What's a Trillion Dollars Among Friends? Is Student-Loan Debt "Good Debt"?

A couple of days ago, Beckie Supiano wrote an article for Chronicle of Higher Education, entitled “What Does $1-Trillion in Student Debt Really Mean? Maybe Not That Much,” which suggested that the nation's massive student-loan debt is no big deal.  Some of the people cited in Supiano’s article apparently believe that student-loan indebtedness is fundamentally different from the home-mortgage crisis because education, unlike a mortgaged home, has intrinsic value that does not diminish over time.

For example, Anthony P. Carnevale, director of Georgetown University's Center on Education and the Workforce, described student-loan debt as "good debt". In fact, Carnevale maintained, “This is exactly the kind of debt a society wants.” 

Mr. Carnevale’s perspective on student loans would be correct if all students received good value when they borrowed money to obtain a college education. But, as everyone knows, millions of people have borrowed money to pursue post-secondary education and did not see their lives improve in any meaningful way.  A person who borrows $100,000 to obtain a degree in religious studies, winds up working as a waitress, and defaults on her student loans does not have the kind of debt society wants. That kind of debt is not “good debt”.

Furthermore, contrary to some of the views expressed in the Supiano article, the student-loan crisis is very similar to the home-mortgage crisis. In fact, student loans have probably caused more human suffering than the home-mortgage meltdown.  People who own homes worth less than their mortgages are certainly under stress. But at least these people have roofs over their heads, and they own tangible assets. Furthermore, home-mortgage holders who are financially unable to pay their monthly mortgage payments can discharge their mortgages in bankruptcy.

In contrast, people who took out student loans to obtain a college education did not obtain anything tangible except their diplomas, and many did not receive the skills or training from their experience that would enable them to obtain good-paying jobs or otherwise improve their lives.  Many people who borrowed substantial amounts of money to obtain degrees in such fields as art history, religious studies, sociology and anthropology are in real financial trouble because they can’t find employment that compensates them enough to pay off their student loans.

Furthermore, unlike homeowners who have unmanageable mortgages, most overburdened student-loan debtors cannot discharge their loans in bankruptcy.  Although they can obtain deferments on their loan payments if they can show economic hardship, interest on their loans will continue to accrue in most instances, increasing the size of their debt

In short, to suggest that the nation’s $1 trillion in accumulated student-loan debt is not a serious problem shows a profound lack of understanding about the tremendous suffering that millions of student-loan debtors are experiencing. There are lots of things we can do to get the student-loan crisis under control, but we should begin by providing meaningful relief to overburdened student-loan debtors who have no reasonable prospect of ever paying off their student loans.

References

Supiano, B. (2012, May 16). What Does $1-Trillion in Student Debt Really Mean? Maybe Not That Much. Chronicle of Higher Education. http://chronicle.com/article/What-Does-1-Trillion-Mean-/131900/?key=TWwidAI8byUVbHBhYDpAbj4AaH0%2BMUp2YydBPX4rblpXGQ%3D%3D.

What should a university do when its employees attack peaceful students with pepper spray? Why, issue a report, of course.

The University of California gained a lot of experience dealing with student protesters during the Free Speech movement of the 1960s. One would think its institutional memory would include some protocols about how to handle peaceful student protesters.

Apparently not. After campus police officers pepper sprayed peaceful students at UC Davis last November, the president of UC Davis commissioned a report, which was recently released. Prepared with the aid of a former California Supreme Court justice and a consulting firm, the report weighed in at 190 pages long.

This week, the University of California issued another report, only 150 pages long, entitled "Response to Protests on UC Campuses, put together under the leadership of UC's general counsel and a law school dean. This report found--and I know you will find this shocking--that pepper spray is harmful to people's health. Yes, it is all there in the report. Pepper spray can damage people's eyes, respiratory systems,and skin.  The report, which contains 50 recommendations, cost about $300,000 to produce.

The University of California's response to the UC Davis pepper spray incident illustrates what is wrong with American higher education. In the wake of a shocking assault, the University of California commissioned high-paid administrators, consultants and lawyers to put together two reports. As far as I know, no one who perpetrated those outrages upon UC Davis students has been punished.

Meanwhile, tuition goes up every year, and students are expected to pay their bills by taking out larger and larger student loans. No wonder students are angry.

References

Edley, C.F. & Robinson, C. F. (2012). Response to Protests on UC Campuses (Draft). University of California. http://campusprotestreport.universityofcalifornia.edu/documents/Robinson-Edley-Report-043012.pdf

The Controversy Over Elizabeth Warren’s Native American Ancestry: Warren and Harvard Should be Embarrassed

I have long admired Elizabeth Warren. As a person who grew up in Oklahoma, I am impressed that Warren rose from humble beginnings in Norman, Oklahoma to become a Harvard Law Professor.  I also admire her work in bankruptcy law and consumer-protection law.

Thus, I was greatly disappointed to read that Warren listed herself as a minority as she was advancing her academic career based on the fact that she is 1/32^nd Native American.

Elizabeth Warren
Source: Harvard Law School
OTnline Directory

Not all the facts of this hullabaloo are known, but we do know that Harvard Law School touted Warren as a Native American law professor in 1996.  And, according to a Boston Herald story, she listed herself as a minority in a law school directory from 1986 until 1995.

If Warren is embarrassed by this controversy, she should be.  And Harvard Law School should be even more embarrassed.  Currently, Harvard Law School claims to have one Native American faculty member but won’t say who it is.  If it is not Elizabeth Warren, then who  is it?  Do you think it might be Alan Dershowitz?
Why is this controversy significant for student-loan borrowers? Students have seen their tuition go up every year while they borrow more and more money to finance their educations. Meanwhile, universities--and particularly,the nation's elite universities--have obsessed on race. Harvard Law School apparently thinks it struck a blow for equity by counting Elizabeth Warren as a Native American because her great great great grandmother was a Cherokee. What would higher education look like in this country if Harvard and other elite universities focused on substantive issues of access and equity instead of fixating on race.

References

Chabot, H. (2012, April 27).Harvard trips on roots of Elizabeth Warrant’s family tree. Boston Herald. http://bostonherald.com/news/regional/view/20220427harvard_trips_on_roots_of_warrens_family_tree_officials_touted_her_native_american_lineage

Chabot, H. (2012, May 4). Harvard won’t say if Liz Warren is listed as minority. Boston Herald. http://bostonherald.com/news/politics/view/20220504harvard_wont_say_if_liz_listed_as_minority

A Crummy Idea: Supplementing University Presidents' Excessive Salaries with Foundation Money

According to the Los Angeles Times, the California State University Board of Trustees will consider a new policy that will freeze state-funded compensation for new university presidents, but allow private foundations to enhance presidents’ salaries with foundation money (Ceasar & Rivera, 2012).

This is a crummy idea for several reasons:

Statue of Nick Saban

· First, it is unseemly. For university presidents to supplement their salaries with foundation money puts them in the same league as SEC football coaches, several of whom get extra compensation from foundations to supplement their public-university pay. Public universities have been severely criticized for letting coaches’ salaries get out of control, and supplemental compensation from college foundations have contributed to the problem. Do we really want university presidents to become the academic equivalent of Nick Saban, the University of Alabama's football coach?

· Second, this proposal fails to address the legitimate criticisms raised by college students that university executives are paid exorbitant salaries while students suffer under the strain of rising tuition costs and growing student-loan indebtedness. Enhancing presidents’ salaries from foundation funds does nothing to put the lid on excessive salaries and benefits for university presidents and senior executives.

· Third, the notion that universities must pay their presidents extravagantly in order to attract top talent is absurd. This is the same argument the finance industry made to justify obscene bonuses and compensation for top bank executives--the very people who put the national economy in the toilet. Does anyone really believe our universities cannot attract able leaders without paying them a half million dollars a year or more?

In Good to Great, Jim Collins pointed out a common characteristic of truly great corporations: modest leaders. Modest university presidents would put the interest of their institutions and their students above their own desire for more money. And modest university presidents would accept some personal financial sacrifice before asking students to pay higher tuition or faculty to accept wage freezes.

I hope the California State University Board of Trustees abandons this ill-advised proposal. The student protesters are right: salaries and perks for university presidents and senior executives are too high and need to be capped until higher education’s financial crisis is past.

References

Stephen Ceasar, S. & and Rivera C. (2012, May 1). Cal State to consider letting foundations augment president’s pay. Los Angeles Times. 

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

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.