Dear taxpayers: I hope you approve of New York University's lavish compensation policy because you are paying for it

American Enterprise Institute's report on graduate schools with low rates of graduate-student repayment included a list of 20 universities where graduate students had above average non-repayment rates ranked by the amount of student loans graduate students took out. New York University is at the top of the list.

According to AEI's analysis, the 2009 cohort of NYU graduate- and professional-school students had amassed $1.135 billion in student loans. That's right: billion with a B. Five years later, more than a third of those students (34 percent) had not paid down their student loans by one dime.

New York University, you may recall, has been criticized for its lavish compensation packages for senior executives.  NYU won't disclose how much it is paying Andrew Hamilton, its current president. But John Sexton, Hamilton's showy predecessor, made $1.5 million in 2012-2013.  He retired with $800,000 in annual retirement income and a "length-of-service" bonus of $2.5 million.

Surely Hamilton is making as least as much as Sexton did. And NYU graciously updated Hamilton's penthouse apartment in Greenwich Village. How much did that cost? NYU won't say.

How does NYU manage to pay its executives so much? Does it have a large endowment? Not particularly.  NYU's total endowment funds amount to only $4.1 billion, about one ninth the size of Harvard's ($35.6 billion).

NYU gets a lot of its revenue from federal student loans. As just noted, graduate students in the 2009 cohort borrowed over $1 billion. That would be OK with taxpayers if NYU's graduate students paid back what they owe. But a lot of them are not.

AEI's list of universities with below average repayment rates for graduate students reveals that the top 15 schools with high levels of student-loan debt and below average rates of repayment are all private universities. Here's the list, along with the percentage of graduate students in the 2009 cohort who had not reduced the principal of their loans by even a dollar after 5 years.

New York University (34%)
University of Phoenix (36%)
Nova Southeastern University (33%)
Walden University (33%)
Capella University (34%)
Argosy University (37%)
Rosalind Franklin University of Medicine and Science (51%)
Keller Graduate School of Management (DeVry) (34%)
Midwestern University (22%)
Webster University (34%)
Grand Canyon University (28%)
National University--La Jolla (26%)
Strayer University (49%)
Thomas M. Cooley Law School (29%)
Touro College-Main Campus Midtown (22%)

What is the annual compensation for the senior executives at these institutions? Who knows? As private institutions, these universities are not required to disclose their compensation packages. But you can bet it is in the high six figures at all 15 universities.

So, Mr. and Ms. Taxpayer, I hope you approve of the federal government's student-loan program, which is shoveling money to private universities, because you are paying for a lot of lavish spending. Graduate students in particular are borrowing extraordinary amounts of money, and a high percentage of them have not paid any of it back five years into the repayment phase of their loans.

NYU president Andrew Hamilton:
Thanks, America! I love my swell penthouse apartment!

References

Jason Delisle. Graduate Schools with the Lowest Rates of Student Loan Repayment. American Enterprise Institute, June 2018.

Abby Ohlheiser. John Sexton will officially leave NYU in 2016. Atlantic, August 14, 2013.

American Enterprise Institute: A ton of graduate students who attended HBCUs are not paying down their student loans

Jason Delisle, writing for the American Enterprise Institute, reported that a great many Americans who took out loans to attend graduate school are not paying them back.  Most are not defaulting; they simply are putting their loans in a holding pattern that doesn't require them to pay down their loan balances.

What's going on? As Delisle explained, student borrowers have three options for managing their graduate-school loans to keep those loans from going in to default.

Income-Based Repay Plans. First, graduate-student borrowers can enter income-based repayment plans (IBRPs), which set monthly loan payments based on income, not the amount borrowed. IBRPs allow borrowers to lower their monthly loan payments, but often (perhaps almost always), the payments aren't large enough to cover accruing interest. When this happens, loan balances grow even when borrowers are making regularly monthly payments.

Forbearance. A student-loan debtor can ask for multiple types of forbearance on their loans. As Delisle explained, "the most common forbearance effectively has no eligibility criteria."  Borrowers simply request a forbearance. Usually, interest continues to accrue during the forbearance period, which can last for no more than 36 consecutive months.

Deferment. Student borrowers can also apply for an economic hardship deferment that allows them to skip making loan payments due to economic hardship such as unemployment or severely reduced income. Borrowers automatically get a deferment while they continue to be enrolled in school. Again, interest accrues on their student loans while they are in deferment.

Graduate students typically accumulate the most student-loan debt because graduate education is expensive and there is no monetary cap on the amount of student loans that can be taken out to fund graduate education. Nevertheless, graduate students typical have low default rates. According to Delisle, only 4 percent of the 2009 cohort of graduate students were in default five years into repayment.

But a low default rate does not mean graduate-student borrowers are paying down their loans. In fact, a high percentage of graduate-student debtors are seeing their loans negatively amortize five years into repayment--meaning their loan balances are going up even though their loans are in good standing.

Why? Because thousands of graduate-student borrowers are not financially able to pay down their loans under a standard 10-year repayment plan. In order to avoid default, these borrowers select one of the three options listed above: IBRPs, loan forbearance, or deferment.

Here's where Delisle's report becomes especially interesting. Delisle lists the 20 graduate and professional schools with the highest share of graduate-student borrowers who had not reduced the principal on their loans five years into repayment.Twelve of these 20 schools are historically black colleges or universities (HBCUs); and their nonpayment rates ranged from 44 to 65 percent.

Here's the list of the 12 HBCUs with high nonpayment rates for their graduate students, along with the percentage of borrowers who had not reduced their loan principal. Of these 12 institutions, 11 are public universities.

1. Mississippi Valley State University       65%
2. Southern University New Orleans         62%
3. Grambling State University                   59%
4. Virginia State University                       53%
5. Prairie View A & M University             51%
6. Delaware State University                     51%
7. Alabama A & M University                  50%
8. Alabama State University                      49%
9. Southern University at Baton Rouge     48%
10. Clark Atlanta University                        47%
11. Jackson State University                        46%
12. Lincoln University of Pennsylvania       44%

The AEI report is additional data showing that African Americans are particularly affected by the federal student loan program. At 12 HBCUs, from 44 to 65 percent of their graduate students entering repayment had not reduced the principal on their student loans by one dime five years later.

Perhaps the AEI report will prompt legislators to examine more closely whether HBCUs funded with public monies are providing their students with useful graduate education. Something is wrong when a high percentage of graduate students who attended a HBCU are not able to pay down their student-loan debt five years after ending their studies.

References

Jason Delisle. Graduate Schools with the Lowest Rates of Student Loan Repayment. American Enterprise Institute, June 2018.