Surprise! Surprise! Survey finds college graduates are not emotionally ready to enter the workforce

 Before the French signed an armistice with Germany in 1940, France and England were allies against Hitler. One of their first major joint ventures was a plan to invade Norway and deprive Germany of the iron ore that the Nazis needed to wage war.

British, French, Norwegian, and Polish forces attacked German troops at Narvik, the leading Norwegian port for exporting iron ore. Ten times larger than the Germans' defending force, it took the allies a long time to dislodge the Nazis. Then France and Great Britain threw their victory away by abandoning Norway to send troops to deal with the Wehrmacht onslaught in France.

British General Claude Auchinleck, reflecting on the Norwegian campaign, expressed disappointment with his country's army. "By comparison with the French, or the Germans for that matter, our men for the most part[,] seemed distressingly young, not so much in years as in self reliance and manliness generally."  In other words, in the spring of 1940, the British army wasn't up to the dirty job of defeating the Nazis.

Something similar is happening with American college graduates. A recent survey of recent college graduates by the Mary Christie Institute concluded that many recent college graduates aren't emotionally prepared for the world of work.

"Our findings found that once in the workplace, young people continue to struggle mentally and emotionally," MCI reported.  Overall, more than half the respondents reported mental health problems, with women reporting more mental health issues than men (p. 4).

Disturbingly, almost 40 percent "of respondents said their college did not help them develop skills to prepare them for the emotional or behavioral impact of the transition to the workplace" (p.  5).

Over half the respondents said they experienced burnout at least once a week (p. 4). Not surprisingly, graduates with heavy financial obligations reported more anxiety than their peers who were not excessively burdened by debt.

The MCI authors pointed out that the COVID pandemic probably contributed to the stress and anxiety young college graduates are facing. And I'm sure that's true.

Nevertheless, the MCI report highlights the fact that colleges need to do more to prepare their graduates to be confident and successful workers. Unfortunately, I believe colleges are contributing to their graduates' anxieties by placing them in an artificial environment that is very different from the corporate workplace.

First, grade inflation is rampant throughout higher education, which means that students are getting good grades without doing much work. Many perceive their stellar report cards as participation trophies--they get a good grade if they just show up for class. That attitude often transfers to the workplace, where college graduates' perception of work conflicts with employers' expectation that their professional workers do their best to excel.

Second, students who graduate from college without trying hard may believe their bachelor's degrees prove that they are more intelligent than most people.  In fact, someone who graduates with a high GPA from a humanities program at a mediocre college often doesn't know anything that would be useful on the job.

Finally, colleges that cause their students to take on heavy student-loan burdens are increasing their graduates' anxiety when their student loans stop, and they have to pay their rent and monthly student-loan payments.

Bummer!

What happens to young people who go to college without basic reading and writing skills? It's not good

  The Baton Rouge Advocate published an editorial a few days ago titled "Get ahead in colleges like LSU, without all the hard work." 

The editorial quoted Benjamin Haines, a graduate student at Louisiana State University, who has discovered that many LSU students arrive on campus without the basic skills they should have learned in high school.

"In my anecdotal experience as a teaching assistant at LSU," Haines wrote, "many young college students aren't equipped with the requisite writing or literary tools necessary to produce passable writing, a product of a failing secondary education system, rather than an indication of students' abilities. 

Haines continued with this condemnation:

Especially here in Louisiana, professors, instructors, and teaching assistants fight a daily uphill battle against a decrepit secondary educational system in which students are failing to receive the necessary literary skills to excel at the next level of learning, and business-minded university administrators that accept students who aren't genuinely qualified into their rolls.

As a professor who spent twenty-five years in public universities, I can attest that Haines' rebuke of secondary education is on the mark--at least here in Louisiana. Many students graduate high school without a basic understanding of grammar and punctuation and no clear idea about constructing a paragraph, much less a well-reasoned analytical or research paper.

And Haines is right to blame university administrators for admitting students unprepared to do college work. University leaders are desperate for tuition dollars and are willing to foist clueless young people off on hapless professors and instructors who are faced with three choices:

1) They can flunk unprepared students. Students whose GPAs plummet will eventually be expelled on academic grounds.

2) Professors can turn their university courses into remedial classes, which will require them to teach students basic literary skills they should have learned in the sixth grade.

3) They can indulge in grade inflation and give every student a passing grade. I fear that this is the option most college instructors are taking.

What happens to the unprepared students who go to college? Some become discouraged and drop out. Others will soldier on, drifting into soft majors with low academic standards. Often these misfits stretch out their four-year degree programs to five, six, or even seven years.

With grade inflation and declining academic standards, many unprepared students will eventually obtain college degrees without learning anything useful.

What will they do then? They will stumble into the adult world of work with a mountain of student debt and no practical job skills.

But not to worry. People who get worthless college degrees can always go on to graduate school.

Will a degree from your public university pay off?

 Education Secretary Miguel Cardona says people with college degrees earn one million dollars more over their lifetimes than people who only get a high school diploma. You're nuts, then, if you don't go to college.

Unfortunately, Secretary Cardona's cheerleading pitch for higher education is only partially accurate. For example, people who attend for-profit colleges don't do so well. According to a Brookings report published a few years back, nearly half (47 percent) of the people who attend for-profit colleges default on their student loans within five years of beginning repayment (p. 48, table 8). And the overall five-year default rate is 28 percent.

We also know that thousands of academic programs don't pay off. Higher Education analyst Robert Kelchen compared student -loan debt to earnings for 45,000 educational programs and identified thousands where students left school owing more in student loans than their first-year salaries.

And more recently, the Foundation for Research on Equal Opportunity (FREOOP.org) released a report on educational outcomes for students who attend public universities. Foundation researcher Preston Cooper found Return on Investment (ROI) varied widely among the states.

Students who studied at a public university in these five states had the highest median return on investment: South Dakota ($216,027), Minnesota ($214,923), Iowa ($214,105), Kansas ($180,770), and Pennsylvania ($167,442).

At the bottom end of the Return-On-Investment scale were public universities in these five states: Hawaii (negative $5,720), Louisiana ($18,246), New Mexico ($20,877), Montana ($24,909), and Connecticut ($38,979).

Living as I do in Louisiana and only two blocks from Louisiana's flagship university, I was startled to learn that Louisiana public institutions have the lowest median return on investment of any public university system in the United States, except Hawaii, which has a negative return on investment.

Of course, not all students graduating from a Louisiana public college will end up with a low return on their college investment. Engineering graduates from LSU will do fairly well, as well as nursing graduates. 

Colleges will never admit that they operate academic programs with poor financial outcomes. There's no warning sign on the door to the sociology department or the department of gender studies saying, "Ye who enter here are lost."After all, tenured professors teach in those departments, and they must lure at least a few gullible students to sign up for their loser programs.

Young people planning their college careers need to do their own research about the universities and academic programs they are considering. Don't be seduced by the colleges' glossy brochures--the ones that show pretty cheerleaders cavorting at sporting events and kindly professors instructing intense students on how they can cure cancer.

Before choosing a college and a major, ask yourself these questions. 1) How much will it cost?

2) How much money will I need to borrow, and how will I pay it back?

3) What's the monetary return on my college investment? 

If you don't ask those questions, you may wind up with a bogus college degree, a mountain of student debt, and no clear way to earn a middle-class living.

 

Robert Kelchen Calcuates Debt-to-Earnings Ratio For 45,000 Post-Secondary Programs: A Treasure Trove of Data

 As Education Secretary Miguel Cardona observed recently, college graduates, on average, make about one million dollars more over their working careers than people who only have high school credentials. 

I'm sure that's true, but that fact doesn't mean that all college programs lead to higher incomes or that all programs are reasonably priced.

Robert Kelchen, a professor at the University of Tennessee, Knoxville, performed a valuable service by creating a dataset that compares program-level debt with earnings outcomes for more than 45,000 postsecondary programs. This dataset calculates the debt-to-earnings ratio for students one year after they leave their respective institutions.

Obviously, this enormous dataset can be analyzed in many different ways. My brief analysis examined programs with the highest debt-to-earnings ratios--those that left former students with three times as much debt as their first-year earnings.

Forty programs are in this category, and all but six are graduate programs. Five Branches University, a private institution in California, tops the list with a debt-to-earnings ratio for its master's degree in Alternative and Complementary Medicine of more than nine to one. Its students leave the program with an average debt load of $144,276  and an average salary one year after leaving the school of only $16,011.

Second on the list, with a debt-to-earnings ratio of almost eight to one, is Bastyr University's program in Alternative and Complementary Medicine. One year after leaving the program, its former students have a median income of $22,411 and an average debt load of $175,690.

In fact, of the 40 programs with debt-to-earnings ratios of more than three to one, eleven are programs in alternative medicine, complementary medicine, or acupuncture.  

Film, fine arts, and drama are also well-represented among programs with high debt-to-earnings ratios. Of the 40 programs with debt-to-earnings ratios of more than three to one, thirteen are fine arts, film, or drama programs.

Professor Kelchen's database prompts this question.  How much should students borrow to fund their education? 

Camilo Maldonado, writing for Forbes, recommends a borrowing limit of no more than two-thirds of a graduate's expected starting salary. Thus, if you expect your starting salary to be $50,000, you should borrow at most about $33,000. 

Applying that formula to Professor Kelchen's database, students graduating from almost 4,000 academic programs are leaving school owing more money than they can comfortably pay back.

As Maldonado pointed out, the federal student loan system is designed to lend students potentially more money than they can repay. The colleges don't care how much debt their students amass to finance their studies.

On the contrary, students must decide for themselves how much college debt is prudent to accrue. Unfortunately, as Professor Kelchen's database makes clear, a great many students are not making that calculation. 

In his commentary, Maldonado reminds us that the price of a college education is increasing almost eight times faster than wages. Thus, Maldonado warns, "This means that overpaying for an education is becoming increasingly disastrous." 

DOE wants to modernize the student loan program but mucks up the planning process

Like a repentant boozer who promises to give up drinking, the Department of Education pledged to modernize its neanderthal student loan program. Unfortunately, like a chronic drunk, DOE simply can't clean up its act.

DOE's own Inspector General audited the Department's modernization efforts and issued a report last week.  The audit concluded that DOE bungled its modernization job.  

Typical of a government document, the Inspector General's report is written in govspeak and is almost incomprehensible.  Here's just one sentence from the audit report, which I urge you not to read:

FSA not completing the required or applicable planning steps or following best practices for acquisition planning for the Next Gen projects we reviewed may have contributed to the stakeholders’ misunderstandings regarding scope, project requirements, and stakeholder needs; and to multiple changes to some of the projects’ solicitations, multiple bid protests, budget deficiencies, and poorly scoped solutions that FSA described in its Summary of Lessons Learned for the Next Gen Enhanced Processing Solution and Interim Servicing Solution projects and in FSA’s Fiscal Year 2023 Congressional Budget Request.

Fortunately, Katherine Knott, an Inside Higher Ed reporter, understands govspeak and translated the auditor's report into plain English. In a nutshell, Knot reported that DOE "didn't follow best practices in budgeting, planning and managing the modernization of its student loan system." Knott also wrote that DOE's Office of Student Aid "didn't complete budget requests for many components of the modernization until after the bid solicitations were issued."Apparently, senior DOE officials couldn't even agree on the modernization initiative's objectives.

As we might expect, DOE's officials had a govspeak excuse for the screwup. Stakeholders, including Congress, were confused and frustrated due in part to "inadequately defined changes in strategy and a failure to account for constituent feedback."

In short, DOE's bumbling effort to modernize its byzantine student loan program ended in a SNAFU: Situation Normal; All Fucked Up."

Hey, man. The situation is normal

DOE plays Whack-a-Mole with the Student Loan Program: Not a safety net but a noose

According to Techopedia, the term “whack-a-mole” describes a process "where a pervasive problem keeps recurring after it is supposedly fixed."

That's a great description of what the Department of Education is doing with the federal student-loan program.  It's playing whack-a-mole.

Here's DOE's latest fun-house trick to create a "safety net" to "permanently fix a broken student loan system."

The Department is going to revamp its Rube Goldberg system of income-based repayment plans into a new program that will make college damn near free for millions of college students.

As DOE spokespeople explained, student debtors in income-based repayment plans will only be required to pay five percent of their discretionary income toward paying back their loans--no matter how much they borrow!

Pretty sweet. But the deal gets sweeter.  DOE's generous new repayment plan describes discretionary income as 225 percent of a person's income above the federal poverty level.

Here's an example of how DOE's new repayment scheme will work. Single student borrowers will only have to pay 5 percent of their annual income above $30,000 on their student debt. 

Let's suppose a single guy graduates from St. Nobody College owing $58,000 in student loans. (That's the average debt load for graduates of private schools.)

Let's further suppose our guy earns a salary of $55,000 a year, the average starting salary for a recent college graduate.

What will be our guy's monthly student-loan payment on the $58,000 he borrowed to attend St. Nobody? 

The math is simple. He will pay five percent of $25,000 ($55,000 minus $30,000). That's $1,250 a year or $104 a month.

And if our young scholar is married and has two children when he graduates from college, his discretionary income will be adjusted upward. He won't have to pay anything on his student loans--not one fuckin' dime!

Don't take my word for it. That's what DOE's January 10 press release reported. 

How about accruing interest? Under DOE's old income-based repayment plans, small monthly payments on student loans often don't cover accruing interest on the debt, so the debt grows larger with each passing month.

Again, no problem! Education Secretary Cardona's new student-loan bonanza won't charge you interest! 

In sum, Education Secretary Cardona is playing whack-a-mole with the student loan program. Instead of doing something to fix this trillion-dollar problem, he's rolling out a scheme that's designed so that most student borrowers don't have to pay back their debts.

James Kvall, Undersecretary of Education, described DOE's razzle-dazzle plan as a safety net.  But's he wrong. It's not a safety net; it's a noose designed to strangle American taxpayers.

Let's play whacka-mole!

Color Me Cynical. Department of Education Statement Out of Touch on Loan Forgiveness. Essay by Steve Rhode

by Steve Rhode

Can we be honest for a minute?

The entire issue of forgiving student loans with a one-time approach is stupid. It does not address the systemic breakdown of the cost of higher education or the realities of the BS schools selling students into debt for the corporation’s benefit.

If the Biden student loan forgiveness plan were to be allowed, it would clear the debt of many, and the cycle would start over again.

Here is the POV from the Department of Education:

U.S. Secretary of Education Miguel Cardona issued the following statement after the Departments of Education and Justice filed a legal brief with the Supreme Court on the Biden-Harris Administration’s Student Debt Relief Program:

The Biden-Harris Administration remains committed to fighting to deliver essential student debt relief to tens of millions of Americans. As part of this commitment, today the Departments of Education and Justice filed a legal brief with the Supreme Court explaining our legal authority under the Higher Education Relief Opportunities for Students Act to carry out our program of one-time, targeted debt relief. We remain confident in our legal authority to adopt this program that will ensure the financial harms caused by the pandemic don’t drive borrowers into delinquency and default. We are unapologetically committed to helping borrowers recover from the pandemic and providing working families with the breathing room they need to prepare for student loan payments to resume. As previously announced, student loan payments and interests will remain paused until the Supreme Court resolves the case because it would be deeply unfair to ask borrowers to pay debt they wouldn’t have to pay, were it not for meritless lawsuits.”

If the Department of Education, Administration, and lawmakers were so committed to resolving this problem, it would take one action, allow all student loans to be dealt with in bankruptcy as any other debt.

Until that happens, the gyrations from what we want, and you can’t have camps, is just a waste of human energy and time.

The current student debt problem is not about federal student loans alone. This didn’t arise with the pandemic. This has been an epidemic in college financing and has been growing for decades.

I would love for student loan debtors today to have solutions and prevent future students from winding up in the same cesspit.

Someone needs to wipe the lipstick off of this pig.

*****

This essay was originally posted on January 9, 2023, on the  Get Out of Debt Guy website. 

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve here.

Elderly Student-Loan Defaulters Will See Their Social Security Checks Garnished When Pause on Student Loan Payments Ends

In response to the COVID pandemic, the Department of Education stopped garnishing the Social Security checks of elderly student-loan defaulters in March 2020. However, DOE will return to that practice soon--probably by midsummer 2023.

In an article posted on MSN.com, Vance Cariaga estimated that garnishment of Social Security checks will cost senior student-loan defaulters, on average, about $2,500 a year. 

Only a small percentage of elderly Americans have outstanding student-loan debt, but that percentage will likely go up in coming years, partly because millions of college borrowers are signing up for income-based repayment plans that can stretch out for as long as a quarter of a century.

In fact, Variaga cited estimates that 22 percent of Black Social Security beneficiaries will have student-loan debt in the coming years, along with 14 percent of White Social Security beneficiaries and 10.4 percent of Hispanics. 

Think about that. Virtually every American is eligible for Social Security benefits. Thus, if the estimates Cariaga cited are accurate, more than one out of five Black Americans will still have student debt when they reach retirement age.

If we were to poll members of Congress, I doubt that a single one supports garnishing Social Security checks of student-loan defaulters in their senior years. Not only is it heartless, but it's also pointless. A Government Accountability Office report that appeared several years ago found that money collected from garnishing Social Security checks seldom reduced defaulters' loan balances. Most of the garnished funds went toward paying accrued interest.

Why doesn't DOE abandon the practice? Alternatively, why doesn't Congress abolish the practice?

I'll tell you why. Despite all the rhetoric, litigation, and policy proposals, our nation's education and political leaders refuse to focus on the core reality of the student loan crisis, which is that millions of college borrowers have had their lives blighted by student debt they can't pay back. Burdened by student loans, Americans are increasingly unable to buy homes, save for retirement, or even get married or start families.

If Congress truly grasped the magnitude of the student-loan catastrophe, it would do at least these two things: It would abolish the practice of garnishing Social Security checks of elderly student-loan defaulters, and it would allow overburdened student debtors to discharge their student loans in the bankruptcy courts. 

Federal Reserve says student-loan delinquencies will go up if Biden's loan forgiveness plan is scrapped

 Last August, President Biden announced his plan to forgive between $10,000 and $20,000 in student debt to individuals who make less than $125,000 a year. He also extended the pause on making student loan payments until at least midsummer.

Who could object?

Turns out, a lot of folks objected. The NAACP didn't think Biden's plan was generous enough, calling it "a slap in the face." Senate Minority Leader Mitch McConnell called the plan "wildly unfair" because it forces taxpayers to subsidize a government program that mainly benefits high-income individuals. 

Several state governments are also unhappy. A group of states sued the Biden Administration (Nebraska v. Biden), seeking a court ruling that the President's loan forgiveness program is illegal. The Eighth Circuit stopped Biden from implementing his plan pending a judicial ruling on its legality.  The Supreme  Court is reviewing the controversy and is expected to give a final decision on Biden's giveaway by the end of June.

A few days ago, the Federal Reserve Bank of New York weighed in with a highly technical report buttressed by multiple charts, graphs, and mathematical formulae. Here's what the New York Fed concluded about Biden's debt-forgiveness plan:

The plan will cost $441 billion and grant debt relief to 38 million eligible college borrowers. In the Fed's view, Biden's proposal is progressive. In other words, it does not disproportionately benefit rich people. The Fed also estimates that almost fifteen million borrowers with low loan balances will see their student debt wholly erased. 

Ominously, the Fed also noted a recent uptick in credit card and auto loan delinquencies, a sign that student borrowers are struggling to make ends meet even though they've been excused from making student-loan payments for almost three years.  The Fed predicts that the student-loan delinquency rate will rise if college borrowers don't get debt relief and are forced to resume making their monthly student-loan payments next summer.

Here's my take on President Biden's student-loan forgiveness plan and the litigation it triggered.

First, I support modest debt relief for some student debtors. Many college borrowers with low loan balances are college dropouts who took a few courses but never got a degree.  Given all the helicopter money the government dumped on the business community during the COVID crisis, forgiving $10,000 or $20,000 in student debt seems reasonable. 

However, if Biden's proposal is such a good idea, why didn't Congress initiate the plan through legislation? It's Congress's job--not President Biden's--to preside over what the Fed called "the largest mass discharge of consumer debt in modern history."  I think the Supreme  Court will likely strike down Biden's loan-forgiveness scheme when it rules on Nebraska v. Biden later this year.

Finally, as the Federal Reserve Bank pointed out in its report, loan forgiveness will not solve the growing crisis in college affordability. 

This one-time forgiveness event [the Fed report stated]does not directly address the rising cost of post-secondary education that led to ever-exploding balances in the first place. In fact, if borrowers expect future debt cancellation events, they may borrow even more if there is some chance it will be forgiven in the future. 

Let's face it. A college education costs too damn much. It's nuts to ask students to pay $50,000 a year in tuition to get a college degree in liberal arts or the social sciences. 

Unfortunately, our nation's politicians and policymakers aren't even asking universities to reign in their costs, and college leaders inexorably raise their tuition rates year after year. 

We will never get the student loan crisis under control until we get college costs under control. But the federal government is not doing that. Instead, it subsidizes the increasingly dysfunctional and irrelevant college industry and forces college students to pay the bill.

 

 

'Is Harvard turning into a huge joke?' Grade inflation is a product of laziness

 Brad Polumbo recently posted an essay in the Washington Examiner titled "Is Harvard turning into a huge joke?" Polumbo focused on rampant grade inflation at the dowdy old school, where the average GPA for undergraduates is 3.8 out of 4.0. In other words, most Harvard students get As on their report cards.

In fact, grade inflation is so bad that Harvard abolished its Dean's List because most students were on it.  And this is not a new phenomenon. In 2001, more than twenty years ago, 91 percent of Harvard students graduated with Latin honors (summa, magna, or cum laude). Since then, the university has tightened its standards for an honors degree, but it still awards Latin honors to 50 percent of its graduates. 

As Polumbo points out, Harvard's grading system essentially gives students participation awards--turning America's most famous university into "glorified academic daycare."

Of course, Harvard is not the only university that has succumbed to grade inflation. I worked at four public universities before I retired, and I am confident that 95 percent of graduate students in the field of education received an A or B grade.  

Polumbo suggested that economics may explain the decline of rigorous grading. Colleges are desperate to enroll and retain students because they need the tuition revenue. They will do almost anything to keep their students happy.

However, that theory doesn't explain grade inflation at Harvard. Harvard College has a highly selective admissions process; it only admits about 4 percent of all applicants.  Harvard administrators are not worried about attracting and retaining students.

Grade inflation at Harvard and colleges across the country can best be explained by an age-old human weakness--sloth. 

 Grading a stack of student essays takes a lot of work. It is difficult to determine which students turned in superior work that deserves an A. It is even more challenging to establish which students submitted above-average work worthy of a B or a B+ but not an A-.

And it is excruciatingly onerous to hand out C grades for mediocre exams and then articulate an objective justification for that grade to a disappointed and angry student who might slap a professor with a grade appeal to the Dean.

It is much easier to distribute A grades to everyone, much like tossing out beads and baubles from a Mardis Gras float.

Of course, there is a price to be paid for grade inflation. Exceptionally bright students lose their enthusiasm for learning when they realize they will get the same grade whether or not they push themselves to excel.

Likewise, lazy students soon figure out that they will probably get a high grade even if they turn in shoddy work.  

Moreover, the value of a college degree is eroded by grade inflation. If the universities do not insist on rigor, how can they justify their exorbitant tuition prices? 

More ominously, once university culture is dominated by mediocrity, that ethos will seep into American society as a whole. Young people who slouch their way through college will be programmed to slouch their way through life.

Everybody gets an A!
Photo credit: KPEL

Sam Bankman-Fried and the Crypto Scandal: Lessons for Average Americans

Sam Bankman-Fried, founder of FTX, a cryptocurrency exchange, was once worth billions of dollars. Today he is sitting in a Bahamian jail, abiding with rats and maggots. Worse--the prison doesn't offer a vegan menu.

Sam was to have testified before a Congressional hearing about his financial dealings. However, a federal prosecutor filed criminal charges against him, and the Bahamian authorities obligingly locked him up before he spilled the beans.

And so many beans to spill. Commentators estimate Sam has one million creditors, primarily investors. 

Federal prosecutors are accusing him of securities fraud, wire fraud, money laundering, and numerous violations of campaign finance laws.

The mainstream media has portrayed Bankman-Fried as a naive and inexperienced investor who got over his skis. I think that's bullshit.

SBF is no country bumkin. He graduated from the Massachusetts Institute of Technology with a degree in physics.

He certainly grew up in sophisticated surroundings. His Wikipedia bio says he was born "on the campus of Stanford University." (Evidently, Stanford has a maternity ward).

Sam's dad, a professor at Stanford School of Law,  is a tax specialist who got his law degree from Yale. Sam's mom, a recently retired Stanford law professor, has three degrees from Harvard, including a law degree.

So what's next for Sam Bankman-Friedman and his crypto empire, which some people describe as a giant Ponzi scheme?

There are two possibilities. If Sam's shenanigans are fully exposed, the public may discover that many influential politicians profited from Sam's activities, which could trigger a political earthquake and multiple indictments.

On the other hand, the full extent of this scandal may never come to light. Sam is in a Bahamian jail awaiting extradition to the United States. Sam might be prosecuted vigorously, but he will likely take a plea deal without ever publicly testifying.

Regardless of how this saga plays out, Americans can learn a lot from Sam Bankman-Fried and the FTX fiasco.

First, people should only invest in financial vehicles they understand. Who really knows what cryptocurrency is or why it has value? And yet, millions of people invested their savings in crypto.

Second, financially insecure people should not invest their meagrer savings in desperate schemes to reverse their fortunes.  Many Americans are approaching their retirement years with inadequate savings and are panicking.

Nevertheless, impecunious people who think they can get rich by investing in cryptocurrency are like the guy who loses heavily at the roulette wheel and places his entire dwindling stake on black. Desperate gambling often leads to disaster.

Finally, FTX's collapse is a reminder that people who have degrees from elite universities aren't necessarily smart.  Sam Bankman-Fried and almost everyone associated with FTX holds a degree from an exclusive school. Yet look what happened?

Sam Bankman-Fried has a degree in physics from M.I.T.

"Let's all pretend we couldn't see it coming" (The US Working-Class Depression) by Dahn Shaulis

How is the working-class Depression of 2020 similar to the other 47 financial downturns in US history? 

Downturns are frequently precipitated by poor economic and cultural practices and preceded by lots of signals: over-speculation, overuse of resources, oversupplies of goods, and exploitation of labor. What I see are many poor practices brought on by corruption--with overconsumption, climate change, growing inequality, and moral degeneration at the root.

The "disrupters" (21st century robber barons) have enabled an alienating and anomic system that is highly dysfunctional for most of the planet, using "algorithms of oppression." And this cannot be solved with data alchemy, marketing, and other forms of sophistry.

Put down your iPhone for a minute and ponder these rhetorical questions:

• How did people not know that another economic crisis was around the corner?
• Doesn't anyone have a sense of US economic history?
• Doesn't anybody read? Even a little?
• Wasn't it only a dozen years ago that we faced a similar crisis?  
  

Warm Koolaid (2016) signified corporate America's use of myths and distractions to sedate the masses. 

How long have we known about all of this dysfunction? Academics have known about the effects of global climate change and growing US inequality since at least the 1980s. The Panic of 2020 should be a lesson so that we don't have a larger economic, social and environmental collapse in the future.

Who will hear the warnings and do something constructive for our future? Or is this Covid crisis another opportunity for the rich to cash in on the tragedy?

The answer lies, in part, to an ignorance of history and science, and oversupply of low-grade information, poor critical thinking skills, and lots of distractions. That's in addition to the massive greed and ill will by the rich and powerful.

US downturns are baked into this oppressive system. And crises are used to further exploit working families. With climate change and a half century of increasing inequality, these situations are likely to worsen.

"An economy based on mass deception, exploitation, degradation and oppression, violence, war, and massive environmental destruction...is unsustainable."

Workers will resist and fight oppression; they always do, but will they have a voice as the US faces another self-induced crisis, as trillions are doled out to those who already have trillions?

Here are the dates of the largest economic downturns.

1797-1800

1807–1814

1819–1824

1837–1843

1857–1860

1873–1879 (The Long Depression)

1893–1896 (The Long Depression)

1907–1908

1918–1921 (World War I, Spanish Flu, Panic of 1920-21)

1929–1933 (Stock Market Crash, Great Depression)

1937–1938 (Great Depression)

Feb-Oct 1945

Nov 1948–Oct 1949

July 1953–May 1954

Aug 1957–April 1958

April 1960–Feb 1961

Dec 1969–Nov 1970

Nov. 1973– March 1975

Jan-July 1980

July 1981–Nov 1982

July 1990–March 1991

Mar-Nov 2001

December 2007 – June 2009 (The Great Recession)

March 2020-

We live in an economic system that is unsustainable, unjust, and exploitative. While many of us in academia and the thought industry have known this for decades, those with greater wisdom have known for centuries. Techies and disrupters think it can all be solved with technology, not with profound wisdom. The ultimate in hubris and reductionism. We have to change the system politically, socially, and culturally. We have to be wiser.

How do we do that, radically change society, when our economic system has driven us in the wrong direction for so long? Some of these lessons can be learned from working-class history, but they have to be applied with wisdom.

*****

This essay, written by Dahn Shaulis, was originally posted on Higher Education Inquirer.

Cazenovia College is closing: Who cares?

 Cazenovia College is closing at the end of the spring semester. According to Inside Higher Ed, the college missed a bond payment due to financial stresses exacerbated by inflation and the COVID pandemic.

Cazenovia College is a liberal arts college located in the town of Cazenovia in upstate New York. It has about 800 students. The school was founded as a Methodist seminary almost 100 years ago.

Over the years, Cazenovia has gone through several metamorphoses and name changes. From 1904 until 1931, Cazenovia functioned as both a seminary and a secondary school.  The Methodists withdrew church sponsorship in the 1940s, and the school transitioned into a junior college. In the 1980s, the school became a four-year college and began offering graduate programs in 2019. 

In short, this plucky little college has done its best to remain relevant and to change with the times. Ultimately, however, Cazenovia couldn't make a go of it.

Cazenovia is primarily a liberal arts school. For example, the college has majors in Liberal Studies and Individual Studies.  What kind of job will a Cazenovia graduate get with a degree in those fields?

Like many obscure liberal arts schools around the United States, Cazenvovia's attendance costs can't be justified.  Tuition for this academic year is more than $36,000. Room and board are another $15,000. Who in their right mind would pay $50,000 a year to attend this tiny college with a 6-year graduation rate of only 59 percent?

But maybe the costs aren't that high.  The U.S. News & World Report points out that Cazenovia's sticker price is below the national average.  According to that source, the net price for federal loan recipients is only about $19,000. 

 That's still high.  When room, board, and living expenses are added, the total cost to attend Cazenovia for federal loan recipients is around $34,000 per academic year--34 grand to attend a college with only 800 students.

Across the United States, there are hundreds of obscure, expensive colleges struggling to survive. How have they held on for as long as they have? 

A recent study by the Government Accountability Office offers some clues. According to the GAO report, many schools are making financial aid offers to prospective students that misrepresent the actual costs. Specifically, GAO found that 41 percent of colleges in its study did not include the net price of attendance.  And half the schools reported a net price that did not include key costs.

For example, many schools include student loans and even Parent PLUS loans as "student aid," thus blurring the line between grants and loans. Unsophisticated families may not realize that the supposedly generous financial aid offer they received from an expensive private school might require them to take on burdensome levels of debt.

I'm not saying Cazenovia misrepresented the actual cost of attendance. Its financial aid offers may have been perfectly candid and totally in keeping with best practices. 

If so, it is in the minority. The GAO "estimate[d] most colleges do not provide students all of the information necessary in their financial aid offers to know how much they will need to pay for college."

Tears and Regret: More than half the people who attended a for-profit college wish they'd studied at a different institution

 "If they gave gold statuettes for tears and regrets," Ronnie Milsap sang in a classic country song, "I'd be a legend in my time."

Most of us have a few regrets, but no one should regret their college choice. Yet a recent Federal Reserve  Board report shows that many Americans wish they had studied at a different school or chosen another major.

More than half of those who attended a for-profit institution wish they'd studied at a different college. Fourteen percent of for-profit college attendees reported wishing they had received less postsecondary education or not gone to college at all.

In addition, many Americans are skeptical about the benefits of their college education.  Most older Americans (82 percent of people ages 60 and older) believe that the benefits of their college education exceed the costs. 

In contrast, many people in the traditional college-going years (ages 18-29) aren't sure that a college degree is worth the money. Among young Americans, only slightly more than half (56 percent) believe that the benefits of their education exceeded the cost. More than a third of college attendees in the 30-44 age bracket reported that the cost of their education outweighed the benefits.

The Federal Reserve report also found that a high percentage of people who majored in the humanities or social sciences regret their choice of major. Forty-eight percent of people who majored in the humanities and 46 percent of those who majored in social and behavioral sciences wish they had selected a different academic program.

For years, high school graduates were told they would never get ahead unless they obtained a college degree--and that the benefits of a college diploma far outweigh the cost.

Yet, these findings show that many Americans are unhappy about their college experience. A high percentage wish they had attended a different school or chosen another academic major. Perhaps most alarming, more than four out of ten young people think the cost of their college education exceeded the benefits.

*****

My thanks go to Dahl Shaul and Glen McGhee for calling my attention to the Recent Federal Reserve Board report.

Major Changes Now Allow You to Eliminate Federal Student Loans in Bankruptcy Essay by Steve Rhode

Are you in an income-based repayment program? Have you been repaying your federal student loans for more than ten years? Have you tried to work with your servicer on a more reasonable payment plan?

-or-

Are you in default on your federal student loans?  And have you been unemployed for at least 5 of the last ten years? Have you made at least one payment in the past on your loans?

-or-

Do you struggle to make monthly student loan payments after covering other expenses?  Are you 65 or older? Have you responded to letters or calls from your servicer about your past-due balance?

For as long as we’ve had bankruptcy laws, people in the circumstances like the above could generally access the Bankruptcy Code’s promise of a “fresh start.” The “fresh start” was intended to ensure that honest but unfortunate debtors in dire financial situations were not doomed to spend their lives in poverty. They could file for bankruptcy protection, discharge their outstanding debts, and start fresh on a new lifeExcept for student debtors. In 1978, Congress removed “student loans” from the list of dischargeable debts—unless the debtor proved that requiring repayment after bankruptcy would impose an “undue hardship.”  To prove “undue hardship,” debtors generally had to prove three things: (1) the debtor cannot presently maintain a minimal standard of living if required to repay the student loan, (2) circumstances exist that indicate the debtor’s financial situation is likely to persist into the future for a significant portion of the loan repayment period, and (3) the debtor has made good faith efforts in the past to repay the student loan.

These highly subjective elements made it very difficult to prevail in litigation.  And even where debtors did prevail at trial, they could expect years of appeals to follow, often resulting in a reversal of the trial court’s decision.  For those and other reasons, only 0.1% of debtors even attempt to discharge their loans. And that is largely because of the cost associated. Most bankruptcy lawyers charge anywhere from $30,000-50,000 to handle a student loan discharge case.

But thanks to the new guidance by the Departments of Education and Justice, debtors with circumstances like the above (and many others) can finally discharge their federal student loans in bankruptcy. Going forward, the Department will not oppose discharge, and will stipulate to the facts supporting discharge, provided the debtor demonstrates he or she meets certain criteria:

FIRST REQUIREMENT

The debtor’s current financial situation. If the debtor’s monthly income minus necessary expenses do not leave enough money left over to make the monthly payment on the debt. Perhaps most importantly, this will be based on the “Standard” repayment plan—not an income-based repayment plan. The Standard Plan is ten years, meaning, take the balance of your loan, divide it by 120, and if the monthly payment exceeds your income after necessary expenses (food, clothing, health insurance, etc.), you likely meet the standard.

SECOND REQUIREMENT

The debtor’s financial future. This is usually the most challenging part of the test since it relies on accurately predicting the future.  But going forward, the government will stipulate to discharge wherever the debtor is (i) over 65; (ii) did not obtain a degree; (iii) is suffering from some disability or chronic injury that makes employment difficult; (iv) has been unemployed for at least 5 of the last ten years; or (v) has been in repayment for more than 10 years.

THIRD REQUIREMENT

Whether the debtor has made a “good faith” effort at repayment. The government will now stipulate to discharge provided the debtor has made one payment in the past, applied for forbearance, or attempted to work with their servicer on an affordable payment plan. So long as you have not buried your hand in the sand, you can likely meet this prong.

An important caveat here is that the government will only stipulate to these facts. Even where one or more of these circumstances are present, the Bankruptcy Court will still need to concur with the government and issue an order discharging the debt. But there is an enormous difference between those two things regarding time and cost.

Takes Less Time

First, rather than taking five or six years (the average length of time required to litigate a trial and handle any appeals), this can now be accomplished in a matter of months.

Second, and perhaps more importantly, the cost can be dramatically reduced if it can be done in months instead of years. If lawyers are no longer required to spend ~100 or more hours litigating your case and appeals, they won’t need to charge $30,0000 or $50,0000.  Instead, lawyers could do this economically for a few thousand dollars.

Some of this probably sounds complicated.  Other parts of it probably sound too good to be true. And implementing this guidance may not be as consistent or predictable as we might like.  But this is the first time the government has opened the door to discharge federal student loans in bankruptcy in more than 40 years.

That is a huge deal and long overdue.

 *****

This essay was originally posted on November 23, 2022, on the  Get Out of Debt Guy website. 

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve here.

An Iowa bankruptcy court building

The Supreme Court will soon rule on legality of Biden's Student-Loan Forgiveness Plan

 Forty million student debtors are waiting anxiously for President Biden's loan forgiveness plan to kick in. Biden wants to knock off $10,000 from everyone's student loans who makes less than $125,000 a year. That won't mean much to people whose loans are in six figures, but it will mean a great deal to people with modest loan balances. 

Unfortunately for all those millions of college borrowers, the Eighth Circuit Court of Appeals halted Biden's plan.

President Biden appealed to the Supreme Court, and yesterday the Court agreed to consider his appeal. We should have a Supreme Court decision by early summer of next year.

I predict that the Supreme Court will strike down Biden's loan-forgiveness scheme as an unconstitutional usurpation of Congressional authority. If that happens, the President and Congress will be under heavy pressure to provide some sort of loan relief that isn't illegal.

As I have argued repeatedly, Congress should revise the Bankruptcy Code to allow honest debtors to discharge their student loans in bankruptcy. This simple action would do more than anything else to grant loan relief to deserving college borrowers without allowing unworthy student debtors to get a free ride.

If this is too much of a heavy lift for Congress, it could enact more modest reforms. Here are my suggestions:

1) Congress should forbid the Department of Education from garnishing the Social Security checks of elderly borrowers who defaulted on their student loans. 

2) Congress should shut down the for-profit college industry. There is no reason for private investors and hedge funds to profit from young people striving to get their college degrees.

3) We should end the Parent PLUS program, which has impoverished hundreds of thousands of low-income families who took out federal loans so their children could attend college.

4) Congress also needs to reform the Grad PLUS loan program, which currently has no cap on the amount of money students can borrow to attend graduate school.  It is ridiculous for people to borrow $100,000 or more to get a master's degree in journalism.

Will any of these reforms see the light of day? Doubtful. Universities, student-loan servicers, and the banks are all happy with the status quo. As someone remarked after the fall of France during World War II: "Reform was possible only through catastrophe."

Sadly, it will probably take the catastrophic collapse of the American economy before our politicians will do what needs to be done to clean up the calamitous student-loan program.

Reform is not possible without a calamity.

December is the Cruelist Month: Watch Out, Student Debtors

 T.S. Eliot was wrong: December is the cruelest month, not April.  

We think of December as a time for rest after a toilsome and anxious year--a time to prepare for Christmas and reconnect with our loved ones.

Yet, December can bring a lot of nasty surprises--shocking us when our hearts are mellow and our guard is down.

For example, the Japanese attacked Pearl Harbor on December 7, 1941. 

The Germans launched the Battle of the Bulge in December 1944.

George Washington's ragtag army sneaked across the Delaware River and surprised the Hessians on Christmas Eve, 1776.

Poor Napoleon was shocked when he reached Moscow in December of 1812. He thought he had beaten the Russians, but he was wrong. By the time he got his army back to France, he had lost 90 percent of his soldiers. 

So here are my predictions for the month ahead: Americans will receive two rude shocks.

First, the United States is prosecuting a hot war by proxy in Ukraine. Americans believe that the plucky Ukrainians are beating the crap out of Russia.

I don't think so. The Russians are masters of winter warfare and still have a few tricks up their sleeves. Vladimir Putin will remind America there is a price to pay for mucking around in eastern European politics. 

Second, the crypto craze will blow up next month, and everybody who bought crypto coins will be wiped out. You will be surprised to learn the names of famous people who got duped.

These two bombshell events will rock the American economy and make us all poorer.

If you are a college student, this is the December to be on your guard. Now is a terrible time to take out student loans to pay for your studies. This might be a good time for you to take a gap year, get a job, and start thinking seriously about what you will do to make a living. 

If you're majoring in liberal arts, now is an excellent time to consider changing majors. You may love literature, but you will need more than a bachelor's degree in English to get a job.

My advice: select a vocationally oriented major and read Henry James on your own time.

Surprising the Hessians during the holiday season