Showing posts with label student-loan default rate. Show all posts
Showing posts with label student-loan default rate. Show all posts

Sunday, January 14, 2018

Attention, Student-Loan Debtors: You Are Being Evicted from the Middle Class

Evicted: Poverty and Profit in the American City tells the story of how greed and the nation's legal system have driven poor Americans to the brink of homelessness.  Author Matthew Desmond follows the lives of eight Milwaukee residents who scramble from day to day to avoid being evicted from their homes and thrown into the street. It is a good read, and I highly recommend it.

As I read Desmond's book, I was struck by the similarity between the low-income housing crisis and the student-loan crisis.  As Martin Luther King observed, "Every condition exists simply because someone profits by its existence." Slumlords profit from renting substandard housing to the poor; stockholders and hedge fund owners profit from for-profit colleges.

And slumlords and for-profit colleges both rely on the government to help them exploit the poor. Slumlords can call on the local sheriff to evict tenants for nonpayment; and for-profit colleges rely on Betsy DeVos's Department of Education to protect their venal interests. Landlord-tenant laws favor the landlords, and the Bankruptcy Code protects the banks, which loan money to students at exorbitant interest rates, knowing that student debtors will find it almost impossible to discharge their onerous debts in the bankruptcy courts.

As Desmond wrote in Evicted, "The United States was founded on the noble idea that people have 'certain inalienable Rights, that among these are Life, Liberty and the pursuit of Happiness."  Indeed, the nation's founders considered these rights to be God-given and "essential to the American character."

Desmond argues that "the ideal of liberty has always incorporated not only religious and civil freedoms but also the right to flourish." In twenty-first century America, people need decent housing to flourish and they also need freely accessible education.

But our federal student-loan program is designed to extinguish the American right to pursue happiness and to flourish. The federal government allows corrupt for-profit colleges to lure vulnerable people into enrolling in education programs that are far too expensive and often worthless. The victims are forced to take out student loans. And the federal government stands by to be every student's sugar daddy--distributing about $150 billion a year in various forms of student aid.

The for-profit colleges get more than their fair share of federal money. In fact, many of them receive from 80 to 90 percent of their entire operating budgets from federal student loans and federal Pell grants.

Then when student-loan victims are unable to find well-paying jobs to service their debt, our once generous government becomes a tyrant. The Department of Education opposes bankruptcy relief for nearly everyone--even a quadriplegic (Myhre v. U.S. Department of Education, 2013) and people on the edge of homelessness (Abney v. U.S. Department of Education, 2015).

America will not begin solving the student-loan crisis until our nation's leaders acknowledge that the federal student-loan program is a massive human rights violation that is evicting millions of people from the middle class. Students who took out loans to attend for-profit colleges have been especially hard hit; almost half the students who took out loans to attend a for-profit college default on their loans within five years.

Student debtors are defaulting at the rate of 3,000 people a day, which ruins their credit and leaves them vulnerable to having their wages garnished. The government can even seize part of an elderly defaulter's Social Security check.

How can higher education return to decency and sanity? First, we must remove Betsy DeVos from her post as Secretary of Education. DeVos is about as qualified to run the Department of Education as the late Charlie Manson. And then we must revise the Bankruptcy Code to allow honest but unfortunate student debtors to discharge their loans in bankruptcy court. And finally, we must shut down the for-profit college industry, which DeVos so assiduously protects.

Student-loan debtors: Evicted from the middle class
References

Abney v. U.S. Department of Education, 540 B.R. 681 (Bankr. W.D. Mo. 2015).

Matthew Desmond. Evicted: Poverty and Profit in the American City. New York: Broadway Books, 2016.

Myhre v. U.S. Department of Education, 503 B.R. 698 (W.D. Wis. 2013).

The Wrong Move on Student LoansNew York Times, April 6, 2017.



Saturday, June 4, 2016

Nearly 95 million Americans aren't working: The government's unemployment rate is just a bullshit number

During the First World War, it is said. the British military kept three separate casualty lists: one list to deceive the public, a second list to deceive the War Office, and a third list to deceive itself.

We could say much the same thing about the government's official unemployment rate.  The Bureau of Labor Statistics (BLS) claims the nation's unemployment rate is only 4.7 percent, less than half the rate in Europe and about half what it was when Obama came into office.  "We cut unemployment in half, years before a lot of economists thought we could," President Obama boasted recently to a crowd in Indiana.

The BLS unemployment rate is just a bullshit number

But nobody believes that. Everyone knows the government's official unemployment rate is just a bullshit number.

Even the government admits the unemployment rate is higher if we include people who are working part-time involuntarily and the people who have given up looking for work. But including those people in the analysis still understates how bad the employment situation is.

In fact, when we ponder how many American adults are simply not working, we get a clearer understanding of the employment picture.  A few days ago, BLS reported that 94,708,000 American adults are not in the labor force--37 percent of the entire American adult population.

Of course, not all of these people are unemployed. Millions are retired, millions are pursuing post-secondary education, and millions are not working  because they are disabled and receiving disability benefits. Obviously, not all non-working Americans are suffering.

But a lot of non-working Americans are suffering. Millions of Americans are unemployed or underemployed, millions gave up looking for work and elected to take early retirement at reduced benefits. And there are millions who are still in the labor force but are working at substandard wages, including a lot of college graduates who hold jobs that don't require a college degree.

Signs of economic decline are everywhere

Although Obama takes credit for leading the nation out of the 2008 recession, the standard of living for millions of Americans continues to decline.  As the Brooking Institution paper noted in 2012, median wages for male workers have gone down precipitously in recent years.  In constant dollars, median wages for American men have slipped  by 19 percent since 1970.

Although the Obama administration insists that the economy is creating new jobs, that's probably bullshit as well. BLS reported last week that 38,000 new jobs came on line in May, a dramatic decline from an average of 178,000 a month over the first three months of 2016.  But a Brookings analysis, using a different form of measurement, claims the economy actually lost 4,000 jobs last month.

 And more and more people are on food stamps--1 out of 7 Americans are now receiving food-stamp assistance. That's 45 million people--up from around 28 million when Obama took office.  Do these numbers suggest that the economy is in recovery?

And then there's the student-loan crisis

And then there's the student loan crisis.  Approximately 43 million Americans owe 1.3 trillion in student-loan debt.  Although  the Department of Education's three-year default rate is only around 10 percent, that's just more bullshit.  By encouraging people to obtain economic hardship deferments, the government has artificially kept default rates down, because people with deferments aren't counted as defaulters even though they aren't making loan payments.

But of course people who accepted deferments are seeing their loan balances go up because interest continues to accrue. Now the only way they can service their loans is by signing up for 20-year income-base repayment plans.

The true student-loan default rate is probably 25 percent; and it's 50 percent for people who took out loans to attend for-profit colleges. And even this estimate may be too low.

Millions of Americans are suffering and they're  foaming with rage

In short, millions of Americans are suffering. They know the economy is deteriorating; they know their standard of living is going down. They know Barack Obama despises ordinary Americans--the poor stiffs who live in fly-over country and still go to church on Sundays.

And ordinary Americans are foaming with rage.

The political and media elites think they can keep a lid on all this anger, that they can persuade a majority of Americans to vote for Hillary and prolong the status quo. They think Americans are listening to Anderson Cooper and Don Lemon when they paint Trump as a racist and a bigot on CNN. They think columnist Froma Harrop will persuade her readers that Bernie Sanders is a racist.

But I've got news for the elites. The people who are angry aren't listening to CNN. They aren't reading Froma Harrop. The elites may succeed in crowning Hillary Clinton as the next queen of post-modern America, but the pundits will never tamp this anger down. It's real, it's ugly, and it's permanent.







References

Alan Bjerga. Food Stamps Still Feed One in Seven Americans Despite RecoveryBloomberg News, February 3, 2016. Accessible at http://www.bloomberg.com/news/articles/2016-02-03/food-stamps-still-feed-one-in-seven-americans-despite-recovery

Christopher Goins, 44.7 Million Americans Now on Food Stamps--More than at Any Time Under Bush, CNS News, February 3, 2012. Accessible at http://cnsnews.com/news/article/447-million-americans-now-food-stamps-more-any-time-under-bush

 Michael Greenstone and Adam Looney. The Uncomfortable Truth About American Wages. Brooking Institution, October 23, 2012. Accessible at http://www.brookings.edu/research/opinions/2012/10/22-wages-greenstone-looney

Susan Jones, Record 94,708,000 Americans Not in Labor Force; Participation Rate Drops in May. CNS News, June 3, 2016. Accessible at http://www.cnsnews.com/news/article/susan-jones/record-94708000-americans-not-labor-force-participation-rate-drops

Matthew Boesler. More College Grads Finding Work, But Not in the Best Jobs. Bloomberg.com, April 7, 2016. Accessible at http://www.bloomberg.com/news/articles/2016-04-07/more-college-grads-finding-work-but-not-in-the-best-jobs

Nicholas Wells and Mark Fahey. What's the REAL unemloyment rate? CNBC.com, January 8, 2016. Accessible at http://www.cnbc.com/2016/01/08/

Jonathan Wright. Amidst unimpressive official jobs report for May, alternative measure make little difference. Brookings Institution, June 3, 2016. Accessible at http://www.brookings.edu/blogs/jobs/posts/2016/06/03-amidst-unimpressive-official-jobs-report-for-may-alternative-measures-wright?utm_campaign=Brookings+Brief&utm_source=hs_email&utm_medium=email&utm_content=30258460&_hsenc=p2ANqtz-8wODcWxeX-Vo8PGswc2439RPH_hV1yCM05S_knJvJmuSfYUbz-xh1mWd76dc0m2GG5fhL55iubJxPERM_sbHc3qH5Hfg&_hsmi=30258460

Monday, May 11, 2015

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

Wednesday, June 11, 2014

Like a Secret Drunk Who Hides A Bottle of Bourbon in His Office Drawer, The Higher Education Industry is Addicted to Student Loans But Won't Admit It

Almost everyone agrees that Alcoholics Anonymous has the best treatment program for alcoholics. AA's simple 12-step program is followed by alcoholics all over the United States, and AA's method for treating alcoholics has been adapted for other addictions as well--including the addiction to drugs.

Perhaps the higher education industry should adopt an AA-style 12-step program to treat its addiction to the federal student loan program.  After all, higher education's dependence on federal student aid money really is an addiction. For-profit colleges in particular could not survive a week without regular infusions of federal cash.

Drinking problem? What drinking problem?
photo credit: twentytwowords.com
But the Obama administration and Arne Duncan's Department of Education treat the student-loan mess as if it were just an irritating  problem and not a full-blown crisis.  It's like Aunt Sally's tolerance for Uncle Ed's drinking binges--she just smiles while reassuring herself that Ed maybe drinks just a wee bit too much.

And President Obama's announcement to expand the Pay As You Earn program shows us that he is in denial about the magnitude of the student-loan crisis.  His administration's decision to expand the program, like its decision to continue strengthening the regulation of the for-profit industry, shows that President Obama and Arne Duncan know that the student-loan mess is serious.  But they want to address the problem like Aunt Sally deals with Uncle Ed's drinking--they just want to water down the whiskey.

Let's face it, in spite of the New York Times' sycophantic praise, Pay As You Earn is nothing more than a plan to stretch students' 10-year student-loan repayment obligations to 20 years.  Yes, this will reduce borrowers' monthly payments, which will give college-loan debtors some short-term relief; but borrowers will be paying on their loans for a majority of their working lives. Is that a real solution?

Second, although I haven't seen any financial analysis to back me up on this observation, I suspect a lot of people who elect the government's income-based repayment options for paying back their loans  won't be making payments large enough to reduce the principal on their debt.  When their loan obligations are discharged after 20 years, millions of people will still owe as much as they borrowed. How can that be a good thing?

So let's look at that 12-step plan.

Step number one is to admit that you have a problem and are powerless to control it.  The Feds could follow that first step by releasing the real student-loan default rate--not that phony three-year rate it releases every October.  According to DOE's latest report, about 15 percent of  recent debtors defaulted within three years of beginning their loan repayment phase; for students who attended for-profit colleges, the rate is 21 percent.

Those numbers are bad but they dramatically understate the true default rate.  Many for-profits, community colleges and some traditional four-year schools have hired so-called "default prevention" firms to contact distressed student borrowers and encourage them to sign up for economic hardship deferments.  Students who obtain these deferments--which are quite easy to get--are not counted as defaulters even though they are not making loan payments.

Just facing up to the reality of how many millions of people are not paying back their loans would be an admission that the student-loan program is out of control.  That's step number 1 of the AA's 12-step plan.

Another important step in AA's 12-step program is to make amends to the people you have injured. I believe that is step number 9.

And of course the Obama administration, Congress and the nation's colleges and universities haven't made amends to the people who have been hurt by the student-loan program.  And until they make amends they haven't done what is necessary to break the higher education industry's dependence on federal student aid money.

What should be done?  As I have tirelessly advocated, Congress needs to amend the Bankruptcy Code to allow insolvent student-loan debtors to discharge their  student loans in bankruptcy so long as they file in good faith.

Second, the federal government should stop garnishing the Social Security checks of elderly student-loan debtors who defaulted on their loans.

And third, the for-profit college industry needs to be shut down.

Of course none of these things are going to happen.  Our government will continue to hide the true magnitude of the student-loan default rate, and it will continue to let millions of people suffer who have no reasonable hope of ever paying off their student loans.

And just like Uncle Ed, who drinks in secret, our nation's colleges and universities will continue abusing students by forcing them to borrow more and more money.  Eventually, Uncle Ed will kill himself from excessive drinking. And eventually, higher education's addiction to federal student aid will destroy the integrity of our nation's colleges and universities, which were once the envy of the world.

No one knows just how Uncle Ed will die--liver disease or a fatal car accident.  And no one knows just how low American higher education will go in terms of its degradation.  But the future is bleak for both of them.

References

Student Borrowers and the Economy. New York Times, June 11, 2014, p. A20.