Showing posts with label Paul Campos. Show all posts
Showing posts with label Paul Campos. Show all posts

Thursday, December 14, 2017

No Exit: Thousands of law-school graduates face a lifetime of debt with little prospect of landing good attorney jobs

You say you went to law school to pursue a better life. Your LSAT scores weren't so hot, so you were turned down by the top law schools. Harvard and Yale tossed out your application with its other junk mail and sent you an elegant rejection letter, complete with a genuine-looking robo-signature from someone in the admissions office.

But a lower-tier law school welcomed you with open arms. Let's say it's a for-profit school like Arizona Summit or Florida Coastal. Or maybe a nonprofit, private law school like Thomas M. Cooley in Michigan, Thomas Jefferson in San Diego, or McGeorge in Sacramento. Or maybe you received an acceptance letter from a bottom-rung public law school like Southern Illinois or Texas Southern.

And so you went to law school. You were vaguely aware that job prospects for people who graduate from bottom-tier schools aren't good and a high percentage of graduates fail the bar exam. But you're special. You'll study hard, you'll prepare for the bar exam, you'll  pound on doors until a law firm offers you a good job. 

And when you get that J.D. degree, your life will suddenly change for the better. You'll drive a nice car, get married, and buy a craftsman-style house like the happy people who inhabit television commercials.

And of course you took out student loans. To your surprise, back-of-the-pack law schools are just as expensive as Princeton and Stanford. Total costs, including living expenses turned out to be $40,000 a year, $50,000 a year, or even $60,000 a year.

But in for a penny, in for a pound. You realized you can't work your way through law school like in the old days because no one can make enough money from a part-time job to pay a $40,000 tuition bill. So you took out loans every semester and when you walked across the stage to receive your law school diploma, you owed $200,000.

You studied hard for the bar examination and paid for a bar review course. But you didn't pass the exam.

And then you realized--fully realized for the first time--you owe $200,000 in student loans and you will never get a good job as a lawyer.

What's your exit strategy?

There is no exit strategy. You must pay back those student loans whether or not you get a good job or pass the bar exam.  You can stall for time by getting an economic hardship deferment that excuses you from making monthly loan payments. But the deferment doesn't stop interest from accruing. In a few years, the $200,000 you borrowed will grow to $300,000.  

Maybe you were enticed to enroll in a crummy law school based on misrepresentations about the law school's employment rate. Can you sue for fraud? Yes you can, but so far at least, fraud suits against law schools have been unsuccessful. Thomas Jefferson and Thomas M. Cooley both beat that wrap.

Can you discharge your student loans in bankruptcy? Maybe. Michael Hedlund, a graduate of Willamette School of Law won a partial discharge of his student loans after 10 years of litigation. But several law-school graduates have struck out in the bankruptcy courts. Mark Lilly, a McGeorge law-school graduate, and Mark Tetzlaff, a Florida Coastal graduate, lost their adversary actions in spite of the fact that their law degrees did not enable them to get good attorney jobs. Heather Coplin, a McGeorge law-school graduate working as a waitress, only obtained a partial discharge of her student loans, which totaled almost half a million dollars.

*****

Law used to be a profession, and law schools once operated as professional schools with high ethical standards. Today, however, a great many law schools are nothing more than elegant con games designed to rake in federal student-aid money.

So before you enroll in a third-rate law school, do some research. Read Paul Campos' article in Atlantic. This article was the inspiration for John Grisham's recent novel The Rooster Bar, which tells the story of a young man who attended a dodgy for-profit law school.  And read some of the bankruptcy cases that have been decided against law-school graduates who were unable to find good jobs as attorneys. In particular, read the Tetzlaff case and the Lilly case.

And if you still want to enroll at Florida Coastal or Arizona Summit or Southern Illinois or Thomas Jefferson or Thomas M. Cooley, check yourself into a psychiatric facility--because you probably need to have your head examined.




References

Paul Campos. Don't Go to Law School (Unless). Createspace.com, 2012.

Paul Campos. The Law School Scam. Atlantic Magazine, September 2014. 

Coplin v. U.S. Department of Education,  Case No. 13-46108, Adversary No. 16-04122, 2017 WL 6061580 (Bankr. W.D. Wash. December 6, 2017) (unpublished decision).

Steven J. Harper. Too Many Law Students, Too Few Legal Jobs, New York Times, August 25, 2015. Accessible at: http://www.nytimes.com/2015/08/25/opinion/too-many-law-students-too-few-legal-jobs.html

Hedlund v.Educational Resources Institute, 718 F.3d 848, 851 (9th Cir. 2013). 

Lilly v. IllinoisStudent Assistance Commission, 538 B.R. 45 (Bankr. S.D. Cal. 2013).

MacDonald v. Thomas M. Cooley Law School, 724 F.3d 654 (6th Cir. 2013).

David Segal, Is Law School A Losing Game? New York Times, January 8, 2011. Accessible at: http://www.nytimes.com/2011/01/09/business/09law.html?_r=0


Joshua Wright. The Oversaturated Job Market for Lawyers Continues and On-the-Side Legal Work GrowsEMSI blog, January 10, 2014.

Staci Zaretsky. Verdict Reached in the Alaburda v. Thomas Jefferson Landmark Case Over Fraudulent Employment Statistics. Abovethelaw.com, March 24, 2016.



Monday, November 20, 2017

Law schools give most financial aid to students who need it least: Legal education is "rolling downhill like a snowball headed for hell"

To borrow a phrase from James Howard Kunstler, American law schools are going through their own private version of "The Long Emergency." Law school applications are down, enrollments are down, and the job market for attorneys continues to be terrible.

Meanwhile, tuition prices at American law schools keep going up, which means most law-school graduates begin their careers with mountains of debt. A 2015 report  by the American Bar Association found that average debt for people attending private law schools was $127,000. But average debt loads at for-profit schools is often higher than that. The average debt load for students who attended the now defunct Charleston School of Law was reportedly $200,000.

With fewer people attending law school and fewer people actually enrolling, law schools have done two things to keep their enrollments up:

First, the second- and third-tier law schools began lowering admission standards, which means more and more of their graduates are failing the bar exams.

According to Law School Transparency, some schools have admission requirements so low that half their students are at "extreme risk" of failing the bar.

Second, law schools have been investing more and more money on financial aid, hoping to lure students through their doors.

Unfortunately, most of this financial aid is going to students who have relatively high LSAT scores and who are most likely to have successful careers. Law schools are increasingly happy to admit students with low LSAT scores, but the schools are not supporting these students with adequate financial aid..

"The net effect," writes retired law professor William C Whitford, "is that lower-LSAT students are subsidizing the legal education of higher-LSAT students, when the latter are more likely to have the postgraduate income that will allow them to repay substantial student indebtedness without undue hardship."

Moreover, the law students with low LSAT scores and overall poorer credentials are likely to be less affluent than law-school applicants with high LSAT scores. As Brian Tamanaha put it in a recent book on law school admission practices, "Law schools have in effect constructed a reverse Robin Hood arrangement, redistributing resources between students making the (likely) poorer future graduates help pick up the tab for the (likely) wealthier future graduates" (as quoted by Whitford).

In short, the middle-tier and bottom-tier law schools have concocted a witches' brew of declining admission standards, inequitable financial aid policies, and high tuition costs, which is forcing the least qualified law students to take out loans that they can never pay back.

Paul Campos summarized this state of affairs in his 2012 book Don't Go To Law School (Unless). Job prospects are so poor for graduates of bottom-rung law schools, Campos warned, that some students would be better off financially if they dropped out after the first year rather than continue with their studies.

All of this is eroding the quality of American lawyers. As bar pass rates go down, the pressure is on state bar associations to lower the pass rate on state bar exams. So far, California has resisted this trend in spite of low pass rates on the California bar exam. At least two states, however--Oregon and Nevada--have caved in to pressure and lowered the pass rate on their state bar exams.

The American Bar Association bears most of the blame for this slow rolling catastrophe. It needs to close the bottom-tier law schools--both public and private. In my view, at least 20 law schools should be shut down.

Apparently the ABA doesn't have the courage to do what needs to be done to preserve the integrity of the legal profession, which, in the words of the immortal Merle Haggard, is "rolling downhill like a snowball headed for hell."  As a result, the long-term health of our democracy is being threatened by a chain of forces driven primarily be greed and cowardice.

Merle Haggard:  "Are we rolling downhill like a snowball headed for hell?"


References

Natalie Bruzda. Nevada lowers the bar for state legal exam as passage rate skids. Las Vegas Review Journal, August 2017.

Paul Campos. Don't Go to Law School (Unless) (2013).

Cathryn Rubino. Oregon Finds Out Easiest Way To Improve Bar Exam Passage Rate is To Lower Its Cut Score. Above the Law (blog), October 5, 2017.

Brian Tamanaha. Failing Law Schools (2012).

Task Force of Financing Legal Education. American Bar Association Report (2015).

William C.Whitford. Law School-Administered Financial Aid: The Good News and the Bad NewsJournal of Legal Education, 67(1) (Autumn 2017).

Saturday, December 3, 2016

California bar exam pass rate hits 32-year low, but law-school graduates who fail the bar exam must still pay off their student loans

Last July, 7,737 people sat for the California bar exam, and only 3,332 test takers passed--a 43 percent pass rate. A total of 4,405 people--57 percent of test takers--failed the exam, the lowest pass rate since 1984.

In all 50 states, J.D. graduates cannot practice law until they pass a bar exam pass.  Thus, the 4,405 law graduates who failed the California bar exam last July suffered a major setback in their professional careers.

They also suffered a financial catastrophe. The average J.D. graduate leaves law school with more than $100,000 in student-loan debt; and that debt must be paid regardless of whether the graduate passes a bar exam or ever gets a job as a lawyer. Without a doubt, a majority of the people who failed the California bar exam last July have student-loan debt.

Obviously, the risk of failing the bar is not equally distributed among test takers. People who graduate from ABA accredited law schools have higher pass rates on the California bar exam than people who attended a law school that is only accredited by the state of California. Sixty percent of test takers who graduated from out-of-state ABA accredited schools passed the July bar exam, while only 21 percent of people who attended state-accredited schools passed.

And people who fail the bar exam the first time they take it have a lower pass rate than overall test takers if they retake the exam. Among exam repeaters, only 17 percent passed the California bar exam last July. Pretty bad odds.

The California bar exam results are just another indication that the future for many law-school graduates is bleak. The legal job market has less than six  lawyer's job for every ten new law graduates, and it offers no law jobs for graduates who cannot pass the bar. People who graduate high in their class from a prestigious law school such as Harvard or Stanford are eminently employable, but people who graduate in the bottom half of their class or who attend bottom-tier law schools may never obtain a job that will justify the student-loan debt they piled up to get a law degree.
So if you are thinking about going to law school, here's my advice.  Read Paul Campos' book titled Don't Go to Law School (Unless). And heed Campos' warning; unless you have family connections or are admitted to a top-tier law school, you probably should not take out student loans to pursue a legal career.

And if you went to law school, can't find a law job, and are unable to pay off your student loans, you should consider bankruptcy. But if you go that route and try to get your law-school loans discharged, you must educate the bankruptcy judge about the terrible job market for lawyers.

Now if we can just find a job.


References

Paul Campos. Don't Go to Law School (Unless). 

Kyle McEntee. Law Grads Still Face Tough a Job Market. Bloomberg  Law, May 4, 2016.

Noam Scheiber. An Expensive Law Degree and No Place to Use It. New York Times, June 17, 2016.

Ann Yarbrough. Bar exam pass rate dips to 32-year low. California Bar Journal, December 2016.


Saturday, July 30, 2016

Consumer Reports' article on student loan debt: A missed opportunity to give students some clear warnings

Consumer Reports' August issue ran a cover story on student loans, which led with this arresting quote: "I Kind of Ruined My Life By Going to College." An inside article profiled several students who were struggling to pay back enormous student loan debt.
  • For example, Jackie Krowen borrowed $128,000 to attend three colleges. She now owes $152,000 and is making loan payments of $1200 a month.  She told Consumer Reports she didn't understand how much interest could accrue when she took out her loans.
  • Jessie Suren borrowed $72,000 to attend a private Catholic school. She now owes $90,000 and makes payments of $900 a month. She works at a sales job that pays $39,000 a year. Here entire income comes from commissions.
  • Saul Newton borrowed $10,000 to attend University of Wisconsin at Stevens Point. He dropped out to join the Army and now owes $23,000. He works as a veterans' activist making $28,800 a year.
 The Consumer Reports article pointed out hat 45 percent of people surveyed said that their college experience was not worth the cost, and 47 percent said if they had it to do over again they would have attended a cheaper school and incurred less student-loan debt.

Anyone making college plans should read the Consumers Reports story. Nevertheless, the article missed an opportunity to give potential students several dire warnings:

1) First, do not attend a for-profit college. The research shows that for-profit colleges charge more for their programs than public institutions, that their student-loan default rates are shockingly high, and that a high percentage of their students don't complete their programs. Students should find a public-college alternative to a for-profit college education. I don't think there are any exceptions to this rule.

2) Never allow a parent or loved one to co-sign a loan. Parents who co-sign student loans for their children are on the hook to pay those loans back, and it is as difficult for a co-signer to discharge a student loan in bankruptcy as it is for the primary borrower. If your college plans depends on getting a loved one to co-sign your student loans, then you need a different plan.

3) Don't take out a student loan from a private lender. Private loans generally have higher interest rates than federal loans, and private loans don't have alternative payment plans if a borrower gets in financial trouble and can't make monthly loan payments. Again, if your college plan requires you to take out a private loan, you need to make another plan.

4) Don't borrow a lot of money to obtain a liberal arts degree from a high-priced elite college. People foolishly think a degree from a prestigious university will pay off, no matter what major they choose. That is not true. A person who borrows $100,000 to get a religious studies degree from NYU will regret it.

5) Don't borrow money to get an MBA or law degree from a mediocre school, particularly if you know you are not going to graduate in the top of your class. Anyone contemplating law school should read Paul Campos' book titled Don't Go to Law School(Unless). Campos strongly warns against borrowing money to attend a second- or third-tier law school. It just doesn't make economic sense given the dismal job market for lawyers, particularly if you don't graduate in the top of your class. In my opinion, the same advice holds for MBA programs. Borrowing a lot of money to get an MBA from a nondescript university is unlikely to pay off financially.

In his book, Paul Campos also warned against the "Special Snowflake Syndrome"--the irrational belief that you can beat the odds. For example, you may think you will study especially hard and graduate in the top 10 percent of your class. But Campos points out that 90 percent of law students don't graduate in the top 10 percent of their class.

Alternatively, you may think you are a special person with great interpersonal skills and that you will do well in a law career even if you graduate at the bottom of your class from a mediocre law school. But statistics don't lie; most  people who borrow $150,000 to attend Nowhereville School of Law aren't going to earn a salary that will make that investment pay off.

Campos' advice for prospective law students applies to everyone going to college. Do your research and make an informed decision about where to go to school and what to study. Don't assume the world will be your oyster simply because you have a bachelor's degree in multiculturalism from a hot-shot Eastern college.

In summary, you should read the recent Consumer Reports story if you are making plans to go to college. But you should also heed the warnings in this blog. Millions of people made bad decisions about financing their college educations. Five million are now in long-term income-based repayment plans that stretch their monthly loan payments out for 20 and even 25 years.

You want to improve your life by going to college; you don't want to wind up as a sharecropper--paying a percentage of your income to the government for the majority of your working life just because you made some bad financial decisions when you were a college freshman.

References

Paul Campos. (2012). Don't Go to College (Unless). Lexington, KY). 

Lives on Hold. Consumer Reports, August 2016, 29-39. Accessible at http://www.consumerreports.org/student-loan-debt-crisis/lives-on-hold/




Saturday, March 12, 2016

Thomas Jefferson School of Law is being sued for misrepresentation by Anna Alaburda, a TJSL graduate. Let's hope she wins

Thomas Jefferson School of Law in San Diego is a defendant in a lawsuit filed by Anna Alaburda, one its graduates. The case may go to trial this week.

Alaburda, who received her JD from TJSL in 2008, sued the law school in a California state court, claiming the school misrepresented the employment statistics of its graduates. Alaburda argues that she enrolled at Thomas Jefferson based partly on the school's representations about its graduates' job prospects, but that the school dispensed misleading information. Since graduating, Alaburda has not found a full-time attorney's job.

As a New York Times story reported, Alaburda is not the first law school graduate to sue her alma mater, but she is the first to get her case to trial. Judges in Illinois, New York and Michigan have dismissed similar suits based on the grounds that the plaintiffs enrolled in law school "at their own peril," and that they were sophisticated enough to realize that they might not find an attorney's job after they graduated.

Thomas M. Cooley Law School was sued under a theory similar to the one put forth by Alaburda, but a Michigan court dismissed the case. Less well known, however, is the fact that Cooley Law School lost a defamation suit against the attorney who brought the misrepresentation suit. The Sixth Circuit Court of Appeals ruled that Thomas M. Cooley was a public figure for the purposes of a defamation claim and could not prevail  unless the school could show the lawyer had communicated his accusations maliciously, which it had not done.

I hope Ms. Alaburda wins her lawsuit. As Paul Campos and others have written, the market for lawyers has imploded. There is now approximately one law job for every two law graduates. Law school admissions are down by about 20 percent, and many law schools have lowered their admission standards just to get tuition-paying students through the door.  Meanwhile, the average newly minted JD graduates with more than $100,000 in student-loan debt.

Many students at the second- and third-tier schools do not pass the bar exam after they graduate and are not able to earn an income that will allow them to pay back their student loans. Some have filed for bankruptcy.

Unfortunately, the bankruptcy courts have not always been sympathetic. A few months ago, the Seventh Circuit Court of Appeals ruled that Mark Tetzlaff, a graduate of  Florida Coastal School of Law, was not eligible for bankruptcy relief, in spite of the fact that Tetzlaff failed the bar exam, had serious health problems, and hadn't found employment as a lawyer.  In a 2013 decision, a California bankruptcy judge ruled against Mark Lilly, another law school graduate who never found employment as an attorney.

Job prospects for graduates of second- and third-tier law schools are terrible; and thousands of law graduates are burdened with six-figure debt.  In fact, in Don't Go to Law School, Unless, Paul Campos advised students attending down-market law schools to drop out after the first year if they don't excel academically rather than borrow money to continue their studies  In Campos' view, it often makes more sense for a law student to drop out rather than double down and acquire more debt to get a JD degree that won't lead to a high-paying job.

In my view, the law schools have acted irresponsibly to the deteriorating job market for attorneys. Many did not cut their enrollments in response to the plummeting demand for lawyers.  Instead, they lowered their admissions standards in order to keep generating tuition. And according to some law school graduates, at least a few law schools lured people to enroll by misrepresenting the job statistics of their graduates.

If Alaburda wins her case, Thomas Jefferson will appeal. But if she ultimately prevails and gets a money judgment, law schools all over the United States will quake with fear. The law schools have had a good run. They jacked up tuition prices unreasonably and raked in millions of dollars. And students went heavily into debt on the bet that they would get a good lawyer's job that would justify their investment.

But the party is over.  Thousands of unemployed and heavily indebted lawyers deserve some relief. If they are victims of fraud or misrepresentation, I hope they find relief in the state courts. And if they are unable to find remunerative employment as attorneys, I hope they find sympathetic bankruptcy judges who will relieve them of their oppressive student loans and give them an opportunity for a fresh start.

References

Elizabeth Olsen. Law Student Gets Her Day in Court. New York Times, March 6, 2016. http://www.nytimes.com/2016/03/07/business/dealbook/court-to-hear-suit-accusing-law-school-of-inflating-job-data.html?smid=fb-nytimes&smtyp=cur&_r=1

Lilly v. Illinois Student Assistance Comm’n, 538 B.R. 45 (Bankr. S.D. Cal. 2013)

Tetzlaff v. Educational Credit Management Corporation794 F.3d 756 (7th Cir. 2015). Accessible at http://caselaw.findlaw.com/us-7th-circuit/1708687.html

Thomas M. Cooley Law School v. Kurzon Strauss, LLP, 759 F.3d 522 (6th Cir. 2014). Accessible at http://www.ca6.uscourts.gov/opinions.pdf/14a0139p-06.pdf











Sunday, January 10, 2016

Know when to fold 'em: Dropping out of graduate school may make more economic sense than continuing in a program that will not pay off

You've got to know when to hold'em, know when to fold'em.
                                 Know when to walk away, know when to run.


The Gambler
Sung byKenny Rogers
Lyrics by Don Schlitz

Graduate school has gotten incredibly expensive, and it is increasingly obvious that borrowing money to obtain a graduate degree is not always a good financial bet. In fact, in Don't Go to Law School (Unless), law professor Paul Campos argued that law students who borrow a lot of money to attend a second- or third-tier law school and don't  excel academically in their first year should quit law school rather than borrow more money to get a degree that probably won't lead to a good job.

It is true that people who quit law school lose their entire investment. They've taken out loans to pay for  degree they will never get. And many people will be tempted to borrow more money in order to pay for two more years of study that will lead to a JD degree. But Campos argues that this is the wrong choice for many people--particularly people who got mediocre grades during their first year at a mediocre law school.

Campos' advice to law students applies to all kinds of graduate programs. People who borrow money to get a Ph.D. in sociology, medieval history, or English from a second-tier graduate school may realize early in their studies that getting a well-paying job in their chosen field is highly unlikely. For these people, it may make financial sense to drop out of graduate school rather than continue to borrow more money.

But graduate students who quit their degree programs and then seek to discharge their student loans in bankruptcy will inevitably face opposition from student-loan creditors who will argue that the dropouts failed to make a good faith effort to maximize their income and thus should be denied bankruptcy relief.

Fortunately, the Eighth Circuit Court of Appeals, in the case of Shaffer v. United States Department of Education, understood the economic rationale behind some people's decision to drop out of graduate school. The case involved Susan Shaffer, a woman with significant mental health problems who borrowed $204,000 for her postsecondary studies, including money she borrowed to pursue a graduate degree at Palmer College of Chiropractic Medicine.

A bankruptcy judge discharged all of Shaffer's loans, but the Iowa Student Loan Liquidity Corporation,  one of her creditors, appealed the decision. Iowa Student Loan argued that Shaffer's low income (she was living on about $1700 a month) was self-imposed because she had dropped out of her chiropractic program. According to Iowa Student Loan, Shaffer should have borrowed more money in order to stay in school and get her chiropractic degree, which would have led to a high paying job that would have allowed her to pay off her student loans.

But a panel of Eighth Circuit judges emphatically rejected that argument, saying there was no support for Iowa Student Loan's position in the trial court record. On the other hand, the appellate court pointed out, the bankruptcy court heard Shaffer's explanation for why she dropped out of the chiropractic program and had found her testimony credible. 

As the Eighth Circuit colloquially put the matter, Iowa Student Loan's contention that Shaffer should have stayed in graduate school were "contrary to the sage advice of both Will Rogers, who said, "When you find yourself in a hole, stop digging," and Kenny Rogers, who sang, "You got to . . . know when to fold 'em . . ."

Apparently, the bankruptcy court had concluded that Shaffer's mental health challenges made her unfit for some higher-paying jobs, presumably including a job in the field of chiropractic medicine. As the Eight Circuit observed:
The bankruptcy court determined that [debtor] could endure only work that was essentially ministerial and that she suffered from the stress of increased responsibility due to a lack of self-confidence. While there was no evidence that the debtor was clinically disabled or maladjusted, the bankruptcy court expressly found that [debtor] was not fit for the higher responsibility and higher paying positions she tried and then left. 
Interestingly, Shaffer presented no expert witnesses to buttress her testimony about her mental health challenges. Iowa Student Loan argued that the bankruptcy court had engaged in impermissible speculation when it concluded that Shaffer's mental health issues were an obstacle to getting a high paying job.

But the Eighth Circuit disagreed. "The bankruptcy court heard Debtor's testimony, judged her credibility, and accepted her description of her mental health issues and their effect on her ability to maintain employment. . . . Consequently, we cannot say the bankruptcy court's findings were clearly erroneous."

The Shaffer decision is a good decision for any student-loan debtor in bankruptcy who borrowed money to go to graduate school and then dropped out. The court accepted Shaffer's explanation for why it did not make economic sense for her to continue her chiropractic studies, and the court did not require Shaffer to hire an expert witness to corroborate her testimony.

References

Shaffer v. U.S. Department of Education, 481 B.R. 15 (8th Cir. 2012).

Sunday, December 6, 2015

In the Jubilee Year of Mercy, Catholics Should Urge the Government to Forgive Student-Loan Debt

According to Old Testament scripture, a jubilee year occurs every fifty years; and in that year, slaves are freed and debts are forgiven. Leviticus 25:8-13. Pope Francis has proclaimed a Jubilee Year of Mercy for the Catholic Church that begins on December 8, the Feast of the Immaculate Conception. Would not this be a good time for the  U.S. government to forgive  $1.3 trillion in student-loan debt?

Perhaps not all of it. Of the 41 million people who have outstanding student loans, a great many received good value for their college education and can pay back what they borrowed. But 10 million people have either defaulted on their student loans or are delinquent in their payments. Millions more have gotten economic hardship deferments and aren't paying down their loans.

And for some people, their student loan debt is completely out of control. Liz Kelly, for example, featured in a recent New York Times article, is a 48-year old school teacher who owes $410,000 in student-loan debt--most of it accumulated interest. Will she ever pay it back? Not likely.

A 2014 law review article reported that 241,000 people with student-loan debt filed for bankruptcy in 2007, but less than 300 of them even tried to discharge their student loans. Either they figured it would be hopeless to try wipe out their student-loan debt in the bankruptcy courts or they didn't have the money to hire a lawyer to assist them.

And yet, as Paul Campos explained on his blog site and in a recent book,  we have thousands of unemployed or underemployed attorneys, many of whom have crushing student-loan debt themselves. Why doesn't the government, as an act of mercy, encourage these idle lawyers to help people discharge their student loans in bankruptcy?

Mercy, Pope Francis reminds us demands justice. "True mercy, the mercy God gives to us and teaches us, demands justice, it demands that the poor find a way to be poor no longer," Pope Francis explained. Mercy demands that institutions strive to make sure that "no one ever again stands in need of a soup-kitchen, of makeshift lodgings, of a service of legal assistance in order to have his legitimate right recognized to live and to work, to be fully a person."

Our country now has 23 million people who are unable to pay off their student-loan debt.  Indeed, about 150,000 elderly people are having their Social Security checks garnished by the federal government to offset unpaid student loans. For these people there is no Jubilee Year of Mercy--no forgiveness, and little relief even in the bankruptcy courts.

We are now a secular people--a people who pride themselves on having driven religion out of the schools and the public square. But surely we are not a heartless people. Surely our hearts are susceptible to warming by the words of a great man like Pope Francis.

So let us do mercy in the Jubilee Year of Mercy. And if our government is incapable of mercy, let us look for ways we as individuals can render mercy and to work for a system of higher education that does not drive millions of students into the poor house.

Image result for pope francis year of mercy

Tuesday, November 3, 2015

If you have to enroll in a 25-year income-based repayment plan to pay for your college education, you attended the wrong college

In his 2012 book entitled Don't Go To Law School Unless), Paul Campos made a statement that startled me by its intense clarity. "The truth is," Campos wrote, "that people who are likely to end up in [income-based repayment plans] if they go to law school should not go at all" (48). 
And of course Campos is right. But isn't the same observation true about undergraduate education as well? A person who must enter a 25 year income-based repayment plan to pay for a college degree either enrolled in the wrong college or chose the wrong academic major--and probably both.
For example, Ron Lieber of the New York Times wrote a story about five years ago that featured Cortney Munna, who borrowed almost $100,000 to get a degree in women's studies and religious studies at New York University, one of the most expensive universities in the world.. At the time of Lieber's story, Munna was working for a photographer for $22 an hour and enrolled in night school in order to defer her loan payments. 
As Lieber pointed out, going back to college simply to postpone student-loan payments on the degree one already has is not a good long-term option because interest continues to accrue on the debt.
I wonder how Ms. Munna is doing today. I think the chances are very good that she is in a 25-year income-based repayment plan
Campos said in his book that "there's a good argument to be made that law schools [that] promote IBR[income-based repayment plans] are participating in  a fraud on the public." (50) Again, I think Campos is right.
 Most people who enter into 25-year income-based repayment plans won't make payments large enough to cover accruing interest and also pay down the principal on their loans. In other words, most people in IBRs will see their loans negatively amortize. This means the taxpayer will be left holding the bag when the loan-repayment term ends and the unpaid portion of the loan is forgiven.
To return to Ms. Munna's story, shouldn't NYU bear some responsibility for allowing her to borrow so much money for a degree that is not likely to lead to a job that will allow her to pay back the debt?

Of course, universities are not in the habit of admitting that some of their degree programs are overpriced. But maybe it is a habit they should acquire.  How many private universities could look their students in the eye and say their degrees in women's studies, religious studies, sociology, urban studies etc. etc. etc. are worth going $100,00 into debt? Not many.
References
Paul Campos. Don't Go To Law School (Unless). Self-published, 2012.
Ron Lieber. Placing the Blame as Students Are Buried in Debt. New York Times, May28, 2010. Accessible at http://www.nytimes.com/2010/05/29/your-money/student-loans/29money.html

Friday, October 30, 2015

Income-Based Repayment Plans are a fraud on college students: Reflections on Paul Campos' analysis of IBRs

Don't Go To Law School (Unless), Paul Campos' excellent book on the economics of legal education, was published in 2012, and I am embarrassed to say I did not read it until this week. Campos delivered a devastating critique of American law schools, which have charged insanely high tuition for turning out more lawyers than the nation needs. No one should make a decision to go to law school without reading Campos' book, along with the recent report on law-school admissions standards put out by the public interest group Law School Transparency.

Even people who don't plan to go to law school should read Campos' book, because his indictment of legal education also applies to higher education in general. All over the United States, colleges have jacked up their tuition, forcing their students to borrow more and more money. It is now apparent that millions of students are saddled with unmanageable student-loan debt.

To keep the gravy train rolling, higher education's insiders now back long-term income-based repayment plans (IBRs) that lower borrowers' monthly loan payments but extend the repayment time to as long as 25 years. Policy think tanks like the Brookings Institution, the Obama administration, and the New York Times have all backed IBRs.

Let's look at what Paul Campos had to say about IBRs in Don't Go To Law School (Unless).  (Campos also criticizes public service loan forgiveness plans (PSLFs), but I will not comment on PSLFs in this essay).

"The truth is," Campos wrote, "that people who are likely to end up in IBR . . . if they go to law school should not go at all" (48).  People who participate in these long-term repayment plans will generally be making payments so low that they don't cover accumulated interest, which means that many debtors will never pay off their loans. Moreover, Campos notes, under current IRS regulations, any debt that is forgiven at the end of a long-term repayment plan is considered taxable income.

Campos trenchantly pointed out that IBRs are simply a way to prop up the law schools' broken business model:
When law schools push the supposed benefits of IBR . . . to prospective students, what they're really doing is advertising that they're operating under a business model that doesn't work unless it is subsidized heavily at both ends by the American taxpayer. Law school is subsidized on the front end by federal educational loans, which allow students to borrow money they won't be able to pay back, and by IBR  . . on the back end, which allows graduates to have the "privilege" of being in debt servitude to the U.S. government for ten or, more likely, twenty-five years, with the added bonus of being hit by a huge tax bill at the end of it all. (51)
Indeed, Camps suggests that law schools that push the benefits of IBRs are engaging in unethical behavior. "Given that the American taxpayer will be left holding the bag for all the unpaid debt accrued by law graduates in these programs, there's a good argument to be made that law schools who promote IBR are participating in a fraud on the public" (50) (my emphasis).

Every criticism Campos raised about IBRs as a means of financing legal education applies to higher education in general. Twenty-five year repayment plans (or even the less onerous 20-year repayment plan developed by the Obama administration) force students to pay a percentage of their income to the federal government for the majority of their working lives.

These long-term repayment plans demonstrate the intellectual vacuity of our higher education community. In their desperate effort to maintain the status quo, colleges and universities are throwing their students under the bus.  Rather than change their business model, they raise their tuition rates every year and soothingly assure their students not to worry---they will have 25 years instead of 10 to pay off their student loans.

Image result for throwing someone under the bus funny
American universities are using IBRs to throw their students under the bus.

References

Paul Campos. Don't Go To Law School (Unless) (published by the author, 2012).

Sunday, April 12, 2015

The Urban Institute's Sandy Baum: Is She a Bag Man for the Higher Education Industry?

My favorite scene in the movie Michael Clayton is a dialogue between Michael Clayton (played by George Clooney), who is a lawyer in a 600-person law firm, and Arthur Edens (played by Tom Wilkinson), a senior partner in the same firm.

Edens is a manic depressive handling a major piece of litigation for an international corporation accused of intentionally marketing a product that causes people to get cancer. During depositions, Edens has a manic episode and his continuing bizarre behavior threatens to expose the corporate client's skulduggery, potentially costing it billions.

The firm's senior partner directs Clayton to get Edens under control, and Clayton talks to him very persuasively, while implicitly threatening to have him committed to a mental institution.

But Edens is having none of it.

"Michael," Tom Wilkinson's character kindly says to George Clooney's character, "I have great affection for you and you live a very rich and interesting life, but you're a bag man not an attorney."

If I ever meet Sandy Baum, I'm tempted to say very much the same thing. Baum is a senior fellow at the Urban Institute and a highly respected analyst of higher-education finance. For many years, she has co-authored the College Board's annual publications Trends in Student Aid and Trends in College Pricing; and she has conducted studies on college costs for the Brookings Institution. She has a Ph.D. in economics and is a research professor at George Washington University, a position she holds while working with the Urban Institute. Very impressive.

Over the years, Sandy Baum has emerged as one of the leading apologists for the higher education industry. Everyone knows that college costs have skyrocketed and that the federal student loan program is totally out of control. Millions of people have defaulted on their loans and millions more have obtained economic hardship deferments that excuse them from making student-loan payments.

Nevertheless, Sandy Baum coos soothingly that college costs are really not as high as they seem to be and, in any event, rising costs are not the fault of the colleges and universities. In 2013, Baum co-authored a report for the College Board that actually argued that college costs have not gone up much at all. It is true, the College Board acknowledged, that the sticker price for attending college has gone up significantly over the past ten years. But when discounts, grants and tax benefits are calculated, the real cost that students pay has remained virtually steady over the past decade. In fact, according to the College Board (as reported in the New York Times), when adjusted for inflation, the net cost of attending college (looking only at tuition and fees) has actually gone down over the past ten years.

Indeed, as Sandy Baum told the New York Times, "I think the hand-wringing about the trend [in college costs] is greatly exaggerated."

And--if there has been an increase in college costs, it is because the states have cut back on their support for higher education. "So it's not that colleges are spending more money to educate students," Baum told NPR radio. "It's that they have to get that money from someplace to replace their lost state funding--and that's from tuition and fees from students and families."

So which is it, Sandy? Has college tuition gone up due to reduced state funding or have costs not gone up after adjusting for inflation, grants, and tax benefits?

And if everything is under control, why did Baum praise President Obama for encouraging students to sign up for long-term income-based repayment plans--plans that can extend the student-loan repayment period to 20 or 25 years? In fact, Baum even recommended that long-term repayment plans be the "default option" for college students who take out student loans.

Paul Campos, in a New York Times op ed essay, challenged the notion that the states' support for higher education has gone down, which is the standard reason the higher education industry gives for rising college costs. According to Campos, "[P]ublic investment in higher education in America is vastly larger today, in inflation-adjusted dollars, than it was during the supposed golden age of public funding in the 1960s." 

Campos thinks a major explanation for rising college costs is "the constant expansion of university administration." Campos cites data that administrative positions at colleges and universities grew by 60 percent between 1993 and 2009, which is reportedly 10 times the rate of growth for tenured faculty positions.

In my opinion, Campos' analysis of college costs is more accurate and helpful than the self-serving explanations that are offered by the higher education industry and the entities that issue reports that align with its interests--the College Board, the Urban Institute, and the Brookings Institution.

Campos is right. An increase in the number of administrators is at least part of the reason for rising college costs. And a lot of those administrators are making too much money, particularly when their salaries are compared to the salaries of the faculty members who are actually teaching students.

References

Sandy Baum & Michael McPherson. Obama's Aid Proposals Could Use a Reality Check. Chronicle of Higher Education, August 26, 2013. Accessible at: http://chronicle.com/article/Obamas-Aid-Proposals-Could/141265/

Paul Campos. The Real Reason College Costs So Much. New York Times, April 5, 2015, Sunday Review Section, p. 4.

College Board. Trends in College Pricing 2013. Accessible at: http://trends.collegeboard.org/college-pricing

Andrew P. Kelly(2013, October 24. New data on tuition prices: Is it possible it's even worse than we thought? AEI Ideas blog. Accessible at: http://www.aei-ideas.org/2013/10/new-data-on-tuition-prices-is-it-possible-its-even-worse-than-we-thought/

Richard Perez-Pena (2013, October 25). Despite Risking Stick Prices, Actual College Costs Stable Over the Decade, Study Says. New York Times, p. A14.

Note: Quotes by Sandy Baum come from the Perez-Pena article or the Campos essay, both of which appeared in the New York Times and are cited in the references.