Showing posts with label Don't Go To Law School (Unless). Show all posts
Showing posts with label Don't Go To Law School (Unless). Show all posts

Sunday, January 10, 2016

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

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


The Gambler
Sung by Kenny Rogers
Lyrics by Don Schlitz

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

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

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

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

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

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

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

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

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

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

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

References

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

Sunday, December 6, 2015

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

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

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

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

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

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

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

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

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

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

Image result for pope francis year of mercy

Tuesday, November 3, 2015

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

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

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

Friday, October 30, 2015

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

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

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

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

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

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

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

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

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

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

References

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