Monday, April 30, 2012

Paul Krugman's Advice for Aiding College Students is a Little Thin

Far be it from me to criticize Paul Krugman’s advice on economic issues. After all, Krugman received the Nobel Prize in economics, and I did not.  (I may have gotten the Boy Scout merit badge in Personal Management.)
Krugman, writing in today’s New York Times, reviewed the dire situation of many college graduates. As Krugman rightly pointed out, many are saddled with huge student loans and can’t find jobs.
Personal Management Merit Badge
“What should we do to help America’s young?” Krugman asked.  “We should be expanding student aid, not slashing it.”
With all due respect, Mr. Krugman’s advice is a little thin.  Expanding student aid will not do American young people any good if it is disbursed in the form of student loans that they are unable to pay back.  And pouring more money into an unreformed higher education system is a waste of resources.
The Cal State student hunger-strikers have put their finger on the problem.  We need to freeze college tuition and reform the universities.  We can start the reform effort by cutting back on the exorbitant salaries our universities pay senior executives and administrators.
Of course there are lots of other things we can do to straighten out the student-loan mess and help young people obtain college experiences that will help them get good jobs.  But simply saying we should expand student aid, as Mr. Krugman suggested in today’s New York Times, merely endorses the status quo.  That is how we got into this mess, and we now have one trillion dollars of outstanding student-loan indebtedness and 37 million student loan debtors.  

Krugman, P. (2012, April 30, 2012). Wasting our minds. New York Times

Cal State Students Plan Hunger Strike to Protest Tuition Hikes: Let's Hope They Don't Get Pepper Sprayed

"Let them eat pepper spray"

According to the Los Angeles Times (Rivera, 2012), students at six Cal State campuses vow to go on a hunger strike Wednesday in protest of rising tuition costs.  Their demands are quite reasonable. They want tuition costs frozen for five years and a rollback on excessive administrators’ salaries.

 A Cal State spokesperson, displaying the tone-deaf response so typical of California university administrators, said the hunger strikers don’t understand the issues.  This reminds me of what Marie Antoinette is said to have remarked about the poor people of Paris: “Let them eat cake.” 

We should give these courageous students all our support.  And let us hope university police officers won’t pepper spray them.


Rivera, C. (2012, April 29). With tuition hard to swallow, Cal State students to go hungry. Los Angeles Times.,0,6584621.story

Thursday, April 26, 2012

Are We Rearranging the Deck Chairs on the Titanic? Keeping Interest Rates Down on Student Loans

President Obama has asked Congress to pass legislation that will keep the interest rate on student loans from doubling later this year. Of course, this is a good idea; and I think Congress will act favorably on the President's request.

Unfortunately, keeping interest rates down on student loans is like rearranging the deck chairs on the Titanic. The ship is still going down. 

The core problem is this: millions of Americans have borrowed money for a postsecondary education, and they can't pay it back.  Solving this problem won't be easy, but we can start by doing these three things:

  • Congress must pass legislation allowing overburdened student-loan debtors to discharge their loans in bankruptcy in the same way they can discharge other unsecured debts. In other words, Congress must repeal the "undue hardship" provision in the Bankruptcy Code that makes it almost impossible for students to discharge their student loans in a bankruptcy court.
  • We must do a better job of regulating the for-profit colleges, which is where the student-loan default rate is the highest.
  • We need to defer interest on loan balances for people who have economic hardship deferments or are paying back their loans through an income-contingent loan repayment plan (ICRP). Otherwise, most of the people who are participating in these student-loan hardship plans will never be able to pay back their loans because accruing interest will make their debt loads unmanageable.

Wednesday, April 25, 2012

Are Professors' Salaries Responsible for Tuition Increases?

Why does college tuition go up every year? According to Vice President Joe Biden, higher faculty salaries provide a partial explanation. “Salaries for college professors have escalated significantly,” Vice President Biden said recently. (June, 2012, p. A1).
But the AAUP disagrees. According to a recent AAUP report, faculty salaries have not kept up with inflation. Professors have only received modest raises in recent years, especially compared to college presidents, who are doing just fine financially.
Don't Blame Me!
I partly agree with the AAUP report.  College professors do not make a lot of money. Although faculty at elite universities like Harvard and Stanford command high salaries, the professors at community colleges and regional state universities like the one where I work are not highly paid.
It would be a mistake, however, to conclude that professors have not contributed to higher tuition rates at our colleges and universities, because in fact they share part of the blame.  Here are some examples of the way professors contribute to out-of-control college costs.
·         When a professor insists on getting a course release to design a new course instead of doing the work as part of the professor’s regular work load, college costs increase.
·         When a professor uses college funds to deliver a mediocre academic paper at a conference in Europe simply to get an expense-paid trip to an exotic locale, that action wastes a college’s money.
·         When professors cap enrollment in their graduate courses at unreasonably low levels in order to teach smaller classes, those decisions increase a college’s costs.
·         When professors unilaterally decide to end their work weeks on Thursday instead of Friday, as many of them do, those individual decisions have a financial impact.
In short, many decisions that professors make to reduce their job responsibilities or serve their own selfish interests have an impact on the cost of doing business at our nation’s colleges and universities. Therefore, it would be misleading to say that the nation’s college professors have not contributed to the spiraling cost of attending college.
And who pays the price for the colleges’ inefficiencies—including inefficiencies in the way professors work?  We know the answer. Students pay the price as they borrow more and more money to pay escalating tuition costs.
June, A. W. (2012, April 13). College’s cost isn’t due to jumps in pay, AAUP says. Chronicle of Higher Education, p. A1.
Thornton, S., & Curtis, J. W. (2012). A very slow recovery. Washington, DC: American Association of University Professors. Accessible at

Monday, April 23, 2012

Albert Lord Says Student Loan Program is Not in a Bubble: Should We Believe Him?

Albert Lord Says Student Loan Program is Not in a Bubble
Albert Lord
CEO, Sallie Mae

According to recent news stories, Albert Lord, CEO of Sallie Mae (SLM Corp.)  rejected any claim that student loan debt has reached dangerous levels.  “We don’t see anything of any evidence close to a bubble,” Lord said in a conference call to financial analysts. “This country underwent a significant financial crisis in our very recent past. It’s not really a surprise that many see bubbles around every corner” (Mulholland, 2012). 
So Mr. Lord assures us the student loan program is not in a bubble. Should we believe him?
No, we should not. First of all, as everyone knows, the percentage of students who borrow money to attend college is going up and students' average indebtedness is going up as well.   Moreover, annual student-loan default rates have almost doubled between 2003 and 2009—going from 4.5 percent to 8.8 percent.  And these numbers only reflect the numbers of students who default within two years after beginning repayment.  When the default rate is expanded to measure defaults during the first three years after repayment begins, the rate goes up substantially—especially for students who borrowed money to attend for-profit colleges.  According to one projection, the three-year default rate for the 2009 cohort is 29 percent for students who attended for-profit schools.  (Lederman, 2011). Surely this is a sign of serious trouble ahead for the student loan program.
We should also look at some recent reports by outside analysts when we assess Mr. Lord’s assurances about the student loan program. The Federal Reserve Bank of San Francisco, in a 2011 publication, reported that private lending increased dramatically from 2000 to 2007, reaching 26 percent of all student loans during the 2006-2007 academic year. Private loan volume then retreated from a high of $22.6 billion in 2006-2007 to only $7.9 billion in 2010-2011.  (Choi, 2011). This may be an indication that the private banking industry has concluded that student loans are becoming riskier for banks, in spite of the fact that these loans—like federally guaranteed loans—are almost impossible to discharge in bankruptcy.
In a 2012 publication, the Federal Reserve Bank of New York reported that total outstanding student-loan indebtedness has reached $870 billion, surpassing the nation’s entire outstanding credit-card balances and its outstanding car-loan balances. According to the New York Reserve Bank, there are about 37million people with student-loan balances, Sixty percent of these borrowers are 30 years old or older, and about 27 percent of all borrowers have at least one past-due student-loan account.  Seventy-five percent of individuals with past-due student-loan accounts are 30 years old or older, and 40 percent are 40 years older or older.  These numbers tell us that a lot of people are struggling with student-loan debt well into midlife. 
In addition, Moody’s issued a report in July 2011, which is sharply different in tone from Mr. Lord’s optimistic reassurances. “The long-run outlook for student lending and borrowers remains worrisome,” the Moody report stated. “[T]here is increasing concern that many students may be getting their loans for the wrong reasons, or that borrowers—and lenders—have unrealistic expectations about borrowers’ future earnings.” Moody’s warned that “[u]nless students limit their debt burdens, choose fields of study that are in demand, and successfully complete their degrees on time, they will find themselves in worse financial positions and unable to earn the projected income that justified taking out their loans in the first place” (Moody’s Analytics, 2011).
In my opinion, Mr. Lord is wrong to say the student loan program is not in a bubble. Independent analysts see trouble ahead.  As I have written earlier, there are many things we can do to ease the burdens that weigh down overstressed student-loan borrowers.  But the first thing we must do is face reality and admit that the student loan program is out of control.
Choi, L. (2011, December). Student debt and default in the 12th District. San Francisco: Federal Reserve Bank of San Francisco. (last visited April 23, 2012).
Brown, M., Haughwout, A., Lee, Donghoon, Mabutas, M., & van der Klaauw, W.(2012). Grading students loans. New York: Federal Reserve Bank of New York. (last visited April 23, 2012).
Deritis, C. (2011, July). Moody’s Analytics: Student Lending’s Failing Grade.

Lederman, D. (2011, May 23). Trouble ahead on student loan defaults. Inside Higher Education (last visited April 23, 2011). 
Mulholland, S. (2012, April 19). Sallie Mae CEO Albert Lord Rejects Education Loan Bubble Claims. Huffington Post. (last visited April 23, 2012).

Tuesday, April 17, 2012

The New American Serfs: Student-Loan Debtors in the Federal Income Contingent Repayment Plan

Slavery in the United States ended with the Civil War, but slavery in another form lived on.  Slavery was replaced by a new kind of bondage, whereby tenant farmers and share croppers basically became serfs to their landlords and were as bound to them as if they were still human chattel.  The age of the share cropper and the tenant farmer did not end until the Great Depression, when the rural poor fled the land and migrated to the cities or to California.

But those days are over, right? No one in the United States is a slave or an indentured servant in the 21st century. 

Sadly, our national government has created a new form of bondage, which it imposes on college students who participated in the federal student loan program but can’t pay back their loans.  Some of these former students are burdened with student-loan obligations for decades--hounded by the loans they cannot repay and the accumulating interest on their debt. Some of them have become true indentured servants--bound to pay a portion of their income to their federal student-loan creditors for a majority of their working lives.

The Disturbing Case of In re Stevenson

If you think I have overstated my case, you should read In re Stevenson (2011), a recent decision by the U.S. Bankruptcy Court in Massachusetts. Janice Stevens took out two student loans in 1983 to obtain additional education beyond her bachelor’s degree. She took out a third loan in 1987 and another in 1992. By 2008, when she filed for bankruptcy, Ms. Stevenson was in her mid-50s, and her total indebtedness was approximately $112,000, including accrued interests and costs.

Ms. Stevens filed an adversary proceeding in bankruptcy court, seeking to have her student loans discharged on the grounds of undue hardship.  Most people would think she had a pretty good case. Although she had held good jobs over the years, she had suffered periods of joblessness and homelessness and had sometimes lived in homeless shelters. In addition, Ms. Stevenson had health issues--back problems, high blood pressure and an autoimmune disease that required her to take medicine.

During the bankruptcy proceedings, Ms. Stevenson held a part-time job at Walgreens, earning less than $500 a month. She supplemented her meager income with unemployment checks, which were scheduled to terminate in a matter of months.  She also received a monthly subsidy from the State of Massachusetts to help her pay her rent.

In spite of Ms. Stevenson’s bleak economic circumstances, Judge Joan Feeney ruled that her student loans were not dischargeable in bankruptcy. Judge Feeney concluded that Ms. Stevenson should continue paying her loans through the federal government’s Income Contingency Repayment Plan (ICRP), whereby she would pay a percentage of her income toward paying down her loans for a period of 25 years.  At the end of the 25 year period, any remaining balance would be forgiven.  

Did Judge Feeney Make Ms. Stevenson an Indentured Servant?

When she came into bankruptcy court, Ms. Stevens had unpaid student loans stretching back to 1983. Instead of discharging her debt based on undue hardship, Judge Feeney concluded that Ms. Stevenson should participate in a federal repayment program that would obligate her to pay a percentage of her income toward her debt for 25 years.

If Ms. Stevenson goes on the ICRP, she will be nearly 80 years old when her payment obligations cease.  By that time she will have been burdened with student-loan debt for well over half a century.


It seems to me that the Income Contingent Repayment Plan, which Judge Feeney endorsed for Janice Stevenson, is nothing more than a modern version of indentured servitude, whereby student-loan debtors like Ms. Stevenson pay a portion of her income to student-loan creditors for the balance of her working lives.

The federal student loan program is out of control, and the Income Contingency Repayment Plan is making life harder for overburdened student-loan debtors, not easier.

Congress needs to do two things. First, it should amend the bankruptcy laws to allow insolvent student-loan debtors to discharge their debts in bankruptcy just like any other overburdened debtor.

Second, Congress should pass legislation abolishing the ICRP option for stressed out student-loan debtors. People who are insolvent deserve the fresh start that bankruptcy is designed to give them. They don’t deserve to be saddled with a 25-year repayment plan that will cripple them financially for the rest of their working lives.


In re Stevenson, 463 B.R. 586 (Bkrtcy. D. Mass. 2011).

Thursday, April 12, 2012

The UC Davis Pepper Spray Incident and the Boston Massacre: Universities Should Respond Quickly to Outrageous Conduct on Their Campuses

More than one million people have viewed the You Tube video showing UC Davis police officers pepper-spraying peaceful students on the UC Davis campus last November. Any eight-year old who views that video can tell you that the police used unnecessary force against university students who were peaceful protesting economic conditions as part of the Occupy Wall Street demonstrations. 
But apparently UC Davis does not have the capacity to respond quickly and decisively when their own employees assault students in broad daylight on the University’s own campus. Almost five months after its students were attacked, the University issued a 190-page report prepared by a 13-member committee and chaired by a former California Supreme Court justice. Evidently, the committee thought the incident was too complicated to be investigated by laypeople, so it hired an outside consulting firm to find out what happened. To no one’s surprise, the report concluded that University officials made lots of mistakes.
In some ways, the UC pepper spray incident is like the Boston Massacre of 1770, in which a squad of British soldiers fired into a crowd of belligerent citizens and killed five people. Both incidents sparked a nationwide sense of outrage. But the official response to the Boston Massacre was quite different from the way UC Davis responded to the pepper spray incident.
Almost immediately after the Boston killings, all the soldiers who participated in the shootings were arrested, along with their commanding officer; and they were tried for murder. Captain Preston, the officer in command, was acquitted. The jury believed Captain Preston’s testimony that he gave his soldiers no order to fire on the crowd. In a separate trial, most of the soldiers were acquitted as well, although two were convicted of manslaughter. The soldiers were pinned into a corner by a threatening mob when they fired their guns and probably feared for their lives.
The point of my comparison is this. After the Boston Massacre, local officials responded quickly and forthrightly. British soldiers who participated in the incident were arrested and tried in a criminal court. In contrast, all UC Davis has done in response to the pepper-spray outrage is issue press releases, suspend some of the employees who were involved in the incident, and write a 190-page report.
If you disagree, look again at the You Tube video. Shouldn’t someone be punished?

Tuesday, April 10, 2012

The Pepper Spray Incidents at UC Davis and Santa Monica College: Universities Need to Listen to Students' Concerns about the Rising Cost of a College Education

Earlier this month, campus police at Santa Monica College pepper-sprayed more than two dozen students who were trying to enter a Trustees meeting to protest a tuition hike.  Chui L. Tsang, the college’s president, defended the police officers’ conduct, insisting that police used appropriate restraint and did not arrest anyone.  (Rivera, 2012).
Last fall, campus police at UC Davis pepper-sprayed students who were peacefully participating in an Occupy Wall Street demonstration. A video of this incident, posted on You Tube, shows a helmeted police officer calmly pepper spraying students who are passively huddled on a campus sidewalk.
What’s going on here?  Don’t colleges realize that students are the customers? Don’t they understand how bad they look when people view these incidents on You Tube? How many UC Davis students and Santa Monica College students who witnessed their classmates being pepper sprayed are going to donate money to their alma maters after they graduate?
Campus police should not pepper spray anyone—student or nonstudent—who is not behaving violently or physically threatening other people.  The students at UC Davis and Santa Monica College were not behaving violently (although some of the Santa Monica College students were a bit rowdy), and they should not have been pepper sprayed. 
Instead of pepper spraying their students, colleges and universities should listen to student protests about the rising cost of tuition and burgeoning student-loan debt; and they should demonstrate that they are taking action to address their students’ concerns.
What should they be doing?
  • First, colleges and universities should stop raising tuition while they continue paying extravagant salaries to college presidents and senior executives. They should freeze or reduce the salaries of their highest paid employees—at least until the national economy recovers-- instead of tacking the cost of these excessive compensation packages onto students’ tuition bills.
  • Second, college and university trustees should cap tuition and fees until the economy improves, and they should work harder at making their institutions more efficient.
  • In addition, higher education should demonstrate their empathy for overburdened student-loan debtors by urging Congress to amend the Bankruptcy Code to give overburdened student-loan debtors reasonable access to the bankruptcy courts. They should also support legislation that would stop the federal government from garnishing the Social Security checks of elderly people who defaulted on their student loans. 
The cost of higher education is out of control, total student-loan indebtedness approaches one trillion dollars, and student-loan default rates are alarmingly high. Colleges and universities need to show students that they are helping to solve these problems.  Pepper spraying student protesters is the wrong thing to do.
Rivera, C. (2012, April 4). College president defends pepper spray against 'unlawful' crowd. Los Angeles Times.

Wednesday, April 4, 2012

Student-Loan Defaulters: Not All of Them are Young

What is your image of the typical person who defaults on college student loans? Do you envision a young and irresponsible college graduate—someone who ripped off the federal student loan program by borrowing money to get a fancy college degree and then refused to pay it back? If so, your image would be inaccurate. A great many defaulters are from low-income families. Often they attended a for-profit institution that provided them with little value. And—this may come as a surprise—many student-loan defaulters are not young.
Researchers for the Federal Reserve Bank of New York examined the loan status of 37 million student-loan borrowers. Fourteen percent of these borrowers—approximately 5.4 million people, have at least one past-due student loan account. According to the Federal Reserve Bank report, only about 25 percent of student-loan borrowers with past due balances are under the age of 30. Forty percent of the student loan borrowers with payments in arrears are at least 40 years old. Almost one delinquent borrower in six (17.7 percent) are fifty years old or older. And about five percent of the people who are behind on their student loan payments are at least 60 years old (Brown, Haughwout, Lee, Mabutas, and van der Klaauw, 2012).
Why are so many people falling behind on their student loans in midlife or late in life? There are several explanations.
First, some of the older student-loan borrowers are people who borrowed money in midlife, expecting to increase their income potential. Then—due a variety of life circumstances, these borrowers did not earn the income they expected.  Maybe they became ill, lost their job, or were the victims of the recent economic downturn. As a consequence, some of these older student-loan borrowers fell behind on their loans.
Second, some of the nation’s older delinquent borrowers obtained economic hardship deferments on their loans, which temporarily exempted them from making regular student-loan payments. For a majority of these people, interest continued to accrue on their loans during the deferment period, causing their loan balances to grow.  Consequently, when these borrowers began making loan payments again after their deferments expired, they sometimes had a swollen loan balance that they simply could not repay.
Finally, I suspect some of the older people who are behind on their student-loan payments are people who had previously elected to pay off their loans under the income-contingent repayment option, which extends the loan repayment period out to 25 years. For some older people, the prospect of making student-loan payments during their retirement years may have seemed too daunting, causing them to stop making payments on their loans.
Older people who default on their student loans receive no dispensation from their loan obligations due to their age. In fact, in Lockhart v. United States (2005), the Supreme Court has ruled that a student-loan defaulter’s Social Security checks can be garnished.  Thus, some elderly people who failed to pay back their student loans will face severe financial hardship if they are totally dependent on Social Security income during their so-called “golden years.”
Obviously, no one would recommend a government policy that would make it easier for people to default on their student loans. Nevertheless, garnishing the Social Security checks of elderly student loan defaulters is an overly harsh measure. Congress needs to pass legislation that bars lenders and collection agencies from garnishing a student-loan defaulter’s Social Security check.
Brown, M., Haughwout, A., Lee, D., Mabutas, M., and van der Klaauw, W. (2012). Grading student loans. New York: Federal Reserve Bank of New York. Accessible at:

Lockhart v. United States, 546 U.S. 142, 126 S. Ct. 699 (2005).

Tuesday, April 3, 2012

Universities Should Cap Tuition and Fees Until National Unemployment Rate Goes Down

In an article that appeared this week in Chronicle of Higher Education, Gary Fethke argued that college tuition is going up because taxpayer support for higher education is going down.  (Fethke, 2012). Although his essay discusses economic theory on a sophisticated level, Professor Fethke’s argument can be summarized in in the essay’s last sentence: “Students are required to pay more in college tuition] because taxpayers are paying less—it’s that simple.”
Professor Fethke is partly correct.  Taxpayer support for higher education has gone down as a percentage of total costs, and this increase has contributed to higher tuition costs at publicly supported universities.  My own law school experience illustrates the point.  When I attended law school at the University of Texas many years ago, tuition and fees amounted to only $500 per semester.   I was able to put myself through law school by working part time as a law clerk at the Texas Attorney General’s Office, and I graduated from UT Law School—one of the top ranked law schools in the United States—with no debt.  I will always be grateful to the people of Texas for making this educational opportunity so affordable.
Today, of course, UT Law School is not such a bargain. According to the law school’s web site, tuition and fees now amount to more than $32,000 a year—32 times higher than when I attended law school.
Inefficiency Contributes to Rising Tuition Costs
Taxpayer support for higher education has declined over the years as a percentage of total costs, but this does not fully explain why higher education has gotten so much more expensive, with costs going up every year at a rate higher than inflation.  Part of the problem lies in the universities’ lack of efficiency.
  I will provide one example from the first university where I worked as a professor; let’s call it Generic University.  At the time I worked at GU, the university required every doctoral-level class to have at least five students. Otherwise the course was cancelled. One of my colleagues repeatedly had low enrollments for his doctoral-level classes; and one semester, he could not attract five students to enroll in either of his two courses.  Consequently, both courses were cancelled that semester, and the professor taught nothing at all.
At a profit-driven institution, this development would have attracted some attention. Supervisors would want to know why a particular professor’s classes attracted so few students.  Perhaps someone would have asked questions about the professor’s overall productivity; how many doctoral students was he supervising, for example? Undoubtedly, a profit-driven enterprise would have taken some action to ensure that the professor became more productive.
As it turned out, the professor’s small classes were not only an indication of his lack of popularity with students; they were a sign that enrollment was dropping in the program as a whole. Yet GU administrators did little to reverse the decline in enrollment during my years at the institution.
I think most people who work in higher education can provide a similar example of institutional inefficiency that was not addressed by university administrators. Instead of becoming more efficient and keeping costs down, it has been easier for university governing boards to simply raise the price of tuition.  Consequently, students have been forced to borrow more and more money every year in order to pursue a college degree.  Today, postsecondary students borrow about 100 billion dollars annually; and total student-loan indebtedness is one trillion dollars.
Of course, inefficient faculty is but one part of the problem of escalating tuition costs.  University administrators have enjoyed enormous salary increases in recent years, so that the spread between faculty salaries and administrators’ salaries has grown wider and wider.
Colleges Should Cap Tuition and Fees or Get Out of Federal Student Loan Program
As the economy continues to sputter and college graduates struggle to find employment, the rising cost of higher education in the United States has become an enormous problem. The Obama administration has addressed this problem in various ways, but tuition costs keep going up.
If the federal government is really serious about rising tuition costs and rising student-loan indebtedness, it can implement a simple solution that would go a long way toward keeping tuition costs in better control   Congress could simply amend eligibility requirements for colleges and universities to participate in the federal student loan program.  Under the new rules, higher education institutions would be required to freeze tuition and fees at their present levels until the national unemployment rate drops below a certain level—let’s say 6 percent.
If the federal government would require colleges and universities to cap their tuition and fees at the present level until the unemployment rate goes down, higher education institutions would be forced to become more efficient. Currently, universities are free to raise their tuition at will, permitting them to pass of the cost of their inefficiency onto students and forcing students to borrow ever larger amounts of money.  A cap on tuition and fees is the simplest and quickest way to deal with this problem.  College and universities that are unable or unwilling to rein in their costs should be expelled from the student loan program.
Fethke, G. (2012, April 1). Why does tuition go up? Because taxpayer support goes down. Chronicle of Higher Education.