap the present student-loan scheme and replace it with a new program whereby all high-school graduates will be given a $50,000 line of credit that they can draw on for postsecondary education.  Students will pay back the loan by paying 1 percent of their income for every $10,000 borrowed, to be paid back over 25 years. Borrowers would make their loan payments on their federal income tax forms.

• Second, Mr.  Bush proposes to make it easier for students to discharge their private student loans in bankruptcy, although the details aren't specified. This idea has also been endorsed by President Obama and several scholarly commentators.

• Third, Mr. Bush wants to improve information about higher education outcomes at colleges and universities, and he will encourage innovation and flexibility in postsecondary programs to help bring down tuition costs.

• Finally, Bush's plan proposes to require colleges to pay back some of the loan money their students borrow if the students default.  He believes requiring colleges to have "some skin in the game," will make them operate more responsibly and give them an incentive for their students to be successful.

So what's not to like about Jeb Bush's plan? Several things.

 For-Profit Institutions Must Be Reined In. First, Governor Bush's plan does nothing to rein in the for-profit college sector, where the worst student-loan abuses are taking place. Indeed, Governor Bush's own state of Florida is notorious for allowing for-profit colleges to operate without proper regulation. Investigative reporters revealed that the Florida for-profit industry has gotten legislation passed to favor their interests by making strategic campaign contributions.  Dade Medical College, which recently closed, is one of the most notorious examples of a for-profit college industry gone wild.  Dade Medical College was run by a high school dropout with a criminal record and received more than 80 percent of its revenues from the federal student-aid program.

Bankruptcy Relief Must Be Made Available to All Student Debtors, Including Those Who Participated in the Federal Student Loan Program.  Mr. Bush's proposal to make it easier for private student-loan debtors to file bankruptcy is a good one, but federal-student-loan borrowers must also have reasonable access to the bankruptcy courts. Millions of people have defaulted on their federal student-loans, and those who took out student loans in good faith and fell on hard times are entitled to a fresh start through the bankruptcy process.

We've Got To Stop Garnishing Social Security Checks of Elderly Student-Loan Defaulters.  Currently, the federal government is garnishing Social Security checks of 155,000 elderly student-loan defaulters, which federal law empowers it to do.  No one who is totally dependent on Social Security should have his or her Social Security check garnished because of a defaulted student loan.

Let's say no to all long-term repayment plans. Personally, I believe the American people should say no to all proposals that require students to pay back their loans over 20 or 25 years.  These plans are designed to lower students' monthly loan payments but they require student-loan borrowers to make payments for the majority of their working lives. And I feel quite sure  that any long-term income-based repayment plan--whether it is crafted by President Obama or Governor Bush, will mean that a majority of student-loan debtors will never pay back the principal on their loans.

Close, but no cigar.

Governor Bush is to be commended for presenting a proposal to fix the student-loan crisis. At least he admits that the federal student-loan program needs fixing. But no proposal will get my approval that doesn't rein in the for-profit college sector, which has exploited low-income and unsophisticated students all over the United States, including Florida.  No proposal is adequate that does not provide reasonable bankruptcy relief for all categories of student debtors. No proposal passes muster for me that doesn't cease garnishing elderly people's Social Security checks,

Finally, the American people should vote no on any student-loan reform plan that pushes student-loan borrowers into long-term repayment plans.  Who would have believed just 20 years ago that our national leaders are so inept at managing the student-loan crisis that they think it is a good idea to push young Americans into plans that force them to pay on their student loans for 20 or 25 years.

References

Francisco Alvarado. Dade Medical College Has Powerful Friends but Struggling Students.  Broward/Palm Beach  New Times, August 29, 2013.  Accessible at: http://www.browardpalmbeach.com/2013-08-29/news/dade-medical-college-has-powerful-friends-but-struggling-students/

Read more here: http://www.miamiherald.com/2013/06/08/v-fullstory/3441091/homestead-mayors-ties-to-downtown.html#storylink=c

Fred Grimm. Before his fall, Ernesto Perez bought himself lots of friends. Miami  Herald, November 4, 2015. Accessible at: http://www.miamiherald.com/news/local/news-columns-blogs/fred-grimm/article42988848.html

David Halperin. For-Profit Colleges Spend Big on Lobbyists to Fight Obama Regulation. Huffington Post, April 28, 2015. Accessible at: http://www.huffingtonpost.com/davidhalperin/for-profit-colleges-spend_b_5221407.html

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

Jon Hartley. Jeb Bush's Plan To Fix The Student Loan Crisis. Forbes.com, January 19,2016. Accessile at: http://www.forbes.com/sites/jonhartley/2016/01/19/jeb-bushs-plan-to-fix-the-student-loan-crisis/#12c2800f3e724a82f8d33e72

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

References

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

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

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

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

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

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

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

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

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

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

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

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

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

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


References

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

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