Monday, April 30, 2012

Paul Krugman's Advice for Aiding College Students is a Little Thin


Far be it from me to criticize Paul Krugman’s advice on economic issues. After all, Krugman received the Nobel Prize in economics, and I did not.  (I may have gotten the Boy Scout merit badge in Personal Management.)
Krugman, writing in today’s New York Times, reviewed the dire situation of many college graduates. As Krugman rightly pointed out, many are saddled with huge student loans and can’t find jobs.
Personal Management Merit Badge
“What should we do to help America’s young?” Krugman asked.  “We should be expanding student aid, not slashing it.”
With all due respect, Mr. Krugman’s advice is a little thin.  Expanding student aid will not do American young people any good if it is disbursed in the form of student loans that they are unable to pay back.  And pouring more money into an unreformed higher education system is a waste of resources.
The Cal State student hunger-strikers have put their finger on the problem.  We need to freeze college tuition and reform the universities.  We can start the reform effort by cutting back on the exorbitant salaries our universities pay senior executives and administrators.
Of course there are lots of other things we can do to straighten out the student-loan mess and help young people obtain college experiences that will help them get good jobs.  But simply saying we should expand student aid, as Mr. Krugman suggested in today’s New York Times, merely endorses the status quo.  That is how we got into this mess, and we now have one trillion dollars of outstanding student-loan indebtedness and 37 million student loan debtors.  


References
Krugman, P. (2012, April 30, 2012). Wasting our minds. New York Times

Cal State Students Plan Hunger Strike to Protest Tuition Hikes: Let's Hope They Don't Get Pepper Sprayed


"Let them eat pepper spray"

According to the Los Angeles Times (Rivera, 2012), students at six Cal State campuses vow to go on a hunger strike Wednesday in protest of rising tuition costs.  Their demands are quite reasonable. They want tuition costs frozen for five years and a rollback on excessive administrators’ salaries.

 A Cal State spokesperson, displaying the tone-deaf response so typical of California university administrators, said the hunger strikers don’t understand the issues.  This reminds me of what Marie Antoinette is said to have remarked about the poor people of Paris: “Let them eat cake.” 

We should give these courageous students all our support.  And let us hope university police officers won’t pepper spray them.

References

Rivera, C. (2012, April 29). With tuition hard to swallow, Cal State students to go hungry. Los Angeles Times.  http://www.latimes.com/news/local/la-me-0429-hunger-strike-20120429,0,6584621.story


Thursday, April 26, 2012

Are We Rearranging the Deck Chairs on the Titanic? Keeping Interest Rates Down on Student Loans


President Obama has asked Congress to pass legislation that will keep the interest rate on student loans from doubling later this year. Of course, this is a good idea; and I think Congress will act favorably on the President's request.

Unfortunately, keeping interest rates down on student loans is like rearranging the deck chairs on the Titanic. The ship is still going down. 

The core problem is this: millions of Americans have borrowed money for a postsecondary education, and they can't pay it back.  Solving this problem won't be easy, but we can start by doing these three things:

  • Congress must pass legislation allowing overburdened student-loan debtors to discharge their loans in bankruptcy in the same way they can discharge other unsecured debts. In other words, Congress must repeal the "undue hardship" provision in the Bankruptcy Code that makes it almost impossible for students to discharge their student loans in a bankruptcy court.
  • We must do a better job of regulating the for-profit colleges, which is where the student-loan default rate is the highest.
  • We need to defer interest on loan balances for people who have economic hardship deferments or are paying back their loans through an income-contingent loan repayment plan (ICRP). Otherwise, most of the people who are participating in these student-loan hardship plans will never be able to pay back their loans because accruing interest will make their debt loads unmanageable.








Wednesday, April 25, 2012

Are Professors' Salaries Responsible for Tuition Increases?

Why does college tuition go up every year? According to Vice President Joe Biden, higher faculty salaries provide a partial explanation. “Salaries for college professors have escalated significantly,” Vice President Biden said recently. (June, 2012, p. A1).
But the AAUP disagrees. According to a recent AAUP report, faculty salaries have not kept up with inflation. Professors have only received modest raises in recent years, especially compared to college presidents, who are doing just fine financially.
Don't Blame Me!
I partly agree with the AAUP report.  College professors do not make a lot of money. Although faculty at elite universities like Harvard and Stanford command high salaries, the professors at community colleges and regional state universities like the one where I work are not highly paid.
It would be a mistake, however, to conclude that professors have not contributed to higher tuition rates at our colleges and universities, because in fact they share part of the blame.  Here are some examples of the way professors contribute to out-of-control college costs.
·         When a professor insists on getting a course release to design a new course instead of doing the work as part of the professor’s regular work load, college costs increase.
·         When a professor uses college funds to deliver a mediocre academic paper at a conference in Europe simply to get an expense-paid trip to an exotic locale, that action wastes a college’s money.
·         When professors cap enrollment in their graduate courses at unreasonably low levels in order to teach smaller classes, those decisions increase a college’s costs.
·         When professors unilaterally decide to end their work weeks on Thursday instead of Friday, as many of them do, those individual decisions have a financial impact.
In short, many decisions that professors make to reduce their job responsibilities or serve their own selfish interests have an impact on the cost of doing business at our nation’s colleges and universities. Therefore, it would be misleading to say that the nation’s college professors have not contributed to the spiraling cost of attending college.
And who pays the price for the colleges’ inefficiencies—including inefficiencies in the way professors work?  We know the answer. Students pay the price as they borrow more and more money to pay escalating tuition costs.
References
June, A. W. (2012, April 13). College’s cost isn’t due to jumps in pay, AAUP says. Chronicle of Higher Education, p. A1.
Thornton, S., & Curtis, J. W. (2012). A very slow recovery. Washington, DC: American Association of University Professors. Accessible at http://www.aaup.org/AAUP/comm/rep/Z/ecstatereport11-12/

Monday, April 23, 2012

Albert Lord Says Student Loan Program is Not in a Bubble: Should We Believe Him?

Albert Lord Says Student Loan Program is Not in a Bubble
Albert Lord
CEO, Sallie Mae

According to recent news stories, Albert Lord, CEO of Sallie Mae (SLM Corp.)  rejected any claim that student loan debt has reached dangerous levels.  “We don’t see anything of any evidence close to a bubble,” Lord said in a conference call to financial analysts. “This country underwent a significant financial crisis in our very recent past. It’s not really a surprise that many see bubbles around every corner” (Mulholland, 2012). 
So Mr. Lord assures us the student loan program is not in a bubble. Should we believe him?
No, we should not. First of all, as everyone knows, the percentage of students who borrow money to attend college is going up and students' average indebtedness is going up as well.   Moreover, annual student-loan default rates have almost doubled between 2003 and 2009—going from 4.5 percent to 8.8 percent.  And these numbers only reflect the numbers of students who default within two years after beginning repayment.  When the default rate is expanded to measure defaults during the first three years after repayment begins, the rate goes up substantially—especially for students who borrowed money to attend for-profit colleges.  According to one projection, the three-year default rate for the 2009 cohort is 29 percent for students who attended for-profit schools.  (Lederman, 2011). Surely this is a sign of serious trouble ahead for the student loan program.
We should also look at some recent reports by outside analysts when we assess Mr. Lord’s assurances about the student loan program. The Federal Reserve Bank of San Francisco, in a 2011 publication, reported that private lending increased dramatically from 2000 to 2007, reaching 26 percent of all student loans during the 2006-2007 academic year. Private loan volume then retreated from a high of $22.6 billion in 2006-2007 to only $7.9 billion in 2010-2011.  (Choi, 2011). This may be an indication that the private banking industry has concluded that student loans are becoming riskier for banks, in spite of the fact that these loans—like federally guaranteed loans—are almost impossible to discharge in bankruptcy.
In a 2012 publication, the Federal Reserve Bank of New York reported that total outstanding student-loan indebtedness has reached $870 billion, surpassing the nation’s entire outstanding credit-card balances and its outstanding car-loan balances. According to the New York Reserve Bank, there are about 37million people with student-loan balances, Sixty percent of these borrowers are 30 years old or older, and about 27 percent of all borrowers have at least one past-due student-loan account.  Seventy-five percent of individuals with past-due student-loan accounts are 30 years old or older, and 40 percent are 40 years older or older.  These numbers tell us that a lot of people are struggling with student-loan debt well into midlife. 
In addition, Moody’s issued a report in July 2011, which is sharply different in tone from Mr. Lord’s optimistic reassurances. “The long-run outlook for student lending and borrowers remains worrisome,” the Moody report stated. “[T]here is increasing concern that many students may be getting their loans for the wrong reasons, or that borrowers—and lenders—have unrealistic expectations about borrowers’ future earnings.” Moody’s warned that “[u]nless students limit their debt burdens, choose fields of study that are in demand, and successfully complete their degrees on time, they will find themselves in worse financial positions and unable to earn the projected income that justified taking out their loans in the first place” (Moody’s Analytics, 2011).
In my opinion, Mr. Lord is wrong to say the student loan program is not in a bubble. Independent analysts see trouble ahead.  As I have written earlier, there are many things we can do to ease the burdens that weigh down overstressed student-loan borrowers.  But the first thing we must do is face reality and admit that the student loan program is out of control.
References
Choi, L. (2011, December). Student debt and default in the 12th District. San Francisco: Federal Reserve Bank of San Francisco. http://www.frbsf.org/publications/community/research-briefs/Student-Debt-and-Default-in-the-12th-District.html (last visited April 23, 2012).
Brown, M., Haughwout, A., Lee, Donghoon, Mabutas, M., & van der Klaauw, W.(2012). Grading students loans. New York: Federal Reserve Bank of New York.  http://libertystreeteconomics.newyorkfed.org/2012/03/grading-student-loans.html (last visited April 23, 2012).
Deritis, C. (2011, July). Moody’s Analytics: Student Lending’s Failing Grade.


Lederman, D. (2011, May 23). Trouble ahead on student loan defaults. Inside Higher Educationhttp://www.insidehighered.com/news/2011/05/23/student_loan_default_rates_rise_sharply_especially_for_for_profit_colleges (last visited April 23, 2011). 
Mulholland, S. (2012, April 19). Sallie Mae CEO Albert Lord Rejects Education Loan Bubble Claims. Huffington Post. http://www.huffingtonpost.com/2012/04/19/sallie-mae-ceo-albert-lor_n_1438595.html (last visited April 23, 2012).

Tuesday, April 17, 2012

The New American Serfs: Student-Loan Debtors in the Federal Income Contingent Repayment Plan


Slavery in the United States ended with the Civil War, but slavery in another form lived on.  Slavery was replaced by a new kind of bondage, whereby tenant farmers and share croppers basically became serfs to their landlords and were as bound to them as if they were still human chattel.  The age of the share cropper and the tenant farmer did not end until the Great Depression, when the rural poor fled the land and migrated to the cities or to California.

But those days are over, right? No one in the United States is a slave or an indentured servant in the 21st century. 

Sadly, our national government has created a new form of bondage, which it imposes on college students who participated in the federal student loan program but can’t pay back their loans.  Some of these former students are burdened with student-loan obligations for decades--hounded by the loans they cannot repay and the accumulating interest on their debt. Some of them have become true indentured servants--bound to pay a portion of their income to their federal student-loan creditors for a majority of their working lives.

The Disturbing Case of In re Stevenson

If you think I have overstated my case, you should read In re Stevenson (2011), a recent decision by the U.S. Bankruptcy Court in Massachusetts. Janice Stevens took out two student loans in 1983 to obtain additional education beyond her bachelor’s degree. She took out a third loan in 1987 and another in 1992. By 2008, when she filed for bankruptcy, Ms. Stevenson was in her mid-50s, and her total indebtedness was approximately $112,000, including accrued interests and costs.

Ms. Stevens filed an adversary proceeding in bankruptcy court, seeking to have her student loans discharged on the grounds of undue hardship.  Most people would think she had a pretty good case. Although she had held good jobs over the years, she had suffered periods of joblessness and homelessness and had sometimes lived in homeless shelters. In addition, Ms. Stevenson had health issues--back problems, high blood pressure and an autoimmune disease that required her to take medicine.

During the bankruptcy proceedings, Ms. Stevenson held a part-time job at Walgreens, earning less than $500 a month. She supplemented her meager income with unemployment checks, which were scheduled to terminate in a matter of months.  She also received a monthly subsidy from the State of Massachusetts to help her pay her rent.

In spite of Ms. Stevenson’s bleak economic circumstances, Judge Joan Feeney ruled that her student loans were not dischargeable in bankruptcy. Judge Feeney concluded that Ms. Stevenson should continue paying her loans through the federal government’s Income Contingency Repayment Plan (ICRP), whereby she would pay a percentage of her income toward paying down her loans for a period of 25 years.  At the end of the 25 year period, any remaining balance would be forgiven.  

Did Judge Feeney Make Ms. Stevenson an Indentured Servant?

When she came into bankruptcy court, Ms. Stevens had unpaid student loans stretching back to 1983. Instead of discharging her debt based on undue hardship, Judge Feeney concluded that Ms. Stevenson should participate in a federal repayment program that would obligate her to pay a percentage of her income toward her debt for 25 years.

If Ms. Stevenson goes on the ICRP, she will be nearly 80 years old when her payment obligations cease.  By that time she will have been burdened with student-loan debt for well over half a century.

Solutions?

It seems to me that the Income Contingent Repayment Plan, which Judge Feeney endorsed for Janice Stevenson, is nothing more than a modern version of indentured servitude, whereby student-loan debtors like Ms. Stevenson pay a portion of her income to student-loan creditors for the balance of her working lives.

The federal student loan program is out of control, and the Income Contingency Repayment Plan is making life harder for overburdened student-loan debtors, not easier.

Congress needs to do two things. First, it should amend the bankruptcy laws to allow insolvent student-loan debtors to discharge their debts in bankruptcy just like any other overburdened debtor.

Second, Congress should pass legislation abolishing the ICRP option for stressed out student-loan debtors. People who are insolvent deserve the fresh start that bankruptcy is designed to give them. They don’t deserve to be saddled with a 25-year repayment plan that will cripple them financially for the rest of their working lives.

References

In re Stevenson, 463 B.R. 586 (Bkrtcy. D. Mass. 2011).

Thursday, April 12, 2012

The UC Davis Pepper Spray Incident and the Boston Massacre: Universities Should Respond Quickly to Outrageous Conduct on Their Campuses

More than one million people have viewed the You Tube video showing UC Davis police officers pepper-spraying peaceful students on the UC Davis campus last November. Any eight-year old who views that video can tell you that the police used unnecessary force against university students who were peaceful protesting economic conditions as part of the Occupy Wall Street demonstrations. 
But apparently UC Davis does not have the capacity to respond quickly and decisively when their own employees assault students in broad daylight on the University’s own campus. Almost five months after its students were attacked, the University issued a 190-page report prepared by a 13-member committee and chaired by a former California Supreme Court justice. Evidently, the committee thought the incident was too complicated to be investigated by laypeople, so it hired an outside consulting firm to find out what happened. To no one’s surprise, the report concluded that University officials made lots of mistakes.
In some ways, the UC pepper spray incident is like the Boston Massacre of 1770, in which a squad of British soldiers fired into a crowd of belligerent citizens and killed five people. Both incidents sparked a nationwide sense of outrage. But the official response to the Boston Massacre was quite different from the way UC Davis responded to the pepper spray incident.
Almost immediately after the Boston killings, all the soldiers who participated in the shootings were arrested, along with their commanding officer; and they were tried for murder. Captain Preston, the officer in command, was acquitted. The jury believed Captain Preston’s testimony that he gave his soldiers no order to fire on the crowd. In a separate trial, most of the soldiers were acquitted as well, although two were convicted of manslaughter. The soldiers were pinned into a corner by a threatening mob when they fired their guns and probably feared for their lives.
The point of my comparison is this. After the Boston Massacre, local officials responded quickly and forthrightly. British soldiers who participated in the incident were arrested and tried in a criminal court. In contrast, all UC Davis has done in response to the pepper-spray outrage is issue press releases, suspend some of the employees who were involved in the incident, and write a 190-page report.
If you disagree, look again at the You Tube video. Shouldn’t someone be punished?