Morley Winograd and Michael Hais recommend free college in a Brookings paper less than 24 hours after Bernie Sanders lost the California primary



The Brookings Institution is a cowardly, sniffling organization committed to preserving the status quo in higher education. And here is another indication of that.

On June 8, the morning after Hillary beat Bernie in California, Brookings posted an essay by Morley Winograd and Michael Hais about how the Democrats can win back  the young voters who went for Bernie Sanders over Hillary by 3 or 4 to 1. 

In case you haven't heard of them, Morley Winograd and Michael Hais are two old coots who profess to be experts on the millennial generation. Judging by their photos, Winograd and Hais are not millennials themselves, but they have written some books about millennials and that makes them experts.

In their essay for Brookings, Winograd and Hais cooed approvingly about Hillary's stand on the student-loan crisis:  "[Hillary] has already spoken out forcefully on the need to lift the burden of student debt from this generation," the authors wrote. They note that sheendorses the idea of allowing college-loan borrowers to refinance their loans and she favors loan forgiveness for people who were defrauded by "unscrupulous lenders or schools." 

Big friggin' deal. Allowing distressed debtors to refinance their loans will not solve the student loan crisis. There are 43 million people with outstanding college-loan debt, and most have signed multiple promissory notes. There must be at least 200 million individual debt instruments floating around--maybe twice that many.  Is the federal government really going to refinance all those loans at lower interest rates? In your dreams, Mike and Morley.

And as for the notion that defrauded students should have their loans forgiven, I've got news for you, Mike and Morley. The Department of Education already has a debt forgiveness program in place. The problem is that the process is so cumbersome that very few loans have actually been forgiven.

But here's the money quote.  Mike and Morley recommend a free college education for everybody.
 "[M]illennials and the generations that come after them should be able to get their higher education debt free," Winograd and Hais wrote, "because that’s the level of education they—and America—will need to be successful both in today’s economy and in the years ahead."

Hey, that's exactly what Bernie Sanders said at his first debate with Hillary last fall. If this is such a good idea, why didn't Mike and Morley, the so-called millennial experts, suggest it sooner? Why didn't Hillary endorse this idea? And, more to the point of this commentary, why didn't the Brookings Institution publicize this idea before the California primary rather than after the votes were counted and Bernie was defeated?

I'll tell you why--because Hillary, the Brookings Institution, and the Democratic Party are committed to the status quo in higher education. If Americans could get a free college education from a public college in the same way they get a free high school education, the for-profit colleges would shut down almost overnight and the elite private colleges would be forced to slash their tuition rates.

Hillary is not going to let that happen. She and Bill have made too much money off the higher education industry, and so have Democratic Party insiders like Debbie Wasserman Schultz.  That's why Mike and Morley's whispered suggestion about a free college education didn't surface until after Hillary had defeated Bernie. And my prediction is this: the Brookings Institute will never allow this very good idea to be floated again in any of its publications.

Morley Winograd & Mihael Hais: Experts on millennials

 Note: The Winograd and Hais essay is dated June 3, 2016, but it first appeared for public viewing on the Brookings web site on June 8, 2016. The same essay appeared on the Mike and Morley web site on June 6. 

References

Morley Winograd and Michael Hais. The Democrats' Generation Gap. Brookings Institution, Jun 3, 2016. Accessible at http://www.brookings.edu/blogs/fixgov/posts/2016/06/03-millennials-democrats-election-2016-winograd-hais?utm_campaign=Brookings+Brief&utm_source=hs_email&utm_medium=email&utm_content=30380706&_hsenc=p2ANqtz-8kyQSbZyUfxh-t2hnsxhvRRXvUp2j0eORShy09EK-7-HQpeIdEwoZaQ1CXQ3fR5CAxWRHk2cBWPTT6cCkIOO74q4BLUw&_hsmi=30380706

 Morley Winograd and Michael Hais. The Democrats' Generation Gap, Mike and Morley web site, June 6, 2016. http://www.mikeandmorley.com/the_democrats_generation_gap


Susan Dynarski, Brookings Institution, and the U.S. Housing Market: Lies, Damned Lies and Statistics

Larry Summers, former Secretary of the Treasury and President Emeritus of Harvard, has expressed concern about growing student-loan indebtedness, which he linked to a slowdown in home ownership in the United States. Joe Stiglitz, Nobel Prize winner in economics, and the Federal Reserve Bank in New York have also expressed the view that growing levels of college-loan debt is hurting the housing market.

But Susan Dynarski, writing for the Brookings Institution, says this is nonsense. Crunching the data from the Federal Reserve System in a different way than the Federal Reserve Bank, she came to this conclusion: education levels, not student-loan indebtedness, explain the difference in home-ownership rates among Americans. In a nutshell, here are Dynarski's conclusions:

Those who borrow for college do have a slower start to homeownership than those who went to college debt-free. . . . But by the time people are in their thirties, when the typical borrower would have finished paying off her student loans, the home ownship rates of the two college-educated groups are statistically indistinguishable. The striking, large gap is between the college-educated and those who stopped with high school.

I have two observations to make about Dynarski's paper for the Brookings Institution.  First, if Dynarski disagrees with Larry Summers, Joe Stiglitz and the Federal Reserve Bank of New York, I"m inclined to be persuaded by these eminences rather than Dynarski.

Second, speaking purely as a layperson with no expertise in economics, Dynarski's arguments simply defy common sense. How can she say that rising levels of student-loan indebtedness has no impact on home ownership given what we know about the massive hardship that millions of college-loan borrowers are suffering?

As the New York Times noted several months ago, 10 million people have either defaulted on their student loans or are in delinquency. Can anyone say this group of people have not been shut out of the housing market?

Another 5 million people have been shoved into long-term income-based repayment plans that stretch out for 20 years or more; and the Obama administration hopes to increase that figure by another 2 million people by the end of 2017. Can anyone argue that having a 20-year financial obligation hanging around one's neck has no impact on the ability to buy a home?

Susan Dynarski and the Brookings Institution have published numerous papers that basically contend  that the student-loan program is under control. Like those cops at a murder scene in a 1950s detective movie, they constantly mutter, "Move along, folks; nothing to see here; move along."

But everyone from Joe the Plumber to Larry Summers knows the federal college-loan program is out of control, with millions of people unable to make their loan payments. In my view, the Brookings Institution and many of its researchers are nothing more than shills for the higher education industry, which desperately needs large infusions of federal cash to keep the doors open.

Like all of higher education's apologists, Dynarski repeats the old bromide that people who graduate from college make more money than people who only hold a high school diploma. Of course that is true. But this platitude doesn't excuse higher education for running up tuition costs at twice the rate of inflation. It doesn't justify the behavior of the for-profit universities, which charge far too much for substandard programs and have shockingly high student-loan default rates.

In my opinion, policy makers and the public in general should discount almost everything the Brookings Institution says about the student-loan crisis, which by and large the Brookings people don't even acknowledge.  We should listen to the Vermont House of Representatives, which adopted a resolution a few days ago calling on Congress to lift restrictions on bankruptcy for student-loan debtors. After all, the small-town legislators in the Green Mountain State live in the real world, which is not the world that Susan Dynarski and her Brookings colleagues live in.

References

Micahel Bielawski. Vermont House asks Congress to let student-loan borrowers file for bankruptcy. VermongtWatchdog.org, May 3, 2016.  Accessible at http://watchdog.org/264079/legislature-requests-student-debt-relief-bankruptcy/

Editorial, "Why Student Debtors Go Unrescued." New York Times, October 7, 2015, A 26. Accessible at: http://www.nytimes.com/2015/10/07/opinion/why-student-debtors-go-unrescued.html

Susan Dynarski. The dividing line between haves and have-nots in home ownership; Education, not student debt. Brookings Institution, May3, 2016. Accessible at http://www.brookings.edu/research/reports/2016/05/03-dividing-line-between-haves-have-nots-home-ownership-education-not-student-debt-dynarski

A Bernie Sanders Supporter Who Will Vote For Donald Trump: Cry Havoc!

You ask me if I'll get along.

I guess I will, someway.

I don't like it but I guess things happen that way.

Guess Things Happen That Way

Johnny Cash

I am a die hard Bernie Sanders fan. As I said in an earlier blog, I will support him until the last dog dies, right through the California primary election.  I have harshly criticized Donald Trump on my Catholic blog site because I think Donald's stand on immigration is contrary to Catholic teaching. And I'm not taking my anti-Trump posts down.

But here's a message for Hillary. If I am faced with a choice between Donald Trump and Crooked Hillary, I'm voting for the Donster.

Hillary claims to be a progressive but her brand of progressivism allows her to collect a quarter million dollars a pop making secret speeches to corporate oligarchs. 

Hillary's brand of progressivism is Secretary of the Treasury Jacob Lew's brand of progressivism. Lew took more than two thirds of a million dollars as an exit bonus when he left New York University, the most venal and expensive higher education institution in America. But he's a progressive because he wants Harriet Tubman's face on the dollar bills he lines his pockets with.

Hillary's brand of progressivism is Arne Duncan's brand of progressivism. He bleated repeatedly about the student-loan crisis but did nothing to rein in the for-profit college industry while he was Secretary of Education. In fact, at the direction of his boss, Duncan cynically constructed a modern-day form of serfdom whereby millions of distressed student-loan debtors pay a percentage of their income to the federal government for 20 and even 25 years.  And when he finished picking his nose at the Department of Education, Duncan toddled off to the Brookings Institution, where he will probably write policy papers defending the status quo in higher education and rake in money sitting on corporate boards.

Hillary's brand of progressivism is the New York Times' brand of progressivism, which tells the people of North Carolina how to go to the bathroom while it organizes Luxury Conferences and peddles obscenely expensive New York real estate in its advertising pages.

Hillary's brand of progressivism allows her to think Americans are so stupid that she can mock Donald Trump for flying in a private jet, while she flies in a private jet that is almost identical.

Yes, and Hillary's brand of progressivism is Barack Obama's brand of progressivism, which allowed Barack to  cozy up to Wall Street for eight years while the death rate for working-class white people went up--driven by suicide, liver disease, and drug abuse.

In short, I reject Hillary and all her empty promises.  I would much prefer to vote for Bernie Sanders in November, but if I must choose between Hillary Clinton and Donald Trump, I'm pulling the lever for Trump. As Johnny Cash put it, "I don't like it, but I guess things happen that way."

Will Donald Trump bring chaos to the United States? Perhaps. But I think Hillary and the political elites are going to find that millions of Americans would rather risk chaos than be manipulated by an old political hack and her Ivy League cronies for the next four years.  

Indeed, Shakespeare expresses my sentiment exactly: "Cry 'Havoc!"

Jacob Lew, Secretary of the Treasury: I want my cash in small bills, preferably with Harriet Tubman's picture on it

References

Andrew J. Chirlin. Why Are White Death Rates Rising? New York Times, February 22, 2016. Accessible at http://www.nytimes.com/2016/02/22/opinion/why-are-white-death-rates-rising.html

Danny Hakim. Obama's Treasury Nominee Got Unusual Exit Bonus on Leaving N.Y.U. New York Times, February 25, 2013. Accessible at  http://www.nytimes.com/2013/02/26/nyregion/lew-treasury-nominee-got-exit-bonus-from-nyu.html?_r=0

"Oh what a tangled web we weave": The Department of Education's three-year student-loan default rates are deceptive

Oh, what a tangled web we weave
When first we practice to deceive!

Walter Scott            

Last September, the Department of Education announced three-year default rates for the most recent cohort of student-loan borrowers.  According to DOE, three-year default rates went down dramatically over a two-year period.   The overall student-loan default rate for the FY 2012 cohort of borrowers was 11.8 percent, significantly lower than the FY 2010 cohort default rate, which was 14.7 percent.

Indeed, the for-profit sector saw a spectacular drop in three-year student-loan default rates--from 21.8 percent for the FY 2010 cohort down to 15.8 percent--a 25 percent drop. Amazing!

But of course DOE's three-year default rates are meaningless, particularly for the for-profit schools. The for-profits have kept their three-year student-loan default rates down by aggressively encouraging their former students to obtain economic-hardship deferments, which keep borrowers off the default roles even though they are not making loan payments.

When we look at the 5-year default rate across all sectors, the default rate is twice as high as the three-year rate. Twenty-eight percent of student borrowers defaulted on their loans within five years of beginning repayment, compared to DOE's 11.8 percent three-year rate. In other words, more than one out of four postsecondary students default on their student loans within five years.

In fact, the student-loan default rate and nonpayment rate for the for-profit sector are truly alarming. Forty-seven percent of for-profit students default on their loans within five years.

Although the for-profit sector has the highest default rates, many public colleges also have shocking numbers.  Kevin Carey of the New York Times examined the percentage of students who had paid nothing on the principal of their loans after five years and discovered that the nonpayment rate at several public universities is 20 percent or more: University of Houston, University of Cincinnati, and the University of Louisville among them. At the University of Memphis, Carey reported, 35 percent of former students in a recent cohort had not paid back a dime on their loans five years after entering repayment.

Historically black colleges and universities (HBCUs) have very high student-loan nonrepayment rates. "Of the 25 private colleges with the worst nonrepayment rates, 22 are historically black," Carey wrote. Lane College, a HBCU located in Tennessee, had a five-year student nonrepayment rate of 78.2 percent.

No one who contemplates these numbers can reach any other conclusion other than this: the federal student-loan program is a catastrophe. And, although millions of people have improved their lives by borrowing money to obtain postsecondary education, millions more have been ruined.

Who has been hurt the most by the federal student loan program?

• Students who attended for-profit institutions, where almost half of former students default on their student loans;
• Students who attended HBCUS, which have very high student-loan default rates;
• People who borrowed money to get law degrees or MBA degrees from second- and third-tier institutions;
• People who obtained liberal arts degrees from high-priced private institutions and who acquired no skills that will enable them to get a decent job;
• People who started postsecondary programs and didn't finish them.

The media has reported widely that Americans are carrying $1.3 trillion in outstanding student-loan debt. But this underestimates the reality. This number does not include accumulated interest, loans from private banks, and credit-card debt that students run up while they are in college. Accumulated indebtedness associated with postsecondary education  is at least $1.5 trillion.

That's $1.5 trillion dollars in debt carried by just16 percent of the American adult population--the 16 percent least able to bear the burden. And because the consequences of default are so draconian, this significant percentage of Americans is greatly suffering.

And what is the higher education community's solution to this calamity? Long-term income-based repayment plans that will keep borrowers indebted for the majority of their working lives!

If the federal government had devised a plan to intentionally destroy higher education, shrink the middle class and cripple our economy, it could not have invented a better plan than this.

References

Kevin Carey. Student Debt Is Worse Than You Think. New York Times, October 7, 2015. Accessible at: http://www.nytimes.com/2015/10/08/upshot/student-debt-is-worse-than-you-think.html?_r=1

Adam Looney & Constantine Yannelis. A crisis in student loans? How changes in the
characteristics of borrowers and in the institutions they attended contributed to rising
loan defaults. Brookings Institution, September 15, 2015. Accessible at: http://www.brookings.edu/~/media/projects/bpea/fall-2015_embargoed/conferencedraft_looneyyannelis_studentloandefaults.pdf

Harvard Economist N. Gregory Mankiw Provides a Lazy and Self-Serving Answer to Why College Costs So Much

Harvard Professor N. Gregory Mankiw wrote a lazy and self-serving op ed essay in the New York Times today, in which he purported to explain why college costs so much.

Like most of higher education's shills (Sandy Baum, Susan Dynarski, Catharine Hill, etc.), Professor Mankiw began his pitch by assuring us that college is still a good investment. The median wage for a college graduate, Mankiw reminds his readers, is about twice as much as the median wage for a worker with only a high school education.

Of course it is true that college graduates generally make more money than people with only a high school education, but that fact doesn't justify skyrocketing costs across almost all sectors of higher education. Nor does it justify the ever-increasing amount of money people are borrowing in order to attend college.

Mankiw then goes on to give three explanations for why college costs are going up--all bogus:

First, Professor Mankiw instructs us, we have "Baumol's cost disease."  According to Mankiw, Baumol recognized that as wages rise across all sectors of society, salaries rise even for services that have seen no increase in productivity.

Of course everyone knows that. It costs more for a haircut today than it did a generation ago, even though barbers haven't grown more efficient. Likewise, the cost of higher education has gone up. We used to call that phenomenon inflation, but Professor Mankiw prefers to call it Baumol's cost disease.

But of course this blather does not explain why the cost of higher education has gone up three times the rate of inflation over the past 30 years.

Second, Mankiw argues, higher education seems more expensive due to rising inequalities in society as a whole.  Here I'll let Mankiw explain this argument in his own words:

Educational institutions hire a lot of skilled workers: It takes educated people to produce the next generation of educated people. Thus, rising inequality has increased not only the benefit of education but also the cost of it.

OK, Professor Mankiw, what you say may be true. But again, how does that argument explain why college costs have risen much faster than inflation?

Finally, Mankiw explains, college costs haven't gone up as much as the public thinks because most students aren't paying the sticker price.  Colleges engage in "price discrimination," with only the suckers paying full price. And of course this is true. On average, private liberal art colleges are only collecting about 60 percent of the sticker price because they give discounts in the forms of grants and scholarships to preferred students.

In other words, Professor Mankiw is trying to assure Mr. and Mrs. America that when their children go to college, they'll probably get some sort of brother-in-law deal and won't be paying full price.

All this is pure horse manure. At bottom, Professor Mankiw is merely defending the status quo in higher education, just as Vassar's Catharine Hill did a couple of weeks ago in the Times when she argued against free college education. In fact, when you read Professor Mankiw's essay closely, which he hopes you won't do, he really isn't saying anything at all.

The reality is this: the cost of higher education has gone up for a variety of reasons, and many of those reasons are tied to greed and laziness.  At the elite universities, tenured professors are teaching fewer classes--ostensibly to have more time to do more important things.  College costs could go down if every professor taught the typical teaching load of 30 years ago.  I would be surprised, for example, if Professor Mankiw teaches more than three courses a year.

Moreover, the cost of attending for-profit colleges is especially high, much higher than a comparable educational experience at a community college or public university.  Students who attend these rapacious institutions borrow more money than students who go to public schools. and their student-loan default rates are shocking. According to the Brookings Institution, the five-year loan default rate in the for-profit sector is nearly 50 percent.  But of course, Professor Mankiw didn't even mention the for-profit colleges.

College costs have also gone up because the number of ancillary employees has increased. For example, Harvard was recently ridiculed for printing special placemats that contained instructions to students about how to answer their parents' embarrassing questions when they went home for the holidays.  As if Harvard students are too stupid to know how to talk to their parents or to have their own opinions.

How much, do you suppose, Harvard is paying the person who dreamed up and printed those embarrassing placemats? Well--whatever it is, that amount adds to the cost of Harvard's tuition.

In truth, the cost of postsecondary education is out of control for multiple reasons, and the problem varies in its seriousness across higher education's many sectors. For-profit colleges charge too much; almost all objective commentators agree. Professional education is far too expensive. In particular, the law schools have jacked up tuition prices and are producing about twice as many lawyers as the nation needs. Administrators' salaries have gone up faster than professors' salaries, and numerous frills--fitness centers, luxury student housing, recreational facilities like LSU's "Lazy River"--all this has contributed to the spiraling cost of higher education.

About all these issues, Professor Mankiw had nothing to say.

Personally, I found Professor Mankiw's essay offensive. Millions of people can't pay back their student loans, and most can't discharge those loans in bankruptcy.  Meanwhile, the Department of Education and the policy wonks are urging the expansion of long-term repayment plans that will force Americans to pay on their student loans for 20 or 25 years. In short, the student loan program is a mess, and Professor Mankiw prattles on about Baumol's cost disease!

Professor Mankiw's op essay in the Times was nothing  more than a lazy and self-serving defense of the status quo--a status quo than benefits people like Professor Mankiw.

Professor N. Gregory Mankiw: He likes the status quo.

Deeper into the abyss: Obama introduces REPAYE, yet another income-based student-loan repayment plan designed to turn students into sharecroppers

This week, the Obama administration introduced REPAYE, a new student-loan repayment plan.  Like PAYE ("Pay As You Earn"), REPAYE allows borrowers to pay back their student loans over a 20 year period and to make monthly payments no larger than 10 percent of their discretionary income.  REPAY, however, is available to borrowers who were not eligible for PAYE.

What is the significance of this new development?

It's complicated.  First of all, REPAYE is the federal government's fourth income-based repayment plan. We now have:

• ICR Plan (Income-Contingent Repayment Plan)
• IBR Plan (Income-Based Repayment Plan
• PAYE (Pay  As You Earn Repayment Plan
• REPAYE (Revised Pay As You Earn Repayment Plan)

Not all borrowers are eligible for all plans, and some plans are more favorable to debtors than others. DOE issued a 26-page set of guidelines called "Income-Driven Repayment Plans: Questions and Answers," but the guidelines are complicated.

Here is a sample passage:

The REPAYE, PAYE, and IBR plans offer an interest benefit if your monthly payment doesn't cover the full amount of interest that accrues on your loans each month. Under the three plans, the government will pay the difference between your monthly payment amount and the remaining interest that accrues on your subsidized loans for up to three consecutive years from the date you begin repaying the loans under the plan. Under the REPAYE Plan, the government will pay half the difference on your subsidized loans after this three-year period, and will pay half the difference on your unsubsidized loans during all periods.

Millions of people are already confused by their student loans. Some don't know if they have private loans or federal loans, some don't know how many loans they have, some don't know how much they borrowed or what they now owe, and some people don't even know that they took out a student loan.

For the 20 million people who aren't able to make loan payments under a standard 10-year repayment plan, REPAYE is not going to offer much relief.  It's just another level of bureaucracy and administrative regulations.

REPAYE is a new sign of desperation. Second, REPAYE is just another sign of the federal government's desperation about the federal student loan program. As the New York Times noted a few weeks ago, 10 million people have either defaulted on their student loans or are delinquent in their payments.  About 4 million are making payments under the government's first three income-based repayment plans; and most are not making payments large enough to cover accruing interest.  And a bunch more have gotten some kind of deferment from making loan payments based on economic hardship.

The government's response to all this chaos and misery is to roll out ever more generous long-term repayment plans.  But this strategy hides the fact that millions of people on these plans will never pay back the principle on their loans and for all practical purposes are in default.

REPAYE is really just a program for turning college students into sharecroppers for the federal government.  But the real problem with REPAYE, with PAYE and with IBR and ICR are that these plans force millions of people to make payments to the federal government for a majority of their working lives in return for the privilege of attending college.  In effect, the government is turning our nation's young people into a generation of sharecroppers.

And remember, for most people, these 20- and 25-year repayment plans don't begin when students graduate from college. Often former students struggle for five years or more with their student loans before they finally sign up for a long-term repayment plan.  And that's when the long-term repayment plan starts.  Thus a person who graduated in 2010 and joins an income-based repayment plan this year, will not be free of student loan debt until 25 or 30 years after first enrolling in college.

President Obama, Arne Duncan, the Brookings Institution, and higher education leaders like Vassar's Catharine Hill hail long-term repayment plans as a solution to the growing student-loan crisis. But of course, these plans are not a solution at all. They're a strategy for turning Americans into indentured servants.

Go to college and become a sharcropper!

Vassar's Catharine Hill: What the kiddies need is a nice long-term repayment plan!

NY Times Urges "Speedy Help for Victims of College Fraud," but the Times Does Not Go Nearly Far Enough

Let's give the New York Times credit: it is on the right side of the argument regarding the federal student loan program. The Times editorializes repeatedly about the plight of people who cannot pay back their college loans. The newspaper has published several fine news articles about individuals who are overwhelmed by student-loan debt. And again and again, the Times editorial writers demand action by the federal government to bring relief to desperate student-loan borrowers.

Unfortunately, the Times does not grasp this simple fact: True relief for student-loan debtors will require radical action, far more radical than the Times is willing to contemplate.

Last Sunday, a Times editorial addressed the issue of fraud in the for-profit college sector. As the Times pointed out, "The federal government's decades-long failure to curb predatory behavior in the for-profit college industry has left untold numbers of Americans with crushing debt while providing useless degrees--or no degrees at all--in return."

The Times then went on to praise the Obama administration for creating new oversight rules for the  for-profit college industry. And the Times expressed approval of the Department of Education's decision to forgive the student-loan indebtedness of some individuals who attended Corinthian Colleges (about 3,000 people so far).

But, as the Times pointed out, DOE has yet to grant relief  to any of the 4,000 people who claim they were defrauded by Corinthian and have asked to have their student-loans forgiven.

The Times expressed the fear that DOE's "legendary bureaucracy will drag its feet and make it difficult for deserving plaintiffs to get relief." And the Times ended its rather tepid editorial by stating vaguely that "the department needs to do a much better job of reaching out to people who have potential [fraud] claims."

The Times editorial is on the right track; obviously DOE needs to speed up the process of reviewing fraud claims by students who attended for-profit colleges. But I don't think the Times recognizes the enormity of the student-loan problem in the for-profit college sector.

A recent study by the Brookings Institution reported that there are almost 1.2 million people who attended the University of Phoenix who have more than $35 billion in outstanding student loans.  According to the Brookings study, 45 percent of a recent cohort of former University of Phoenix students defaulted on their loans within five years.

More alarmingly, for the for-profit sector as a whole, nearly three quarters of students who attended for-profit schools  (74 percent) owed more than they originally borrowed two years after beginning repayment (for the 2009 cohort).  And nearly half the students who attended for-profit schools (47 percent) defaulted within five years of beginning repayment.

And Brookings default data did not take into account the fact that many former students have obtained economic-hardship deferments and are not making their student-loan payments. Those people are not counted as defaulters even though they are not paying down their loans.

For-profit colleges are encouraging their former students to  sign up for economic-hardship deferments as a strategy for keeping their institutional default rates down. Tragically, most of the people who obtain economic-hardship deferments receive only phantom relief because the interest continues to accrue on their unpaid debt. When those economic-hardship deferments come to an end, the people who held them will find that the principal of their loans went up during the deferment period.

IN SHORT, IT IS INDISPUTABLE THAT HALF OF THE PEOPLE WHO TOOK OUT STUDENT LOANS TO ATTEND FOR-PROFIT COLLEGES WILL DEFAULT AT SOME POINT IN THE LOAN REPAYMENT PERIOD. In other words, about half of the federal student-aid money flowing into for-profit colleges will never  be paid back.

If the Times grasped the magnitude of the student-loan crisis in the for-profit college sector it would surely recommend more aggressive action by the Feds.  What is needed is not a more streamlined fraud review process (as the Times recommended), but something close to blanket amnesty for at least half of the people who borrowed money to attend for-profit colleges.

Put another way, DOE needs to craft a secular version of Pope Francis's "Year of Mercy," whereby millions of people who attended for-profit colleges can have their loans forgiven with little or no red tape.

Obviously some case-by-case review needs to occur to make sure student loans aren't forgiven for students who got good value from attending for-profit colleges and can afford to pay back their loans. But--based on the default rates--a majority of the people who attended for-profit colleges should have their loans forgiven.

What is the best process for sorting through this mess? Bankruptcy. Student-loan defaulters who attended for-profit institutions should have their loans forgiven by bankruptcy courts without the necessity of adversary hearings. If a bankruptcy court concludes that a student-loan debtor is insolvent, that person's loans should be forgiven unless the government can show fraud or bad faith.

But the burden should be on the government to show that an insolvent student-loan debtor who attended a for-profit college is not entitled to bankruptcy relief--not on the debtor.

Obviously, I have painted an ugly picture: massive student-loan forgiveness and default on billions and billions of dollars in student-loan debt. But most of the defaulters who attended for-profit colleges will never pay their loans back,  whether or not their loans are forgiven.

It is time to wipe the slate clean. The for-profit college industry should be shut down and the people who were injured by it deserve a fresh start.  We can take action now or we can take action later. But eventually, the federal government will have to face facts: the for-profit colleges are a rogue industry and have ruined the economic prospects of millions of people.

References

Kelly Field, "U.S. Has Forgiven Loans of More Than 3,000 Ex-Corinthian Students, Chronicle of Higher Education, September 3, 2015. Accessible at: http://chronicle.com/article/US-Has-Forgiven-Loans-of/232855/?cid=pm&utm_source=pm&utm_medium=en

Adam Looney & Constantine Yannelis, A crisis in student loans? How changes in the characteristics of borrowers and in the institutions they attended contributed to rising default rates. Washington, DC: Brookings Institution (2015). Accessible at: http://www.brookings.edu/about/projects/bpea/papers/2015/looney-yannelis-student-loan-defaults

Tamar Lewin, "Government to Forgive Student Loans at Corinthian Colleges," New York Times, June 8, 2015. Accessible at: http://www.nytimes.com/2015/06/09/education/us-to-forgive-federal-loans-of-corinthian-college-students.html?_r=0

Speedy Help for Victims of College Fraud. New York Times, September 27, 2015, Times Review Section, p. 10.

The deluge is upon us: University of Phoenix students owe the taxpayers $35 billion; and 45 percent default within five years

Earlier this month, the Brookings Institution published a report on student-loan default rates; and some of its findings are truly shocking.  The report ranked institutions based on their students' total accumulated outstanding loans. University of Phoenix, a for-profit college company, ranked number 1; almost 1.2 million University of Phoenix students have racked up more than $35 billion in outstanding student-loan obligations.

And ponder this: 45 percent of the students in the University of Phoenix's 2009 cohort defaulted on their student loans within five years  (Looney & Yannelis, 2015, table 5).

Brookings' researchers also reported that about three quarters of students (74 percent) who attended for-profit schools owed more than they originally borrowed two years after beginning repayment (for the 2009 cohort).  And nearly half of students who attended for-profit schools (47 percent) defaulted within five years of beginning repayment.

These are astonishing figures. And when we consider that a lot of former students who attended for-profit schools are enrolled in economic-hardship deferment programs and are not making loan payments, this sobering fact seems indisputable: more than half of the people who borrow money to attend for-profit colleges eventually default on their loans.

The Brookings Institution argues that the nation's high student-loan default rate can mostly be attributed to students who are "non-traditional borrowers," which it defines as students who attended for-profit colleges or two-year schools. Among all students who began repayment on their loans in 2011 and defaulted by 2013, 70 percent were nontraditional borrowers.

Loaning money for students to attend for-profit schools is irresponsible.

Based on these numbers, even a child can conclude that the federal government should not be loaning money to students who enroll in for-profit programs because taxpayers are going to get less than half of it back.  And--what is far worse--a lot of minority students and students from disadvantaged backgrounds will have student-loan debt hanging around their necks for the rest of their lives.  For these students, attending a for-profit school did not improve their lives; attending a for-profit school made their lives worse. 

Arne Duncan's Department of Education knows that the for-profit college sector is out of control, and it is made some efforts to provide student-loan debtors a little relief. For example, DOE granted loan forgiveness to about 3,000 students who attended one of Corinthian Colleges' campuses after Corinthian went bankrupt earlier this year. But there are more than 300,000 former Corinthian students.

Reasonable bankruptcy relief is the only humane remedy for non-profit students who default on their loans.

I do not think Congress or the Department of Education will ever shut off the federal-loan spigot to the for-profit colleges. This industry has protected itself with lobbyists, attorneys, and strategic campaign contributions.  Year after year, misguided students will continue to enroll at for-profit schools, and at least half will eventually default.

But  in the name of common decency, can't we at least give student-loan defaulters, who are suffering by the millions, some effective relief?  Do we have to make it so difficult for student-loan defaulters to file for bankruptcy and get a fresh start? Do we really want to force them into 25-year repayment plans, basically turning them into economic serfs for the balance of their working lives?

References

Adam Looney & Constantine Yannelis, A crisis in student loans? How changes in the characteristics of borrowers and in the institutions they attended contributed to rising default rates. Washington, DC: Brookings Institution (2015). Accessible at: http://www.brookings.edu/about/projects/bpea/papers/2015/looney-yannelis-student-loan-defaults

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

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

Caddo County, Oklahoma in springtime
Beachfront lots are still available!

Uncle Sam is not making a profit on student loans

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

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

Senator Elizabeth Warren: Government profits on student loans are "obscene"

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

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

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

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

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

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

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

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

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

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

References

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

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

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

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

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

President Obama proposes a free community college education but the Brookings Institution disapproves

Even a blind hog occasionally finds an acorn, and President Obama finally came up with a good idea for addressing the student-loan crisis--or at least the kernel of a good idea. In his State of the Union address, the President proposed offering a free community-college education to every American.

But the Brookings Institution apparently doesn't like that idea.  Stuart M. Butler authored a piece for Brookings on President Obama's plan and offered these criticisms.

Stuart M. Butler
Senior Fellow, Brookings Institution

First, Mr. Butler argued, "the plan is badly targeted." Providing free community-college education "would mean middle-income and even upper-income, students would get hefty subsidies, even though many do not need the help."

Of course this is true, but public K-12 education is also free to rich and poor alike; and I don't hear anyone complaining. And to suggest that rich kids would pass up elite institutions like Harvard to get a free education at a local community college is absurd.

Second, Mr. Butler argues that community college "is usually a dead end." Here, Mr. Butler stands on firmer ground. It is true that only a small percentage of community-college students obtain two-year degrees; and very few transfer into four-year colleges  and eventually get bachelor's degrees.

Mr. Butler suggests that the federal government should "help states and school districts provide a fuller range of opportunities at the high school and college levels, such as professional credentials, apprenticeships and high-school career academies." Yes, of course; but President Obama's plan doesn't preclude other avenues for providing post-secondary education. In fact, I understood the President's free community-college proposal to incorporate more than just traditional academic programs.

Finally, Mr. Butler offers his flimsiest objection to President Obama's plan--that it might cause high-performing high-school students to "settle" for a free community-college education rather than apply to more elite institutions. Right--like a high school kid with a realistic chance of getting into the University of St. Andrews in Scotland, where Mr. Butler studied, would turn St. Andrews down to get free schooling at Alamo Community College in San Antonio.

So what does Mr. Butler suggest?  He wants bigger Pell Grants that could be used at any institution, presumably meaning the expensive elite colleges where the Brookings Institution's policy wonks went to school, as well as the for-profit colleges that are ripping off low-income young Americans.

And Mr. Butler also wants President Obama to give "more enthusiastic backing to new, low-cost competitors to traditional colleges and universities." Duh, Mr. Butler. Community colleges are low-cost competitors to traditional colleges and universities.

Mr. Butler finished his Brookings puff piece with a flourish. "President Obama would be much wiser," Mr. Butler concluded, "to use his political capital to spur competition and real cost reduction in higher education rather than subsidizing community college education."  Whatever that means.

In my view, President Obama articulated the germ of a good idea--two free years of postsecondary education at the nation's community colleges to anyone who is qualified to enroll.  Of course, the community colleges need to do a much better job of matriculating their students; and the transfer of students from two-year institutions to four-year institutions needs to be made surer and more smooth.

The president calculated that his plan to offer a free community-college education would only cost the federal government about $6 billion a year--about one fifth of what the federal student-aid program is currently pumping into the for-profit college industry. If the federal government would stop propping up the for-profits and support community colleges, the public would actually save money--a lot of money.

On the other hand, if President Obama wants to offer free community-college education as a new feature to our present rickety student-aid program, then his proposal is merely a diversion from the hard task of reform . Unfortunately, I think the president wants to add a $6 billion free community-college plan to an out-of-control federal student aid program that already costs more than $100 billion a year..

References

Stuart M. Butler. Obama's SOTU Free College Plan is Bad for Poor Americans. Brookings Institution, January 20, 2015. Accessible at: http://www.brookings.edu/research/opinions/2015/01/20-obama-free-community-college-bad-idea-sotu-butler

Susan Dynarski and Daniel Kreisman. Loans for Equal Opportunity: Making Borrowing Work for Today's Students. Hamilton Project, Brookings Institution, October 2013. Accessible at: http://www.brookings.edu/~/media/research/files/papers/2013/10/21%20student%20loans%20dynarski/thp_dynarskidiscpaper_final.pdf