Showing posts with label Jason Delisle. Show all posts
Showing posts with label Jason Delisle. Show all posts

Saturday, June 23, 2018

Dear taxpayers: I hope you approve of New York University's lavish compensation policy because you are paying for it

American Enterprise Institute's report on graduate schools with low rates of graduate-student repayment included a list of 20 universities where graduate students had above average non-repayment rates ranked by the amount of student loans graduate students took out. New York University is at the top of the list.

According to AEI's analysis, the 2009 cohort of NYU graduate- and professional-school students had amassed $1.135 billion in student loans. That's right: billion with a B. Five years later, more than a third of those students (34 percent) had not paid down their student loans by one dime.

New York University, you may recall, has been criticized for its lavish compensation packages for senior executives.  NYU won't disclose how much it is paying Andrew Hamilton, its current president. But John Sexton, Hamilton's showy predecessor, made $1.5 million in 2012-2013.  He retired with $800,000 in annual retirement income and a "length-of-service" bonus of $2.5 million.

Surely Hamilton is making as least as much as Sexton did. And NYU graciously updated Hamilton's penthouse apartment in Greenwich Village. How much did that cost? NYU won't say.

How does NYU manage to pay its executives so much? Does it have a large endowment? Not particularly.  NYU's total endowment funds amount to only $4.1 billion, about one ninth the size of Harvard's ($35.6 billion).

NYU gets a lot of its revenue from federal student loans. As just noted, graduate students in the 2009 cohort borrowed over $1 billion. That would be OK with taxpayers if NYU's graduate students paid back what they owe. But a lot of them are not.

AEI's list of universities with below average repayment rates for graduate students reveals that the top 15 schools with high levels of student-loan debt and below average rates of repayment are all private universities. Here's the list, along with the percentage of graduate students in the 2009 cohort who had not reduced the principal of their loans by even a dollar after 5 years.

New York University (34%)
University of Phoenix (36%)
Nova Southeastern University (33%)
Walden University (33%)
Capella University (34%)
Argosy University (37%)
Rosalind Franklin University of Medicine and Science (51%)
Keller Graduate School of Management (DeVry) (34%)
Midwestern University (22%)
Webster University (34%)
Grand Canyon University (28%)
National University--La Jolla (26%)
Strayer University (49%)
Thomas M. Cooley Law School (29%)
Touro College-Main Campus Midtown (22%)

What is the annual compensation for the senior executives at these institutions? Who knows? As private institutions, these universities are not required to disclose their compensation packages. But you can bet it is in the high six figures at all 15 universities.

So, Mr. and Ms. Taxpayer, I hope you approve of the federal government's student-loan program, which is shoveling money to private universities, because you are paying for a lot of lavish spending. Graduate students in particular are borrowing extraordinary amounts of money, and a high percentage of them have not paid any of it back five years into the repayment phase of their loans.


NYU president Andrew Hamilton:
Thanks, America! I love my swell penthouse apartment!

References

Jason Delisle. Graduate Schools with the Lowest Rates of Student Loan Repayment. American Enterprise Institute, June 2018.

Abby Ohlheiser. John Sexton will officially leave NYU in 2016. Atlantic, August 14, 2013.

Monday, June 18, 2018

American Enterprise Institute: A ton of graduate students who attended HBCUs are not paying down their student loans

Jason Delisle, writing for the American Enterprise Institute, reported that a great many Americans who took out loans to attend graduate school are not paying them back.  Most are not defaulting; they simply are putting their loans in a holding pattern that doesn't require them to pay down their loan balances.

What's going on? As Delisle explained, student borrowers have three options for managing their graduate-school loans to keep those loans from going in to default.

Income-Based Repay Plans. First, graduate-student borrowers can enter income-based repayment plans (IBRPs), which set monthly loan payments based on income, not the amount borrowed. IBRPs allow borrowers to lower their monthly loan payments, but often (perhaps almost always), the payments aren't large enough to cover accruing interest. When this happens, loan balances grow even when borrowers are making regularly monthly payments.

Forbearance. A student-loan debtor can ask for multiple types of forbearance on their loans. As Delisle explained, "the most common forbearance effectively has no eligibility criteria."  Borrowers simply request a forbearance. Usually, interest continues to accrue during the forbearance period, which can last for no more than 36 consecutive months.

Deferment. Student borrowers can also apply for an economic hardship deferment that allows them to skip making loan payments due to economic hardship such as unemployment or severely reduced income. Borrowers automatically get a deferment while they continue to be enrolled in school. Again, interest accrues on their student loans while they are in deferment.

Graduate students typically accumulate the most student-loan debt because graduate education is expensive and there is no monetary cap on the amount of student loans that can be taken out to fund graduate education. Nevertheless, graduate students typical have low default rates. According to Delisle, only 4 percent of the 2009 cohort of graduate students were in default five years into repayment.

But a low default rate does not mean graduate-student borrowers are paying down their loans. In fact, a high percentage of graduate-student debtors are seeing their loans negatively amortize five years into repayment--meaning their loan balances are going up even though their loans are in good standing.

Why? Because thousands of graduate-student borrowers are not financially able to pay down their loans under a standard 10-year repayment plan. In order to avoid default, these borrowers select one of the three options listed above: IBRPs, loan forbearance, or deferment.

Here's where Delisle's report becomes especially interesting. Delisle lists the 20 graduate and professional schools with the highest share of graduate-student borrowers who had not reduced the principal on their loans five years into repayment.Twelve of these 20 schools are historically black colleges or universities (HBCUs); and their nonpayment rates ranged from 44 to 65 percent.

Here's the list of the 12 HBCUs with high nonpayment rates for their graduate students, along with the percentage of borrowers who had not reduced their loan principal. Of these 12 institutions, 11 are public universities.


  1. Mississippi Valley State University       65%
  2. Southern University New Orleans         62%
  3. Grambling State University                   59%
  4. Virginia State University                       53%
  5. Prairie View A & M University             51%
  6. Delaware State University                     51%
  7. Alabama A & M University                  50%
  8. Alabama State University                      49%
  9. Southern University at Baton Rouge     48%
  10. Clark Atlanta University                        47%
  11. Jackson State University                        46%
  12. Lincoln University of Pennsylvania       44%

The AEI report is additional data showing that African Americans are particularly affected by the federal student loan program. At 12 HBCUs, from 44 to 65 percent of their graduate students entering repayment had not reduced the principal on their student loans by one dime five years later.

Perhaps the AEI report will prompt legislators to examine more closely whether HBCUs funded with public monies are providing their students with useful graduate education. Something is wrong when a high percentage of graduate students who attended a HBCU are not able to pay down their student-loan debt five years after ending their studies.



References

Jason Delisle. Graduate Schools with the Lowest Rates of Student Loan Repayment. American Enterprise Institute, June 2018.





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, 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.







Monday, May 22, 2017

The White House wants to kill the Public Service Loan Forgiveness Program: But who can stop a tidal wave?

President Trump's White House proposes to eliminate the Public Service Loan Forgiveness Program (PSLF), which has triggered howls of protest. Jordan Weissmann, writing for Slate, described the proposal as a "sick joke" perpetuated by an out-of-touch President and an out-of-touch Secretary of Education:
A billionaire president and billionaire education secretary, neither of whom spent a single day of their lives in public service before stumbling their way into positions of immense power, are targeting a program that's basically meant to make life in underpaid government work a little more tenable. 
The Public Service Loan Forgiveness Program: A Very Generous Student Loan Program 

But in fact the issue of whether the PSLF program should be eliminated is a little more complicated than Weissmann described.  To get a clear understanding of what is at stake, people should read Jason Delisle's brief report on PSLF (only 5 pages of text) prepared for the Brookings Institution.


As Delisle explains,Congress initiated the PSLF program in 2007 along with the Income-Based Repayment Plan. (IBR). Student-loan borrowers who take public-service jobs are eligible to have their student loans forgiven after 10 years of loan payments. Furthermore, under IBR, student-loan borrowers' monthly payments were initially set at 15 percent of their gross adjusted income.

The PSLF program defines eligible public service broadly to include employment with a nonprofit agency or any federal, state, or local government. In fact, as Delisle points out, 25 percent of the American workforce qualify for PSLF under this definition of public service (p. 3).

As generous as the PSLF program was in 2007, the program became significantly more generous when the Obama administration introduced PAYE and REPAYE--two repayment plans that required borrowers to  make monthly loan payments totally only 10 percent of their adjusted gross income rather than 15 percent. As Delisle explains, "Had the [Obama] administration left the original IBR program in place, borrowers would have paid 50 percent more before having their remaining debt forgiven under PSLF" (p. 3).

PSLF: Distorted Incentives to Borrow Heavily for Graduate School

Significantly, the PSLF program set no cap on the amount students can borrow for their studies. Apparently, Congress did not anticipate that a high percentage of PSLF participants would be graduate students who would rack up six-figure student-loan debt to enroll in expensive graduate programs: law school, MBA programs, etc.

As Delisle explains, policy makers "who thought PSLF would be a small-scale program likely did not foresee that borrowers enrolled in PSLF would have some of the highest loan balances in the federal student loan program. In fact,  "[t]he median debt load of those enrolled in PSLF exceeds $60,000, and nearly 30 percent of PSLF enrollees borrowed over $100,000."

In essence, the PSLF program and the IBR program (including PAYE and REPAYE) act together to create a perverse incentive for graduate students to borrow excessive amounts of money because their monthly payments will not be affected. As Delisle explained:
Thanks to PSLF, [an already indebted graduate] student . . . who is faced with the choice of borrowing $10,000 to live frugally while enrolled in graduate school or $20,000 to support a more comfortable lifestyle is probably more inclined to choose the latter. (p. 6)
In short, as Delisle accurately summarizes, "[t]he high loan balances among enrollees helps to expose that PSLF is really a de facto loan forgiveness program for graduate students, who can borrow without limit" (p. 4, emphasis and italics supplied).

The Obama Administration Recognized that the PSLF Program Needed to Be Revised

To its credit, the Obama administration recognized that the PSLF program would soon be hemorrhaging money and needed to be revised to reduce the program's enormous costs. The administration proposed a cap of $57,000 on the amount that can be forgiven under PSLF and removing the cap on the amount of monthly payments. The Congressional Budge Office originally estimated these reforms would save the government about $400 million and then revised that estimate to $12 billion.

But the Obama reforms were never implemented, and the Trump administration inherited a program that is basically  providing free graduation education to most PSLF participants.


What will PSLF cost American taxpayers? No one knows

 How much will PSLF cost American taxpayers? No one knows. Approximately 432,000 people were officially certified to participate in PSLF according to government data Delisle reviewed in his 2016 paper. An article in the New York Times, published less than two months ago, reported a figure of 550,000 certified PSLF participants--25 percent higher than the number Delisle's paper reported.

But the number of PSLF participants could be considerably higher than any number reported so far because, as Delisle pointed out, people are not required to be get pre-certified as a condition of participating in the program. That's right, borrowers can apply to the PSLF program retroactively.

Conclusion: A Tidal Wave of  Forgiven Student Loan Debt is Bearing Down on the Trump Administration

The PSLF program is now ten years old, and the first group of PSLF borrowers will be eligible to have their loans forgiven by the end of this year. As Delisle explained so cogently in his Brookings essay, PSLF has turned out to be a bonanza for people to borrow unlimited amounts of money to go to graduate school. Because participants are only required to make token payments equal to 10 percent of their adjusted gross income for ten years, most PSLF participants are making payments so low that their payments are less than accruing interest.

Basically, the PSLF program is a tidal wave bearing down on the Trump administration.The White House has responded by defunding the program in its proposed budget, but shutting down PSLF may be politically impossible.  After all, as Weissmann pointed out, a lot of people went to graduate school based on the reasonable assumption that they were entitled to enroll in PSLF. It would be unfair to shut down the PSLF program precipitously, leaving thousands of student borrowers in the lurch.

In any event, who can stop a tidal wave?

The brutal reality is this: No matter what this presidential administration does about the PSLF program, it is going to cost taxpayers tens of billions of dollars.




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.

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



Friday, December 2, 2016

Department of Education miscalculates cost of income-driven student-loan repayment plans: More accounting fraud

The Obama administration touts long-term, income-driven repayment plans (IDRs) as a good solution for overburdened college borrowers who are struggling to pay back their student loans.  About 5.3 million borrowers are in IDRs now, and the Department of Education (DOE) hopes to enroll 2 million more borrowers in these plans over the next year.

IDRs allow borrowers to make student-loan payments based on their income, not the amount they borrowed, and to stretch the loan repayment period out from 10 years to 20 or even 25 years.

IDRs lower borrowers' monthly payments, which is a good thing. And, if IDR borrowers faithfully make their monthly loan payments for the entire repayment term (20 or 25 years), any remaining unpaid debt is forgiven.

And therein lies the big problem with IDRs. Many IDR borrowers are making payments so low that their payments do not cover accruing interest. Thus a substantial percentage of people in IDRs are seeing their loan balances grow over time--not shrink, even when they are making all their monthly payments on time. Many people in IDRs will never pay off the principal of their debt, which means that their student-loan debt will ultimately be forgiven with the forgiven amount being absorbed by taxpayers.

DOE regularly calculates the cost of IDRs to taxpayers,  but according to a report issued last month by the U.S. Government Accountability Office, DOE has seriously miscalculated those costs. GAO estimates that  $352 billion in federal student loans is being paid through IDRs for the 1995 through 2017 cohorts.  Of that amount, $137 billion--39 percent--will not be repaid (GAO report, p. 51). This is nearly double DOE's estimate of 21 percent.

GAO concluded that DOE has miscalculated the costs of IDR for several reasons:
  • DOE did not differentiate among different IDR programs when calculating costs, in spite of the fact that some IDRs are more generous toward borrowers than others.
  • DOE originally assumed that no one in GRAD PLUS programs would participate in IDRs, even though GRAD PLUS borrowers are eligible to participate. In fact, a lot of unemployed or underemployed people with graduate degrees are opting for long-term, income based repayment plans as the only way to manage their enormous debt.
  • DOE assumed that all IDR participants would recertify their income annually, which is a requirement for continued IDR participation.  In reality, more than half of IDR participants are not recertifying their income on an annual basis, causing those individuals to be ejected from their income-drive repayment plans.
  • DOE's cost analyses assumed that people in standard repayment plans would not switch to IDRs (GAO report, p. 37), but the Obama administration is actively encouraging borrowers to switch to IDRs. Currently, 40 percent of all federal student-loan dollars are now being  repaid through some sort of IDR (GAO report, p. 8).
The GAO also observed that DOE has made repayment projections based on the assumption that monthly payments would increase as borrowers' incomes go up over the years. But, as GAO pointed out, it is "challenging" to predict how much IDR borrowers' income will change over time and how much of their original loan balances will ultimately be forgiven and charged to taxpayers.

Jason Deslisle, a fellow at the American Enterprise Institute, said this about the GAO report: "Really what the GAO is saying is that the Obama administration's expansion of this [IDR] program has been done without good information about the effects."  And Alexander Holt, a policy analyst at New America, said the report shows "insane incompetence" on the part of DOE. 

But in essence, DOE is engaged in accounting fraud. We really don't know what it costs taxpayers to herd millions of student borrowers into IDRs, and DOE doesn't want us to know.

And you know what? DOE doesn't care what it costs. All it is doing is maintaining the charade that the federal student loan program is under control when in fact millions of Americans have student-loan debt they will never pay back.

References

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

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.





Thursday, April 7, 2016

4.6 million student debtors are in long-term repayment plans, default rates are up, and President Obama's "best friend" is buying University of Phoenix: "Things fall apart; the centre cannot hold."

Things fall apart; the centre cannot hold;
 Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.


The Second Coming
William Butler Yeats

As William Butler Yeats put it, "Things fall apart; the centre cannot hold." Everywhere, we see signs that the federal student-loan program is on the verge of collapse. And when the loan program collapses, so will American higher education.

Here are some portents of the coming disaster:

Student borrowers are enrolling in long-term repayment plans in record numbers

First, the U.S. Department of Education recently announced that 4.6 million student debtors are enrolled in Income-Driven Repayment plans (IDRs) to pay off their college loans. This is a 48 percent increase since December 2014 and a 140 percent increase since December 2013. 

People in IDRs are obligated to pay on their student loans for 20 or even 25 years, and most are making payments so small that that their loan balances are going up, not down, due to unpaid accumulating interest. In other words, most people in IDRs will never pay off their college loans.

Yet lenient income-based plans are President Obama's chief strategy for addressing the student-loan crisis. As the DOE blog put it,"President Obama has fought hard to make college more affordable and to help borrowers keep their student loan payments manageable." And thanks to those efforts, DOE continues, students in the new IDRs never have to pay more than 10 percent of their monthly income on your federal student loans."   Indeed, borrowers who are  "temporarily unemployed" don't have to pay anything. "After all, as DOE cheerily pointed out, "10 percent of zero dollars is zero dollars."

But of course, 20-year and 25-year repayment plans are crazy, especially when we consider that most people don't sign up for these plans until their backs are against the wall. Remember Brenda Butler, who entered a 25-year repayment plan 20 years after graduating from college? She won't be finished with her student loans until 2037, 42 years after acquiring her degree!

The Feds are garnishing wages and Social Security Checks; and default rates are rising

Meanwhile, the government garnished $176 million in wages from student-loan defaulters during the last three months of 2015. And the government garnishes Social Security checks of 155,000 elderly student-loan defaulters. 

And despite governmental assurances to the contrary, student-loan default rates are rising. According to a recent analysis by Jason Deslisle, 20 percent of all borrowers with loans due are in default. A Brookings Institution report noted that almost half of  a recent cohort of student borrowers who attended for-profit colleges defaulted within 5 years

And let's not forget the nine million people in the repayment phase of their loans who aren't making payments because they've obtained economic hardship deferments or some other deferment from making loan payments.  Those folks are counted as defaulters, but in reality, most of them will never pay back their loans. 

Law schools are in trouble

And then there are the law schools, some of which are in real trouble. Over the last few years, law schools began behaving like pirates, raising tuition rates to insane levels even as the market for lawyers imploded. Now they are seeing  a 20 percent decline in enrollment applications; and many have lowered their admission standards just to get warm bodies in their classrooms. A typical law student now graduates with $140,000 in debt; and many have almost no prospect of getting jobs in the legal field.

The for-profit college sector: The barbarian are at the gates

Finally, in the private sector, the barbarians are at the gates. Corinthian College, which had 350,000 students or former students as of last year, filed for bankruptcy; and thousands of its victims have filed claims to have their student loans forgiven. The Department of Education brokered a sale of some Corinthian campuses to a company affiliated with Educational Credit Management Corporation, the rapacious college-loan debt collector, just to maintain some semblance of order in the chaos of the Corinthian collapse.

Apollo Education Group, owner of the University of Phoenix, is in real trouble. Enrollments at UP dropped from a a peak of 475,000 in 2010 to less than half that number in 2015. Apollo's stock, which once sold for more than $80 a share, is now trading below 8 bucks.

Apollo is in negotiations to sell out to a group of private equity firms, including Visteria Group. Visteria was founded by Martin Nesbitt, described as President Obama's "best friend." In fact, Nesbitt was treasurer for both of Obama presidential campaigns; and he heads the Obama Foundation that is planning the Obama Presidential Library. 

If the deal goes through, Tony Miller, former Deputy Secretary of Education in the Obama administration and Martin Nesbitt's business partner, will become Apollo Education Group's new Board Chairman.  Very cozy!

"The ceremony of innocence is drowned."

To borrow a phrase from Yeats, "The ceremony of innocence is drowned" in American higher education.  Colleges and universities were once honored as the guardians of our civilization's ideals, the places where young people came to grow and learn, and to develop the civic and moral values that are indispensable to maintaining a healthy and vibrant society.

No more.  Arrogant college presidents, greedy profiteers, and mindless bureaucrats now control our once beloved universities. The best of these characters "lack all conviction, while the worst are full of passionate intensity." 

All of this craziness is paid for by federal student-loan money. And millions of college-loan borrowers are strangling in debt they can never pay off. This cannot go on forever.

President Obama and Martin Nesbitt



Anthony W. Miller official portrait.jpg
Tony Miller, former Deputy Secretary of Education
and soon-to-be Board Chairman of Apollo Education Group
References

Jillian Berman. Americans just had $17 million in wages garnished by the government due to unpaid student loans. Marketwatch.com, March 22, 2016. Accessible at http://www.marketwatch.com/story/the-government-just-garnished-176-million-in-wages-because-of-unpaid-student-loans-2016-03-21

Ronald J. Hansen. Apollo Education, parent company of University of Phoenix, to go prvate at $1.1 billion deal. Arizona Republic, February 9, 2016. Accessible at http://www.azcentral.com/story/money/business/2016/02/08/apollo-education-to-go-private-in-11b-deal/79998782/

Jason Delisle. @usedgov latest data out today shows student loan defaults just hit another record high, 20% of those w/ loans due. Mhttps://twitter.com/delislealleges/status/710539989256429568

Matt Sessa. Student Aid Posts Updated Reports to FSA Data Center. Department of Education, March 17, 2016. Accessible at https://www.nasfaa.org/news-item/7943/3-17_Federal_Student_Aid_Posts_Updated_Reports_to_FSA_Data_Center

Dan Primack. Obama's 'best friend' raises millions for private equity fund. Fortune Magazine, August 11, 2014. Accessible at http://fortune.com/2014/08/11/obamas-best-friend-raises-millions-for-private-equity-fund/

Patricia Cohen and Chad Bray. University of Phoenix Owner, Apollo Education Group, To Be Taken Private. New York Times, February 9, 2016. Accessible at http://www.nytimes.com/2016/02/09/business/dealbook/apollo-education-group-university-of-phoenix-owner-to-be-taken-private.html?

No, You Won't Be Arrested for Falling Behind On Your Student Loans. US. Department of Eduation Official Bog, April, 2016. Accessible at http://blog.ed.gov/2016/04/no-you-wont-be-arrested-for-falling-behind-on-your-student-loans/

Monday, May 11, 2015

Senator Elizabeth Warren and the Brookings Institution's Matthew Chingos are ignoring reality: The federal government is not making a profit off the student-loan program

Do you believe the federal government is making a profit off the student loan program? You do? Then I have some beautiful beachfront property in southwestern Oklahoma I would like to sell you. That's right--Caddo County, Oklahoma is going to be the next Hamptons! 


Caddo County, Oklahoma in springtime
Beachfront lots are still available!
Uncle Sam is not making a profit on student loans

Some people actually believe that Uncle Sam is making a bundle off the federal student loan program. Senator Elizabeth Warren is of that mind. She once said that the government's profits from the student-loan program are "obscene."


And last February, Senator Warren and five other U.S. Senators wrote Secretary of Education Arne Duncan a scolding letter charging the Department of Education with making a profit off of student loans. The Senators accused the government of overcharging student borrowers and "pocketing the profits to spend on unrelated government activities."


Senator Elizabeth Warren: Government profits on student loans are "obscene"
And apparently, the policy wonks over at the Brookings Institution also think the student loan program is producing a profit for the federal government. Matthew Chingos recently published a Brookings paper proposing to significantly lower interest rates on student loans while assessing student borrowers a fee that would be placed in a "guarantee fund" to cover student loan defaults. Chingos argued that his plan would keep the government from profiting from student loans while having a contingency fund to cover the cost of defaults.

Theoretically (and only theoretically), the government is making a profit on student loans.  The government's cost for borrowing money is about 1.9 percent on ten-year Treasury Bonds . And the government is currently loaning money to undergraduate students at a 4.7 percent interest rate. If all students paid back their loans, the government would indeed make a handsome profit.

But, as everyone knows, a high percentage of students are defaulting on their loans. According to Chingos, the government estimates only 0.6 percent of students will default, but of course that is absurd. Every year, for the past 20 years, the Department of Education has been issuing reports on the percentage of students in the most recent cohort of borrowers who default within two years of beginning the repayment phase of their loan. Over that period, that number has never been lower than about 5 percent. Last year, the figure was 10 percent--16 times higher than the DOE default estimate that Chingos cited.

In a Forbes.com article, Jason Delisle and Clare McCann reported that the government estimates that about 20 percent of student-loan borrowers will eventually default on their loans--that's 30 times higher than the rate cited by Chingos.

And let's not forget A Closer Look at the Trillion, the Consumer Financial Protection Bureau's 2013 report on the federal student loan program.   CFPB reported that 6.5 million out of 50 million outstanding student loans were in default--13 percent.


Need more data? The Federal Reserve Bank of New York issued its most recent report on household debt in February 2015. The Bank found student loan delinquency rates worsened in the 4th quarter of 2014, with 11.3 percent of aggregate student-loan debt being 90 days delinquent or in default.(up from 11.1 percent in the previous quarter).

Just one more tidbit of information. The Department of Education recently admitted that more than half of the student-loan borrowers who were signed up for income-based repayment plans, the government's most generous loan-payment option, had dropped out due to failure to file their annual personal income reports on time.  That is a clear sign that many student-loan borrowers are so discouraged that they aren't bothering to file the necessary paperwork to keep their loan status in good standing.

The Chingos Report and Senator Elizabeth's Letter to Secretary Duncan Ignore Reality

I am astonished that Michael Chingos and Senator Warren would publicly state that the government is making a profit off the student-loan program when it so clearly losing money. What's going on?

Tragically, our politicians and policy analysts simply can't face the fact that the student-loan program is out of control. It is so much easier to demand a pseudo reform based on the fantasy that the government is making money off the student loan program than to face reality.

References

Chingos, Matthew M. End government profits on student loans: Shift risk and lower interest rates. Brookings Institution, April 30, 2015. Accessible at: http://www.brookings.edu/research/papers/2015/04/30-government-profit-loans-chingos

Rohit Chopra. A closer look at the trillion. Consumer Financial Protection Bureau, August 5, 2013.  Accessible at: http://www.consumerfinance.gov/blog/a-closer-look-at-the-trillion/

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=buffe

Federal Reserve Bank of New York. Quarterly Report on Household Debt and Credit: February 2015. Accessible at: http://www.newyorkfed.org/householdcredit/2014-q4/data/pdf/HHDC_2014Q4.pdf

Senator Elizabeth Warren, et. al to Arne Duncan, February 25, 2015. Accessible at: http://www.warren.senate.gov/files/documents/2015_25_02_Letter_to_Secretary_Duncan_re_Student_Loan_Profits.pdf

Monday, November 10, 2014

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

References

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