Baloney From a Law School Dean About the Value of Attending Law School

Lawrence E. Mitchell, Dean of Case Western Reserve's Law School, published an op ed essay in the New York Times in late November, seeking to assure the public that attending law school is still a sensible investment.  Mitchell described the criticism of American law schools as "hysteria."

In my opinion, Mitchell's essay is a bunch of baloney. The reality of the law-graduate job market is that salaries are going down and the job market for well-paying attorney jobs is shrinking while the cost of going to law school has become unreasonably expensive. 

Dean Lawerence E. Mitchell:
Nothing to see here, folks: just move along

At least this is the view of Federal Bankruptcy Judge Ann Aiken as expressed in the recent bankruptcy court opinion of In re Hedlund (2012). The judge pointed out that law school tuition rose more than three hundred percent between 1989 and 2009, which is twice the rate of inflation for that period and four times the rate of job growth. “Accordingly,” Judge Aiken observed, “with the exception of the independently wealthy, students must take out loans in order to finance their [law] degrees” (p. 907).

Meanwhile, as tuition costs keep going up, wages for beginning attorney are going down. Citing a report by the National Association for Law Placement, Judge Aiken pointed out that annual compensation for first-year associate attorneys in private practice went down in 2010. In addition, the demand for new attorneys is shrinking. According to Judge Aiken, “The most recent statistics indicate that, through the year 2018, there will only be 25,000 openings for the law schools’ 45,000 new graduates each year” (p. 907). (This discussion of Judge Aiken's Hedlund opinion comes from one of my earlier blog postings.)

I won't comment further on Dean Mitchell's op ed essay, which was criticized by several people on the web.  A very able critique was posted on the   "Behind the Law School Scam" blog at http://insidethelawschoolscam.blogspot.com/2012/11/response-to-larry-mitchells-new-york.html
In fact, this robust, feisty and fact-packed blog, which is written by a law professor, is must reading for anyone contemplating law school.

References

Hedlund v. Educational Resources Institute, Inc., 468 B.R. 901 (D. Or. 2012).

Lawrence E.Mitchell. Law School is Worth the Money. New York Times, November 29, 2012, p. A23.

Arne Duncan Did Such A Great Job Managing the Student Loan Crisis, Let's Make Him Secretary of State!

Secretary of Education Arne Duncan
After Arne, the deluge
credit(Wikipedia)

In a recent New York Times editorial, Thomas Friedman endorsed Secretary of Education Arne Duncan as the next Secretary of State. Right.  Duncan has done such a great job managing the nation's student loan crisis, let's put him in charge of the Middle East.

Without a doubt, the federal student loan program is DOE's biggest challenge. As everyone knows, the program has about $1 trillion in outstanding student loans and about 6 million people are either behind on their loan payments or in programs designed to help people who can't make their regular payments.

What has DOE done about the federal student loan program under Secretary Duncan's watch?

First, DOE has increased the measurement period for computing default rates from two years after the loan repayment period begins to three years. This is a good thing, because it moves us closer to determining what the real default rate is.

But research shows that most student-loan debtors default after three years,and we know that some For-Profits have encouraged their former students to apply for economic hardship deferments to keep those students from showing up as defaulters. We still don't know what the default rate is over the life of students' repayment period, but it is much higher than DOE reports. The default rate for students attending for-profit schools is quite high--maybe 50percent.

Second, the Obama administration has eased the repayment terms for borrowers who elect to enter the Income-Based Repayment Program, which is also a good thing. But we are not solving the student-loan crisis by putting borrowers in 20 year repayment plans.  In fact, we may be creating a new class of indentured servants, people who pay a percentage of their income to the federal loan program for the majority of their working lives.

I realize the federal student loan program has enormous economic and political dimensions, with many powerful players wedded to the status quo.  I would not expect Arne Duncan to solve all the problems associated with the program without broad political support.

Nevertheless, these are the things that President Obama and Secretary Duncan could have done and should have done, whether or not there was Congressional support.

Number One: DOE needs to report an accurate student-loan default rate, which it has not done. Instead, the public has had to rely on outside agencies to provide some clues as to what is going on. The Federal Reserve Bank of New York's recent report is enormously informative, but the Reserve Bank relied on a credit agency, not DOE, to get data to assess the student loan program.

Number Two: The Obama administration and DOE could stop the garnishment of elderly student-loan debtors' Social Security checks. Social Security income is exempt from garnishment for a wide variety of debt, but not student loans.  This year, the government garnished Social Security checks of 119,000 elderly people (Lewin, 2012). This practice is a scandal and undermines President Obama's image as a person who truly cares about Americans suffering economic hardship.

Number Three:  I know I am repeating myself, but we must provide reasonable avenues for people to discharge their student loans in bankruptcy. Presently, a significant percentage of people make bad choices when borrowing money to attend college. Instead of enhancing their economic future, they have sealed their economic fate--basically casting themselves out of the middle class because they are saddled by unmanageable student-loan debt.  For these people, the student-loan mess is not just an economic crisis, it is a crisis of human suffering.

In years to come, when Arne Duncan's tenure as DOE Secretary is assessed, historians will say he did an admirable job of managing the student-loan crisis, which grows bigger every day. But we don't need a problem manager to head DOE right now, we need a problem solver.  Arne Duncan has not been a problem solver, and for someone of Thomas Friedman's status to suggest that Duncan should run the State Department is difficult for me to understand.  (Fortunately, Duncan said no to Friedman's suggestion (Fabian, 2012).

References

Meta Brown, Andrew Haughwout, Donghoon Lee, Maricar Mabutas, and Wilbert van der Klaauw. (2012). Grading Student Loans. Federal Reserve Bank of New York. http://libertystreeteconomics.newyorkfed.org/2012/03/grading-student-loans.html

Fabian, Jordan (November 28, 2012). Education Secretary Says No to Secretary of State. ABC News. http://abcnews.go.com/ABC_Univision/Politics/education-secretary-arne-duncan-secretary-state/story?id=17826816#.ULd-4Ky5Plg

Thomas L. Friedman (November 27, 2012). My Secretary of State, New York Times.

Tamar Lewin (November 12, 2012). Child's Education, but Parents' Crushing Loans. New York Times.

 

Borrowing money at interest: The root cause of the student loan crisis

Many people underestimate the magnitude of the student loan crisis because they forget that student-loan debtors are borrowing money at interest and that this interest gets added to the amount borrowed if the borrowers get behind on their payments.

Thus, when we read the published bankruptcy court opinions, we see debtor after debtor who is trying to discharge a debt that is two times or even three times the amount they orginially borrowed. For example, in In re Bene (2012), Donna Bene borrowed about $17,000 in the 1980s to finance an education that she never completed due to the fact she had to leave school to care for her aging parents. She was unable to make her loan payments, and by the time she filed for bankruptcy, the amount of her debt, including fees and accrued interest, was $56,000--three times the amount she originally borrowed!

The York Times, the Obama administration, and other fuzzy-minded liberals think that economic hardship deferments and income-based repayment plans (IBRPs) provide meaningful relief for overburdened student-loan borrowers, but they  are apparently ignoring the fact that interest accrues while people participate in these programs. People who obtain economic hardship deferments for a period of even three or four years will find the amount they owe has grown substantially. 

The case of In re Halverson illustrates this phenomenon. Mr. Halvserson obtained economic hardship deferments on his student loans for many years and was never in default. Nevertheless, by the time he filed for bankruptcy, when he was in his 60s, his $132,000 debt and grown to almost $300,000.

Likewise, people who participate in IBRPs and whose adjusted payments are less than the accruing interest on their loans will discover the amount they owe will grow over the years--not shrink--because the interest is piling up even though they are making regular payments.

The student-loan guarantee agencies, which are the creditors in student-loan bankruptcy cases, have been asking the bankruptcy courts to put debtors on 25-year IBRPs, which is just crazy.  Ms. Bene and Mr. Halverson would have both been in their 90s before completing their IBRPS had they been required to do so. Fortunately, the bankruptcy courts discharged their debts and did not make these unfortunate people go through such a heartless and fruitless exercise.

There was a time--in pre-Reformation Europe--when loaning money at interest was considered sinful. And not so long ago, the states had enforceable usury laws that put limits on the amount of interest that could be charged on a debt.   In the jurisdiction where I practiced law, a creditor could charge no more than 10.5 percent on most debts.  Today, however, banks and credit card agencies are virtually unrestricted in the amount of interest they can charge.

Dorothy Day, the greatest American Catholic of the 20th century and co-founder of the Catholic Worker movement, subscribed to the ancient Catholic doctrine on usury, and she refused to accept interest on money owed to the Catholic Worker.  In 1960, she famously returned interest on money owed the Catholic Worker by the City of New York. The City had bought a piece of property from the Catholic Worker for $68,700, but there was some delay in making payment. When the check arrived, it included an additional $3,579.39 in accrued interest.

Dorothy sent the interest money back to the City of New York with this explanation (Day, 1963, p. 191):

We are returning interest on the money we have recently received because we do not believe in "money-lending at interest." As Catholics we are acquainted with the early teaching of the Church. All the early Councils forbade it, declaring it reprehensible to make money by lending it out at interest . . . .

Today, unfortunately, American society runs on borrowed money.  Presently, our government is keeping interest rates low for the expressed purpose of encouraging people to buy and borrow more. And where has all this borrowing gotten us? Americans now owe trillions of dollars in debt, including $1 trillion in student-loan debt alone.  College tuition is now so high at both public and private colleges that students are forced to borrow in order to get an education.

There is no easy way back from the abyss, but we can start by easing the burdens being borne by overstressed student-loan borrowers and by putting firm caps on college tuition costs.

References

Dorothy Day. Loaves and Fishes. Maryknoll, NY: Orbis Books, 1963.

In re Bene, 474 B.R. 56 (Bankr. W.D.N.Y. 2012).

In re Halverson, 401 B.R. 378 (Bankr. D. Minn. 2009).

 

 

10,000 law review articles are pubished each year--most of them useless. Meanwhile law school tuition has gone through the roof.

Let's write more law review articles!

John G. Browning published an essay in today's Inside Higher Education (www.insidehighered.com) criticizing law reviews. Browning points out that 600 law journals publish 10,000 law review articles each year, and 43 percent don't get cited by anyone.  And these articles are not cheap. Browning estimates that the cost of a law review article written by a tenured professor at a top-tiered law school is around $100,000!

I have written a few law review articles myself, and I have been cited more than 100 times in the law reviews, including Harvard Law Review. I admit, however, that most citations to my work are in law students' articles, not articles written by law professors. I suspect the law students cite me to demonstrate that they did a superhumanly exhaustive review of the literature: "See, I even cited an obscure article by some nobody College of Education professor from Texas!"

Professor Browning cites one article as an example of how esoteric most legal research is: "Historic injustice and the Non-identity Problem: The Limitations of the Subsequent-Wrong Solution and Towards a New Solution." But there are many law articles with similarly obscure titles. How about this 2004 essay: "Sarbanes-Oxley, Jurisprudence, Game Theory, Insurance, and Kant: Toward a Moral Theory of Good Governance."

It is shocking that law professors churn out articles at the rate of 200 a week, most of which have little or no value, while law-school tuition is going through the roof; and the market for law graduates has shrunk.  As a bankruptcy judge pointed out in a recent opinion, the law schools will turn out around 45,000 graduates a year in the coming years for a job market that only needs 25,000 jobs.

Meanwhile, so far this year, the federal government has garnished the Social Security checks  of 120,000 elderly student-loan debtors who defaulted on their loans. One might hope that at least one of the 10,000 law review articles that will published in 2012 will recommend that this practice be stopped. But don't count on it.

References

John G. Browning (2012, November 19). Essay criticizing law reviews and offering some reform ideas. Inside Higher Education, www.insidehighered.com

Crocodile Tears for Overburdened Student-Loan Debtors: Congress or the Obama Administration Should Do Something Tangible to Help These People

A recent article in the New York Times (Lewin, 2012) reported on the plight of older Americans who took out loans to pay for their children’s college education.   About 2.2 million people who are 60 years old or older owe on student loans, and the total amount of their debt is $43 billion. According to experts cited in the Times, almost all of these loans were taken out by parents to pay for their children’s education.  Parent Plus loans, loans taken out by parents for their children’s college education, now represent about 10 percent of all the federal student loan money that is borrowed.

Crocodile tears for the overburdened
student-loan debtor

Senior debtors who are in arrears on student loans can see their Social Security checks garnished.  So far this year, the federal government has garnished the Social Security checks of 119,000 people (as reported in the Times).  

President Obama and Governor Romney talked some about the federal student-loan crisis during the presidential campaign. President Obama made much of the fact that he pushed through the direct lending program for college students.  But neither President Obama nor Governor Romney offered any significant relief for the millions of people who are drowning in student-loan debt.  In my opinion, both men cried crocodile tears—expressing empathy and sympathy while proposing nothing that would give these sufferers some relief.

What can be done to help these poor people?

Proposal Number One. Congress should pass a law protecting people’s Social Security checks from garnishment for delinquent student loans. If Congress won’t do this, President Obama should stop the garnishment of Social Security checks by Executive Order, much the same way that he implemented the Dream Act, which Congress refused to pass.

Proposal Number Two. Overburdened student-loan debtors—including parents who went into debt to finance their children’s education—should have the same access to bankruptcy relief that is available to any other debtor who has unsecured loans.   Scholars have argued for this change in the Bankruptcy Code for many years.

Proposal Number Three. We’ve got to kick the for-profit colleges out of the federal student loan program.  The for-profit sector has the highest student-loan default rates, and many of them have engaged in unfair recruiting practices to attract students. Not all for-profit colleges are bad eggs, but there are enough problems in this sector to justify removing them from the federal student-loan program.

Our politicians can cry crocodile tears about the suffering being experienced by student-loan debtors who are unable to pay back their loans, but those tears won’t be genuine until the federal government in both the Executive and Legislative branches take tangible action to provide relief for student-loan debtors and their parents—and the action they need to take is painfully obvious.

References

Lewin, Tamar.(2012, November 11).  Child's Education, but Parents' Crushing Loans. New York Times.

Liberalism on the Cheap: Using One Student's Tuition Money to Give Financial Aid to Another Student

According to Inside Higher Education, the Iowa Board of Regents recently eliminated a policy whereby Iowa public universities earmarked 20 percent of student tuition money for use as financial aid. The Iowa Board of Regents did the right thing. The common but little-publicized practice of earmarking tuition money for student aid is nothing more than a policy of forcing disfavored students to donate part of their tuition money to their university so that the university can give financial aid to students that it favors--often minority students.

The practice of using part of student A's tuition money to give reduced tuition to Student B is particularly pernicious when Student A is  borrowing money to attend college. After graduating from Harvard Graduate School of Education, I recall learning that about one-third of my tuition money was used by Harvard to give financial aid to other students. I realized that one-third of every monthly check I wrote to pay back my student loan was a payment on some other student's tuition, not my own.

Of course it is laudable for universities to award financial aid to students who are economically disadvantaged or minority students that universities particularly want to attract in order to promote diversity. But this seemingly benign policy of making some students pay for other students' financial aid is nothing more than liberalism on the cheap. If Harvard or some other elite university believes it is beneficial to use financial aid to attract minority students, it should use its own resources to pursue that goal, and not force disfavored students to pay for Harvard's liberalism by increasing the size of their student loans.

In my view, the practice of using disfavored students' tuition money to fund financial aid for other students is part of a larger rottenness of moral purpose at our universities. Most university leaders are  liberals who espouse the political and social views of the New York Times and other liberal beacons of social values.  But few are willing to take any personal risk in order to trumpet those views. Thus we see law school deans harassing the Christian Legal Society chapters on their campuses because the CLS upholds traditional Christian views about marriage.  Politically, hectoring CLS is a completely safe thing to do, because CLS has very few friends in the academic world.

But how many law school deans have made a personal sacrifice to stop the upward creep of law-school tuition? How many university presidents have taken even one politically controversial stand that might damage their careers?  For example, how many have opposed the war in Afghanistan, come out in favor of reforming our immigration laws, or supported legislation to relieve the suffering of overburdened student-loan debtors?  Very, very few--if any.

No, it is much safer for college administrators to use their students' tuition money to advance their personal social agendas and to  harass Christian student groups as a way of publicizing their broadmindedness.  No wonder our universities have descended into a moral morass.  University leaders are thinking too much about their own careers and not enough about the welfare of their students--all their students.

References

Kevin Kiley. Use of public tuition for financial aid is likely to become a political issue in many states. Inside Higher Education. November 5, 2012.

http://www.insidehighered.com/news/2012/11/05/use-public-tuition-financial-aid-likely-become-political-issue-many-states

The Private Student Loan Scandal: More Worthless Advice From the New York Times (which cares so much about the little guy)

You think the federal student loan program is a mess? You should take a look at the private student loan program.  In contrast to federal student loans, which have fixed interest rates, private loans (the loans students take out from private banks and other financial institutions) often have variable interest rates.  The federal loan program--for all its many faults--at least allows students to obtain economic hardship deferments and offers an income-based repayment program (IBRP).  Private student-loan lenders are not obligated to show an overstressed debtor any mercy--and often they do not. Many students are not even aware of the difference between federal student loans and private loans and are shocked to learn that the terms and conditions of their private loans are more onerous than the federal program.

The New York Times--that tireless champion of the little guy--made this tepid suggestion for reforming the private student-loan program on today's editorial page (October 25, 2012).

The federal government needs to open up refinancing and debt relief opportunities for [private student-loan borrowers], as it did for some mortgage holders. The [Consumer Financial Protection Bureau] should also set national standards for loan servicers to require clear disclosure of conditions . . . and prompt resolution of customer requests for information. And borrowers who might be eligible for federal student loans should be advised to examine that option before plunging headlong into private debt.

Yep. A little more federal regulation will straighten out the private student loan scandal.  That's like saying Mussolini would have been a little nicer if he had only gotten the right medication.

If we want to stop the abuses in the private student-loan industry, we only need to do one thing: allow insolvent private student-loan debtors to discharge their loans in bankruptcy like any other non-secured debt.  They could do that until 2005, when the banking industry persuaded Congress to pass legislation to make it almost impossible to discharge a private student loan in bankruptcy.

If the banks knew their student-loan borrowers could file bankruptcy and discharge their loans, they would have an incentive to work with overstressed borrowers.  In fact, they might get out of the student-loan business altogether.

The Times' latest suggestion for reforming the massive student-loan debacle is typically tepid, not coming close to the heart of the problem. But what do you expect from a newspaper that makes its money selling advertising space to such luxury firms as Versace, Saks Fifth Avenue, and Armani? Do you think the Times really cares about some poor smuck who got in over his head by taking out a private student loan from Wells Fargo?

References

Editorial (2012, October 25). Student Debt Debacles. New York Times, p. A24.
   

Think Long and Hard Before Borrowing Money to Go to a Prestigious University Like Harvard

According to an article in Inside Higher Education, Harvard Graduate School of Education (HBSE) is retiring its Ed.D. degree and replacing it with the Ph.D. As an Ed.D. graduate of HGSE, I am happy to see this happen. I would much rather have gotten a Ph.D. from Harvard instead of an Ed.D., and I would certainly have selected the Ph.D. option when I was a student at Harvard had that option been available to me.

Reading the Inside Higher Education article prompted me to think back on my Harvard experience and to ask myself this question: Was the doctoral degree I received from Harvard Graduate School of Education worth the money I invested?  If I had the opportunity to make the decision again, would I still elect to pursue a doctoral degree at Harvard?  The answer to both questions is no.

Me in my embarrassingly flashy Harvard academic regalia

At the time I was a student at HGSE, annual tuition was about $12,000 per year. Tuition has roughly tripled since then--it’s about $35,000 per year now.  And that doesn’t count opportunity costs. I was out of the job market for three years while I studied at Harvard, and the cost of living for the Boston area was high then as it is now--much higher than the South or the Midwest.

Of course I chose to study at Harvard because of Harvard’s prestige. In fact, I did not even consider studying elsewhere. I recall taking classes from two excellent professors while I was at HGSE--my education law professor and my economics professor. Both professors were gifted teachers, and to this day I try to model my own teaching after the way these two fine scholars taught. I was also introduced to the case method of teaching while at HGSE; and I teach cases to this day, sometimes writing my own teaching cases. 

On the other hand, most of my Harvard classroom experiences were pretty ordinary. Since graduating from Harvard, I have taught in educational administration programs at three public universities, and I know dozens of professors who teach in my field at universities all over the United States. When I consider my three years at Harvard as a whole, I feel sure I could have received a comparable educational experience at a good state university at a far lower cost.

If someone were to ask me today if the doctoral program at Harvard Graduate School of Education is a good investment, I would say no. Whether the degree obtained is called an Ed.D. or a Ph.D., I feel sure an individual can get a better value by pursuing a doctoral program at a reputable state institution--Indiana University or the University of Utah, for example--rather than going to Harvard.  Twenty years after the fact, I don’t believe my salary or my career benefited significantly from my having a degree from Harvard Graduate School of Education as opposed to one of a hundred other doctoral granting institutions.

I took out about $22,000 in student loans to attend HGSE, a modest amount by today’s standards. I can’t say these loans burdened me unduly. But many of my Harvard classmates borrowed considerably more. I remember one woman who took out a second mortgage on her home to pay for her Harvard experience.  And I know at least a couple of people who took out loans to attend HGSE and never obtained their doctoral degree.

In retrospect, I was foolish to have gone to Harvard instead of seeking out a less expensive alternative. I consider myself one of the thousands of imprudent people who take out student loans every year to attend prestigious institutions--Harvard, Dartmouth, Smith, Vanderbilt, etc. etc. and wind up with very little to show for it. We tell ourselves that a degree from an elite university must be worth the money--it’s going to pay off in the end.  We delude ourselves into believing that a degree from a high-status institution is a tangible sign that we are indeed bright and special people.  And we borrow money--sometimes a lot of money--in order to feed our delusions.

So here is a word of advice from someone with a doctorate from Harvard. Think long and hard before you go into debt to obtain a fancy degree from an elite university, and explore less expensive alternatives.  Unless you come from a wealthy family or obtain a full-ride scholarship, all a doctoral degree from Harvard can guarantee is a heavy burden from student loans and the right to wear a flashy academic gown. In fact, you may find that a degree from a prestigious university  diminishes the quality of your life rather than enhances it.

References

Basu, K. (2012, March 29). Ending the first Ed.D. program. Inside Higher Education.

http://www.insidehighered.com/news/2012/03/29/country%E2%80%99s-oldest-edd-program-will-close-down

Income-Based Repayment Plans Won't Solve the Student-Loan Crisis: Reponse to NY Times Editorial

Today's New York Times included an editorial entitled "Misleading Advice for Student Borrowers." The Times correctly states that many for-profit schools are urging their students to enter so-called "default management" programs that allow students to defer payment on their loans due to economic hardship.

 As the Times rightly observed, interest continues to accrue for many students who are in loan-deferral programs. This accrued interest is added to the principal of the debt, often causing the total amount owed to grow substantially.

The Times argued that students would be better off going into income-based repayment plans (IBRPs), whereby they are obligated to pay a percentage of their income on their student loans over a period of 20 to 25 years.  The amount that remains unpaid at the end of the lengthened repayment plan is then forgiven by the student-loan creditor.

There are three problems with IBRPs. First, like the economic-hardship deferments, interest accrues on the debt for students who are not paying enough under their IBRPs to cover accruing interest. For example, an unemployed person in an IBRP who owes $20,000 in student loans would not be obligated to pay anything on the debt until he or she found a job.  Nevertheless, the interest on the student loan would continue to accrue, making it more difficult for the debtor to ever pay off the loan.

Second, as several bankruptcy courts have noted, a student-loan debtor whose debt is forgiven at the end of a IBRP repayment period may see the amount of the forgiven debt treated as taxable income by the Internal Revenue Service. 

Third, who wants to be saddled with student loan payments for 20 years? Student-loan debtors who select an IBRP as the means of paying off their debt will in essence become serfs--bound to send a percentage of their income to the federal government for the majority of their working lives.

For the Times and for many elected politicians, IBRPs seem like the easy fix to the student loan crisis.  But that is not true.  Currently, about one million student-loan borrowers are enrolled in IBRPS, and the number is likely to grow in the years to come. All these people send a percentage of their income to the federal government or its agents for at least 20 years.  And at the end of that period, they may face a tax bill for the amount of the loan that is forgiven.

No--the answer to the student-crisis for overburdened debtors is reasonable access to the bankruptcy courts--not long-term repayment plans.

References

Editorial. (2012, October 8). Misleading Advice for Student Borrowers. New York Times Online.

DOE's Annual Report on Student Loan Defaults Is More Useful than Its Old Reports, But DOE Still Understates the Magnitude of the Student-Loan Crisis

The U.S. Department released its annual report on student-loan defaults a few days ago. For 2011, the percentage of borrowers who defaulted in the first two years of their repayment period was 9.1 percent, up slightly from the previous year.

Of course, most student-loan borrowers don't default in the first two years of the repayment period. According to a  New York Times story, the average time for an overburdened borrower to default is four years.

To get a better picture of the true default picture, DOE began publishing the three-year student-loan default rate.  Measuring default rates during the first three years of the repayment period causes the rate to rise from 9.1 percent to 13.4 percent.  For students who borrowed to attend for-profit colleges, the three-year default rate is higher--22.7 percent. In other words, more than one out of five students who borrowed to attend for-profit institutions defaulted within three years of the beginning of their repayment obligation according to DOE's most recent report.

How about the percentage of borrowers who default over the life of the loan?  The number is very high, particularly for the for-profit sector.  According to a DOE estimate (as reported in the New York Times), 49 percent of the students who borrow money to attend a for-profit college will ultimately default on their loans!

It should be obvious to everyone by now that the for-profit sector as a whole has been a failure at preparing students for the 21st century economy. The federal government should not be financing a sector that has a default rate of nearly 50 percent. Nevertheless, a sector that only enrolls about 10 percent of all post-secondary students draws 25 percent of federal student aid money.

This is a scandal, and it has brought great misery to students who borrowed money to attend for-profit colleges and then failed to get jobs that would allow them to pay back the money.

 My guess is that a great many student-loan defaulters have simply given up trying to become economically self-sufficient.  Having defaulted on their student loans, they are unable to participate in the student-loan program again until they pay back their old debt.  Under current bankruptcy law, it is virtually impossible for them to discharge their student loans in bankruptcy. Meanwhile, for most of them, the interest on their loans continues to accrue. Short of emigrating to another country, there is nothing many of these defaulters can do to get a fresh start.

References

Lewin, Tamar. Education Department Report Shows More Borrowers Defaulting on Student Loans. New York Times, September 29, 2012, p. A16..

Baloney about Higher Education from President of Wesleyan University

In Written on the Heart,  Philosopher J. Budziszewski's primer on natural law, Budziszewski argues that certain truths are innately known to all people. These truths form the natural law, and are, as it were, written on the heart. 

Midway through the book, Budziszewski describes this innate knowledge as our "baloney meter."  He maintains that all people know at some level that certain concepts are contrary to the natural law and are baloney.

Budziszewski believes (and I agree) that American higher education has adopted the mission of dismantling the baloney meters of the young people who study at our nation's colleges and universities. By the time they finish their studies, students have come to believe that there are no ultimate truths, no natural law, no fundamental principles for living. Instead they think that all truths are relative and changeable, that people make decisions based on their own self interest, and that the meaning of life is shaped by the quest for pleasure, power, and recognition. 

Yesterday's New York Times contains an example of higher education's baloney.  Michael Roth, president of Wesleyan University, responded to critics who charge that American higher education is outmoded.

Michael S. Roth, President of Wesleyan University

Basically, Mr. Roth is defending the status quo in Amerian higher education at places like Wesleyan. The purpose of higher education, Roth loftily maintains, is to "teach us habits of learning." Education should encourage students to developing an "openness to being shaped by experience."  Quoting Dewey, Roth writes, "The inclination to learn from life itself and to make the conditions of life such that all will learn in the process of living is the finest product of schooling."

In short, Roth argued, the purpose of higher education "is to give all citizens the opportunity to find 'large and human significance' in their lives and work.'"  And--Roth might have added--the cost of finding human significance at a university like Wesleyan is only about $40,000 a year.

Of course, Roth's defense of higher education is just baloney. In spite of the universities' efforts to dismantle their students' baloney meters, students are beginning to figure out that higher education is not worth what the universities are charging for it, particularly at institutions like Wesleyan, where many professors specialize in political correctness, deceptively packaged as "the liberal arts".

All university presidents can express high-minded ideals about the value of higher education, and some of them can quote John Dewey.  But we should not take these attestations seriously until we see college presidents rein in their own salaries, lower tuition costs, and figure out ways to make sure a college degree leads to a well-paying job.  By the way, Wesleyan University is one of the ten most expensive colleges in the United States.

References

Budziszewski, J. Written on the Heart: The Case for Natural Law. Intervarsity Press, 1997.

Dawson, Christopher. The Crisis of Western Education. Steubenville, OH: Franciscan University Press, 1989.

Roth, Michael. "Learning as Freedom." New York Times, September 6, 2012, p. A23.

How Many People Are Behind on Their Student Loans? At Least 6 Milion

College loans have been a problem for students for more than 20 years.  Yet the national dialogue on the student loan crisis is just getting started. Why did we wait so long to examine the student loan morass?

I think we are aware of the student loan crisis now because objective parties outside of higher education have begun issuing reports about it.  The Federal Reserve Bank of San Francisco, the Federal Reserve Bank of New York, Moody's, the Consumer Financial Protection Bureau and other independent entities are giving us objective assessments of this problem.

If we look closely at these reports, we can see just how big the student loan crisis is.  In fact, it is now apparent that millions of people have stopped making payments on their student loans.  How many millions?  Let's take a look.

According to a recent report by the Consumer Financial Protection Bureau, 850,000 private loans are delinquent.  That is an astonishing number when we consider that private loans are only a small part of the overall student loan industry--less than 10 percent.  Also, private loans undoubtedly have a lower default rate than federally guaranteed student loans.  This is because the vast majority of private loans include a co-signing guarantor.  In other words, Mom or Pop usually sign on private student loans; and Mom or Pop must pay off the loan if their child defaults. 

How many people have stopped paying on their federal student loans? According to a report issued this year by the Federal Reserve Bank of New York, 27 percent of 20 million student-loan borrowers in the repayment stage are behind on their payments or in default--that's 5.4 million people.

When we add the number of people who are behind on their private loans with the number of people who are behind on their federal student loans, we get a big number.  More than 6 million people are not current on their student loans and many of these people are in default.

We know from newspaper stories and the bankruptcy cases that people who default on their student loans are in financial purgatory.  They are subject to having their wages garnished, their credit ratings are ruined, they are unable in most cases to file bankruptcy.  Six million people--that is a lot of human misery.

References

Consumer Financial Protection Bureau. Private Student Loans. Washington, DC: author, 2012.

Meta Brown, Andrew Haughwout, Donghoon Lee, Maricar Mabutas, & Wilbert van de Klaaw. Grading Student Loans. New York: Federal Reserve Bank of New York, 2012.

Dear New York Times: Your Suggestion for Controlling Abuse in the Private Student-Loan Industry is Pathetic

Some people think all the problems of the world will be solved when people are better informed. That seems to be the view of the New York Times--the nation's nanny.

Today the Times--in other tepid and timid editorial--calls for better disclosure for private student loans.  The Times is responding to the recent report by the Consumer Financial Protection Bureau.   The report found that 40 percent of students who took out private loans were eligible for less costly federal loans.

 The Times supports a pending bill "that would require colleges and lenders to thoroughly explain borrowing options to students." In addition, the Times reports, the proposed law will "prevent unnecessary borrowing by requiring lenders to check with colleges to determine how much money students are eligible to receive."

Blah, blah, blah.

Here are the central facts about private student loans.

1. Like federal student loans, private student loans are almost impossible to discharge in bankruptcy.
2. Ninety percent of private student loans are issued to student borrowers with a co-signor. In other words,  parents are often co-signing their children's student loans and obligate themselves to pay them back if their child defaults.
3. According to the CFPB report (p. 64), 850,000 private student loans--an astonishing number--are in default.

Congress can do one simple thing to protect private student-loan borrowers; it can amend the Bankruptcy Code to make private student loans dischargeable in bankruptcy.  

References

Editorial, "Better Disclosure for Private Loans," New York Times, July 26,2012.

The Underemployed Law School Graduate With Massive Student-Loan Obligations: The Hedlund Bankruptcy Case

Almost 37 million people owe money on their college loans, and millions are in default or behind on their loan payments (Brown et al. 2012). Most overburdened student-loan debtors suffer their college-loan debt in silence, and the public is generally unaware of their plight. In a few cases, however, student-loan debtors file for bankruptcy, seeking a discharge from the loan obligations. Often the court decisions in these cases provide details of a particular student-loan debtor’s financial situation.  In particular, the Hedlund case (2012) provides a window into the world of the underemployed law-school graduate who is swamped by massive student-loan obligations.

A Young Man Borrows Money to Go to Law School But Can’t Pay Back the Loans

In the early 1990s, Michael Eric Hedlund borrowed more than $85,000 to go to law school. It must have seemed like a good idea at the time. Michael’s father and brother were attorneys, and he anticipated going to work in his father’s law firm.

Things did not work out as Michael hoped. After graduating from Willamette University’s law school in 1997, Michael took a job in the District Attorney’s office in Klamath Falls, Oregon. He planned to work there for a couple of years and then join his father’s law firm. Unfortunately, Michael failed the bar exam twice. Unable to practice law, he received several extensions on his loan obligations. He applied for a student-loan consolidation, but was told he was ineligible for consolidation because he was not current on his loan payments.

In 1999, Michael found a job as a juvenile counselor, which paid him about $40,000 a year.  His monthly loan payments were $800, which he did not pay regularly. In fact, he only made one loan payment.  In 2002, two loan creditors began garnishing his wages; and in May 2003, Michael filed for bankruptcy.

Michael’s bankruptcy proceedings stretched on for years. In fact, the original bankruptcy judge who presided over his case died before the case was resolved. In March 2012--nine years after Michael filed for bankruptcy, a federal district court ruled that Michael was not entitled to discharge his student loans in bankruptcy.  According Judge Ann Aiken, Michael was not entitled to bankruptcy relief because he had not made a good-faith effort to pay on his loans.

The Pathetic Plight of Many Law School Graduates

Although Judge Aiken rejected Michael’s plea to have his student loans discharged, she was not unsympathetic.  Judge Aiken pointed out that law school tuition rose more than three hundred percent between 1989 and 2009, which is twice the rate of inflation for that period and four times the rate of job growth. “Accordingly,” Judge Aiken observed, “with the exception of the independently wealthy, students must take out loans in order to finance their [law] degrees” (p. 907).

Meanwhile, as tuition costs keep going up, wages for beginning attorney are going down. Citing a report by the National Association for Law Placement, Judge Aiken pointed out that annual compensation for first-year associate attorneys in private practice went down in 2010.  In addition, the demand for new attorneys is shrinking. According to Judge Aiken, “The most recent statistics indicate that, through the year 2018, there will only be 25,000 openings for the law schools’ 45,000 new graduates each year” (p. 907).

In Judge Aiken’s opinion, “[T]he current higher education system is untenable and unsustainable; as a result, increasing numbers of students will be forced to file for bankruptcy” (p. 908). In the judge’s view, the student loan issue--she did not use the word “crisis”--needs to be addressed at a systematic level.

What is the Significance of the Hedlund Case?

Judge Aiken’s opinion in the Hedlund case paints a poignant picture of the plight of underemployed law-school graduate who borrowed heavily to attend law school.  As Judge Aiken pointed out, law school tuitions are now so high that most people must borrow money--a lot of money--to get a legal education. A few years ago, borrowing money to get a law degree was a good bet, but the demand for new lawyers is shrinking and salaries for beginning attorneys are going down.  Thousands of law school graduates are finding themselves underemployed in jobs outside the legal field and unable to pay back their student loans.  Obviously, this is a huge national problem, not only for law-school graduates, but for law schools and for the legal profession as well. 

Under federal bankruptcy law, student-loan debtors cannot discharge their student loans in bankruptcy unless they can show “undue hardship.”  Most law-school graduates are able to find some kind of employment and thus will not qualify for a bankruptcy discharge under this rigorous standard.  Mr. Hedlund, for example, found a non-legal job paying $about 40,000.

Nevertheless, most underemployed law school graduates who have massive student loans will be in dire economic circumstances.  Mr. Hedlund was obligated to pay $800 a month on his loans after he graduated, almost an impossible burden for someone making $40,000 a year.

Unable to discharge their student loans in bankruptcy, a lot of underemployed law-school graduates will be forced to apply for an Income-Based Repayment plan (IBR) in order to manage their loan obligations. Under an IBR, as modified by the Obama administration, debtors will obligate themselves to pay 10 percent of their discretionary income for a period of 20 years (White House, 2012).

Obviously, IBR plans are not an ideal solution for law-school graduates who can’t find well-paying jobs. Instead of beginning good careers practicing law, many graduates will wind up being long-term indentured servants to the government, forking over a percentage of their income over a 20-year period. If Michael Hedlund ultimately chooses the IBR option, he won’t be free of his law-school loan obligations until he is in his 60s.  Somehow, that does not seem fair.

References

Brown, M., Haughwout, A., Lee, D., & Mabutas, M. (2012). Grading student loans.  Federal Reserve Bank of New York.

Hedlund v. Educational Resources Institute, Inc., 468 B.R. 901 (D. Or. 2012).

White House, Office of Press Secretary (2012, June 6). Fact Sheet: Helping Americans manage student loan debt with improvements to repayment options. Retrieved from: http://www.whitehouse.gov/the-press-office/2012/06/06/fact-sheet-helping-americans-manage-student-loan-debt-improvements-repay

Wacky: A University of Chicago Professor Says Investors Should Finance Students' College Costs for Cut of Future Income

Luigi Zingales,an economics professor at the University of Chicago, recently proposed an innovative way to finance students' college education costs: allow the venture-capital industry to finance students' college education in return for a share of the students' future income. 

This is how Zingales explained his proposal in a recent New York Times essay: "Investors could finance students' education with equity rather than debt. In exchange for their capital, the investors would receive a fraction of a student's future income--or, even better, a fraction of the increase in her income that derives from college attendance."

Zingales insists that his plan is not a new form of indentured servitude but a way of having the beneficiaries of a college education pay for it--not the taxpayers.

Only an economist from the University of Chicago could come up with such a wacky idea.

A few comments:

First, contrary to Professor Zingales's assertion, the plan is indeed a modern form of indentured servitude, whereby the rich finance the education of  the poor for a share of the poor person's future wages. 

Second, until recently, most Americans considered a college education as a benefit not only for the degree holder but for society at large. We all grow richer when we enable people to become more productive through becoming better educated.  Thus, it makes sense for our society to invest in higher education and to broaden opportunities for people to earn college degrees. To suggest that venture capitalists--not the taxpayers--should finance students' college costs negates the American philosophy of public education, which is to make it available to everyone and to at least partially subsidize it so that no one is excluded based on poverty.

The federal student loan program is indeed in crisis, but we won't end the crisis with oddball ways to finance it cooked up by economics professors. We saw what happened to the housing market when the venture capitalists got involved with it.  Why would we want venture capitalists mucking up higher education?

Thanks, NY Times, for Another Tepid Editorial About the Student Loan Crisis

In The Big Lebowski, Bunny Lebowski tells the Dude that her boyfriend is a nihilist. "He doesn't care about anything," she explains.

The Dude, Donny and Walter:

"That must be exhausting," the Dude replies sympathetically.

This scene reminds me of the New York Times editorial writers. Every day, they go to work and pen editorials opining on all the world's problems: global warming, the crisis in the Middle East, the European Debt crisis, obsesity--it must be exhausting!

Of course, not all of the Times' editorial advice is useful.  Earlier this week, a Times editorial, entitled "College's True Cost," commended the Obama administration's efforts to get colleges to communicate more clearly with students about the cost of attending college. As the Times reported approvingly, "[t]he Obama administration is developing a standardized form" that all colleges can use to report on how much a year of college costs and estimating the monthly payments students will owe when paying off their student loans.

"Unfortunately," the Times concluded, "colleges are unlikely to embrace this forthright approach unless the federal government makes it mandatory." Right. More government regulations will solve all our problems.

Obviously, givng students more information about their student-loan obligations is a good thing. But giving students clearer information about their student-loan debt burden is not going to solve the student-loan crisis any more than telling people how many calories are in a Big Mac will solve the nation's obesity crisis. People are still going to buy those Big Macs and students are still going to take out college loans because most of them can't afford to attend college without borrowing a lot of money.

Solving the student-loan debt crisis is going to take more than the creation of a standardized form for colleges to give students when they dole out student-loan money. As I've said before, these things must be done:

• The Department of Education must stop hiding the true student-loan default rate and give the public more accurate reports on how many people have stopped paying on their student loans.
• Insolvent student-loan debtors must be given reasonable access to the bankruptcy courts.
• The Federal government must stop financing the for-profit schools and colleges, which have extraordinarily high student-loan default rates.
• Colleges must operate more efficiently and rein in their costs.

Unless these things are done, other reform tactics are just a cosmetic approach to a very serious national problem.

References

Editorial (2012, June 7). College's true cost. New York Times, p. A24.

The Federal Government Should Stop Bankrolling the For-Profit College Industry

Floyd Norris recently wrote a mild but provocative article in the New York Times that focused on ITT Educational Services, a for-profit corporation that offers post-secondary education programs in 48 states. Norris reported that ITT students pay an average cost of $48,000 in tuition and fees to receive a two-year associate's degree in business administration.

Of course students can obtain a two-year associate's degree from a public community college for a fraction of that cost. One would think the federal government would develop policies to encourage students to attend reasonably priced community colleges instead of supporting the for-profit college industry.

As has been widely reported, for-profit colleges enroll about 10 percent of all post-secondary students but get about 25 percent of the federal student-aid money. According to Norris, the federal government guaranteed nearly $24 billion in loans for students attending for-profit schools in 2010-2011 and  distributed nearly $9 billion in grants that went to for-profit institutions.

Without question, most of the for-profit colleges could not exist without federal student-aid money.  For example, in 2011, ITT received 89 percent of its revenues from the federal government in the form of student loans and grants. (Norris, 2012, p. B7)  Meanwhile, state and local-government are drastically cutting their financial support for public colleges and universities.

In my opinion, the federal government should stop funding the for-profit colleges altogether and redirect the money toward public community colleges.  Unfortunately, such a reform is not coming any time soon.  The for-profits pay highly effective lobbyists to protect their interests (Kirkham, 2012), and they make strategic political contributions to key legislators in Washington (Kirkham, 2011).

So this is the situation. Billions of federal dollars flow each year into the coffers of for-profit schools and colleges that educate about 10 percent of the nation's post-secondary students and account for about half of all the student-loan defaults (Kirkham, 2012). Until Congress stops subsidizing the for-profit colleges industry, we will never solve the student-loan crisis, which is growing worse with each passing year.

References
Kirkham, C. (2012, February 3). Auction 2012: For-profit colleges win when lobbying blitz weakens regs. Huffington Post.   http://www.huffingtonpost.com/2012/02/03/auction-2012-education-for-profit-colleges_n_1251072.html

Kirkham, C. (2011, July 29). John Boehner backed deregulation of online learning, leading to explosive growth at for-profit colleges. Huffington Post. http://www.huffingtonpost.com/2011/07/29/john-boehner-for-profit-colleges_n_909589.html

Norris, F. (2012, May 25). Colleges for profit are growing, with U.S. aid. New York Times, p. B1.

Today’s New York Times Editorial About Student Loans is Not Very Useful

Today’s lead editorial in the New York Times is entitled “Full Disclosure for Student Borrowers.” Basically, the Times says that “[c]olleges, lenders and Congress must ensure that students understand their debt burden.”

Pardon me, Mr. and Ms. New York Times editorial writers, but that advice is not very useful. It is true that a lot of student-loan borrowers did not understand the nature of their loan obligations. Some did not realize they had borrowed from private lenders instead of the federal student loan program, for example; and a great many made poor decisions with regard to what they chose to study. People who borrowed a $100,000 or more to pursue degrees in religious studies, sociology, or some other non-remunerative field did not make smart decisions.

But the fact that many students took out college loans without understanding the consequences is only part of the problem. A bigger part of the program is this: The student loan program has spawned a rapacious for-profit college industry, which Congress refuses to regulate. As a whole, this industry has very high student-loan default rates; and many of them are much more expensive than public-college alternatives. Today, the for-profit institutions enroll about 10 percent of all the post-secondary loan borrowers but they receive about 25 percent of the Federal student aid money.

Another problem is the private student-loan market, which generally charges students higher interest rates than the federal student-loan program and offers students fewer protections like economic hardship deferments. Congress passed legislation that makes it almost impossible for students to discharge their private student loans in bankruptcy, which is an outrage.

If the New York Times wishes to offer useful advice about solving the trillion-dollar student-loan mess, it needs to endorse the following actions:

More accurate reporting of student-loan default rates by the U.S. Department of Education, particularly the default rate for students enrolled in for-profit schools,

Repeal of the statutes making it nearly impossible for insolvent students to discharge their student loans in bankruptcy,

Passage of effective consumer-protection laws that will protect students from unscrupulous college recruiters and colleges’ misleading representations about job prospects for graduates of post-secondary programs,

Congressional or executive action to stop the federal government and the student-loan guarantee agencies from garnishing elderly defaulters’ Social Security checks.

Perhaps the New York Times has offered more useful information about the student-loan crisis in the past.  But the advice offered on today’s editorial page does not go nearly far enough toward solving a problem that is causing hardship and suffering for millions of people.

References

Editorial (2012, May 23). Full disclosure for student borrowers. New York Times, p. A20.

President Obama Can Do ThreeThings Right Now To Show He Cares About Student Loan Debtors

According to Bloomberg, the Obama campaign has produced a television ad that showcases President Obama's efforts to aid college students.  As president, the ad states, Obama "doubled funding for college grants, capped federal student loan payments, passed the largest college tax credit ever."

President Obama can do three things
 right now to help student-loan debtors

Certainly, President Obama has expressed a genuine interest in helping students fund their college education.  But here are some tangible things President Obama can do immediately to ease the burden on student-loan debtors, a group that has received a lot of media attention recently.

1. Tax Consequences of Forgiven Student Loans. Currently, students whose student loans are forgiven based on disability or because they participated in the Income Contingent Repayment Plan face a federal-income tax bill because the forgiven debt is considered income by the IRS. President Obama could issue an Executive Order or direct the IRS to draft a regulation that would shield people with forgiven student loans from a federal income tax bill.

2. Garnishment of Social Security Checks. In the infamous Lockwood decision, the U.S. Supreme Court upheld the garnishment of Social Security checks of elderly people who defaulted on their student loans. President Obama could simply tell the Department of Education and the student-loan guarantee agencies to stop garnishing Social Security checks as a means of collecting on defaulted loans. 

3. Placing Bankrupt Students in the Income Contingent Repayment Plan.  At the urging of the student-loan agencies, some bankruptcy courts have placed insolvent student-loan debtors in the Income Contingent Repayment Plan, which obligates them to pay a portion of their income toward their student loans for 25 years. The consequence of this maneuver is to deny student-loan debtors the bankruptcy relief that they reasonably deserve.  President Obama could issue an executive order directing the Department of Education and the student-loan guarantee agencies to allow bankrupt student-loan debtors to discharge their college-loan debt in bankruptcy and not ask bankruptcy courts to put these unfortunate people in 25-year repayment plans.

President Obama could do all these things unilaterally without legislation or Congressional approval, and they would not cost taxpayers a significant amount of money. After all, how much money can the Department of Education collect by garnishing people's Social Security checks?

To a certain extent these actions would be merely symbolic; they wouldn't do much to address the huge problem of mounting student loan debt in this country. Nevertheless, if President Obama would do these three things, he would demonstrate his sincere concern about the student-loan debt crisis in a tangible way.  And I think a lot of Americans would appreciate the gesture, including the 37 million people who have outstanding student-loan debt.

References

Giroux, G. (2012, May 18). Obama campaign ad focuses on higher education. Bloomberg's Political Capital Web Site. http://go.bloomberg.com/political-economy/2012-05-18/obama-campaign-ad-focuses-on-higher-education/

Higher Education Industry to Students: If You Are Crushed by Student Loans, It's Your Own Damn Fault

As Jimmy Buffet reminded us in Wasting Away in Margaritaville, some things are our own damn fault.  Apparently, this is the position of the higher education industry regarding the student loan crisis. 

Jimmy Buffett

When the New York Times published a front page story about students who have been crushed by the burden of their student loans, two higher education industry spokespeople wrote letters to the Times, basically saying everything is fine--thank you.  

Molly Corbett Broad, president of the American Council on Education, suggested that some students need to make better decisions when they take out student loans. “The reality is that every student and family must carefully weigh what they believe a degree is worth against the price of a particular institution.”  And, Broad acknowledged, “If students and their families borrow not with their heads but over them, dire consequences can easily follow.” Yuh think?

And David L. Warren, president of the National Association of Independent Colleges and Universities, pointed out that the default rate for borrowers at private colleges is only 4.6 percent. Both Warren and Broad acknowledged that students might need better counseling regarding their borrowing decisions, but other than that, Warren and Broad had no suggestions for solving the student loan crisis.

What I took away from these letters by the presidents of two high-profile higher-education industry groups is this: We are doing a fine job, higher education is worth the cost, and students who are swamped by their college loans made bad decisions. Or, to paraphrase Jimmy Buffett, if students are overwhelmed by their student loans, it’s their own damn fault.

But let’s look closely at what Broad and Warren said. Warren stated that the default rate at private colleges is only 4.6 percent.  Warren was citing the Department of Education’s figures, which only measures defaulters in the first two years of the loan repayment period. A study that examined the loan default rate for college graduates over a ten year period concluded that the default rate is about 10 percent. I think it is indisputable that the loan default rate for students who attended private colleges is nearly double the rate that Warren cited, when defaults are measured over the life of loan repayment period. And the default rate for students who attended for-profit institutions is absolutely unacceptable—probably at least 30 percent when measured over the entire life of the loan repayment period.

And Broad said that the average student debt load is only $23,000, which Broad seems to think is not particularly onerous. But even $23,000 in student-loan debt is a crushing burden for students who don’t have jobs, students who received no worthwhile skills from their educational experiences, or students who never completed their degrees.

As far as I know, the professional organizations for the higher education industry have not endorsed serious proposals to ease the burden on students who cannot pay back their loans. At a minimum, the National Association of Independent Colleges and Universities and the Council on Education should actively promote these reforms:

·         Legislation that will give insolvent students reasonable access to the bankruptcy courts. 

·         Legal prohibitions against the garnishment of student-loan debtors’ Social Security checks. 

·         More accurate reports from the Department of Education regarding student-loan default rates.

For two top spokespeople for the higher education industry to simply say a college education is a good value and students need to make better decisions about borrowing money is pretty lame. The nation’s colleges and universities need to accept some responsibility for the student-loan mess, and they need to support effective solutions.  

References

Broad, M. C. (2012, May 190. Letter to the Editor. New York Times, p. 18.

Choy, S. B, & Li, X. (2006). Dealing with debt: Bachelor’s degree recipients 10 years later.  Washington, DC: National Center for Education Statistics. http://nces.ed.gov/pubsearch/pubsinfo.asp?pubid=2006156

Fossey, R., & Cloud, R. C. (2011, November 24). From the cone of uncertainty to the dirty side of the storm:  A proposal  to provide student-loan debtors who attended for-profit colleges with reasonable access to bankruptcy court. West’s Education Law Reporter, 272, 1-18.

Martin, A., & Lehren, A. W. (2012, May 12). A generation hobbled by the soaring cost of college. New York Times, p. 1. http://www.nytimes.com/2012/05/13/business/student-loans-weighing-down-a-generation-with-heavy-debt.html?pagewanted=print

Warren, D. L. (2012, May 19). Letter to the Editor. New York Times, p. A18.

What's a Trillion Dollars Among Friends? Is Student-Loan Debt "Good Debt"?

A couple of days ago, Beckie Supiano wrote an article for Chronicle of Higher Education, entitled “What Does $1-Trillion in Student Debt Really Mean? Maybe Not That Much,” which suggested that the nation's massive student-loan debt is no big deal.  Some of the people cited in Supiano’s article apparently believe that student-loan indebtedness is fundamentally different from the home-mortgage crisis because education, unlike a mortgaged home, has intrinsic value that does not diminish over time.

For example, Anthony P. Carnevale, director of Georgetown University's Center on Education and the Workforce, described student-loan debt as "good debt". In fact, Carnevale maintained, “This is exactly the kind of debt a society wants.” 

Mr. Carnevale’s perspective on student loans would be correct if all students received good value when they borrowed money to obtain a college education. But, as everyone knows, millions of people have borrowed money to pursue post-secondary education and did not see their lives improve in any meaningful way.  A person who borrows $100,000 to obtain a degree in religious studies, winds up working as a waitress, and defaults on her student loans does not have the kind of debt society wants. That kind of debt is not “good debt”.

Furthermore, contrary to some of the views expressed in the Supiano article, the student-loan crisis is very similar to the home-mortgage crisis. In fact, student loans have probably caused more human suffering than the home-mortgage meltdown.  People who own homes worth less than their mortgages are certainly under stress. But at least these people have roofs over their heads, and they own tangible assets. Furthermore, home-mortgage holders who are financially unable to pay their monthly mortgage payments can discharge their mortgages in bankruptcy.

In contrast, people who took out student loans to obtain a college education did not obtain anything tangible except their diplomas, and many did not receive the skills or training from their experience that would enable them to obtain good-paying jobs or otherwise improve their lives.  Many people who borrowed substantial amounts of money to obtain degrees in such fields as art history, religious studies, sociology and anthropology are in real financial trouble because they can’t find employment that compensates them enough to pay off their student loans.

Furthermore, unlike homeowners who have unmanageable mortgages, most overburdened student-loan debtors cannot discharge their loans in bankruptcy.  Although they can obtain deferments on their loan payments if they can show economic hardship, interest on their loans will continue to accrue in most instances, increasing the size of their debt

In short, to suggest that the nation’s $1 trillion in accumulated student-loan debt is not a serious problem shows a profound lack of understanding about the tremendous suffering that millions of student-loan debtors are experiencing. There are lots of things we can do to get the student-loan crisis under control, but we should begin by providing meaningful relief to overburdened student-loan debtors who have no reasonable prospect of ever paying off their student loans.

References

Supiano, B. (2012, May 16). What Does $1-Trillion in Student Debt Really Mean? Maybe Not That Much. Chronicle of Higher Education. http://chronicle.com/article/What-Does-1-Trillion-Mean-/131900/?key=TWwidAI8byUVbHBhYDpAbj4AaH0%2BMUp2YydBPX4rblpXGQ%3D%3D.