Today’s New York Times Editorial About Student Loans is Not Very Useful

Today’s lead editorial in the New York Times is entitled “Full Disclosure for Student Borrowers.” Basically, the Times says that “[c]olleges, lenders and Congress must ensure that students understand their debt burden.”

Pardon me, Mr. and Ms. New York Times editorial writers, but that advice is not very useful. It is true that a lot of student-loan borrowers did not understand the nature of their loan obligations. Some did not realize they had borrowed from private lenders instead of the federal student loan program, for example; and a great many made poor decisions with regard to what they chose to study. People who borrowed a $100,000 or more to pursue degrees in religious studies, sociology, or some other non-remunerative field did not make smart decisions.

But the fact that many students took out college loans without understanding the consequences is only part of the problem. A bigger part of the program is this: The student loan program has spawned a rapacious for-profit college industry, which Congress refuses to regulate. As a whole, this industry has very high student-loan default rates; and many of them are much more expensive than public-college alternatives. Today, the for-profit institutions enroll about 10 percent of all the post-secondary loan borrowers but they receive about 25 percent of the Federal student aid money.

Another problem is the private student-loan market, which generally charges students higher interest rates than the federal student-loan program and offers students fewer protections like economic hardship deferments. Congress passed legislation that makes it almost impossible for students to discharge their private student loans in bankruptcy, which is an outrage.

If the New York Times wishes to offer useful advice about solving the trillion-dollar student-loan mess, it needs to endorse the following actions:

More accurate reporting of student-loan default rates by the U.S. Department of Education, particularly the default rate for students enrolled in for-profit schools,

Repeal of the statutes making it nearly impossible for insolvent students to discharge their student loans in bankruptcy,

Passage of effective consumer-protection laws that will protect students from unscrupulous college recruiters and colleges’ misleading representations about job prospects for graduates of post-secondary programs,

Congressional or executive action to stop the federal government and the student-loan guarantee agencies from garnishing elderly defaulters’ Social Security checks.

Perhaps the New York Times has offered more useful information about the student-loan crisis in the past.  But the advice offered on today’s editorial page does not go nearly far enough toward solving a problem that is causing hardship and suffering for millions of people.

References

Editorial (2012, May 23). Full disclosure for student borrowers. New York Times, p. A20.

President Obama Can Do ThreeThings Right Now To Show He Cares About Student Loan Debtors

According to Bloomberg, the Obama campaign has produced a television ad that showcases President Obama's efforts to aid college students.  As president, the ad states, Obama "doubled funding for college grants, capped federal student loan payments, passed the largest college tax credit ever."

President Obama can do three things
 right now to help student-loan debtors

Certainly, President Obama has expressed a genuine interest in helping students fund their college education.  But here are some tangible things President Obama can do immediately to ease the burden on student-loan debtors, a group that has received a lot of media attention recently.

1. Tax Consequences of Forgiven Student Loans. Currently, students whose student loans are forgiven based on disability or because they participated in the Income Contingent Repayment Plan face a federal-income tax bill because the forgiven debt is considered income by the IRS. President Obama could issue an Executive Order or direct the IRS to draft a regulation that would shield people with forgiven student loans from a federal income tax bill.

2. Garnishment of Social Security Checks. In the infamous Lockwood decision, the U.S. Supreme Court upheld the garnishment of Social Security checks of elderly people who defaulted on their student loans. President Obama could simply tell the Department of Education and the student-loan guarantee agencies to stop garnishing Social Security checks as a means of collecting on defaulted loans. 

3. Placing Bankrupt Students in the Income Contingent Repayment Plan.  At the urging of the student-loan agencies, some bankruptcy courts have placed insolvent student-loan debtors in the Income Contingent Repayment Plan, which obligates them to pay a portion of their income toward their student loans for 25 years. The consequence of this maneuver is to deny student-loan debtors the bankruptcy relief that they reasonably deserve.  President Obama could issue an executive order directing the Department of Education and the student-loan guarantee agencies to allow bankrupt student-loan debtors to discharge their college-loan debt in bankruptcy and not ask bankruptcy courts to put these unfortunate people in 25-year repayment plans.

President Obama could do all these things unilaterally without legislation or Congressional approval, and they would not cost taxpayers a significant amount of money. After all, how much money can the Department of Education collect by garnishing people's Social Security checks?

To a certain extent these actions would be merely symbolic; they wouldn't do much to address the huge problem of mounting student loan debt in this country. Nevertheless, if President Obama would do these three things, he would demonstrate his sincere concern about the student-loan debt crisis in a tangible way.  And I think a lot of Americans would appreciate the gesture, including the 37 million people who have outstanding student-loan debt.

References

Giroux, G. (2012, May 18). Obama campaign ad focuses on higher education. Bloomberg's Political Capital Web Site. http://go.bloomberg.com/political-economy/2012-05-18/obama-campaign-ad-focuses-on-higher-education/

Higher Education Industry to Students: If You Are Crushed by Student Loans, It's Your Own Damn Fault

As Jimmy Buffet reminded us in Wasting Away in Margaritaville, some things are our own damn fault.  Apparently, this is the position of the higher education industry regarding the student loan crisis. 

Jimmy Buffett

When the New York Times published a front page story about students who have been crushed by the burden of their student loans, two higher education industry spokespeople wrote letters to the Times, basically saying everything is fine--thank you.  

Molly Corbett Broad, president of the American Council on Education, suggested that some students need to make better decisions when they take out student loans. “The reality is that every student and family must carefully weigh what they believe a degree is worth against the price of a particular institution.”  And, Broad acknowledged, “If students and their families borrow not with their heads but over them, dire consequences can easily follow.” Yuh think?

And David L. Warren, president of the National Association of Independent Colleges and Universities, pointed out that the default rate for borrowers at private colleges is only 4.6 percent. Both Warren and Broad acknowledged that students might need better counseling regarding their borrowing decisions, but other than that, Warren and Broad had no suggestions for solving the student loan crisis.

What I took away from these letters by the presidents of two high-profile higher-education industry groups is this: We are doing a fine job, higher education is worth the cost, and students who are swamped by their college loans made bad decisions. Or, to paraphrase Jimmy Buffett, if students are overwhelmed by their student loans, it’s their own damn fault.

But let’s look closely at what Broad and Warren said. Warren stated that the default rate at private colleges is only 4.6 percent.  Warren was citing the Department of Education’s figures, which only measures defaulters in the first two years of the loan repayment period. A study that examined the loan default rate for college graduates over a ten year period concluded that the default rate is about 10 percent. I think it is indisputable that the loan default rate for students who attended private colleges is nearly double the rate that Warren cited, when defaults are measured over the life of loan repayment period. And the default rate for students who attended for-profit institutions is absolutely unacceptable—probably at least 30 percent when measured over the entire life of the loan repayment period.

And Broad said that the average student debt load is only $23,000, which Broad seems to think is not particularly onerous. But even $23,000 in student-loan debt is a crushing burden for students who don’t have jobs, students who received no worthwhile skills from their educational experiences, or students who never completed their degrees.

As far as I know, the professional organizations for the higher education industry have not endorsed serious proposals to ease the burden on students who cannot pay back their loans. At a minimum, the National Association of Independent Colleges and Universities and the Council on Education should actively promote these reforms:

·         Legislation that will give insolvent students reasonable access to the bankruptcy courts. 

·         Legal prohibitions against the garnishment of student-loan debtors’ Social Security checks. 

·         More accurate reports from the Department of Education regarding student-loan default rates.

For two top spokespeople for the higher education industry to simply say a college education is a good value and students need to make better decisions about borrowing money is pretty lame. The nation’s colleges and universities need to accept some responsibility for the student-loan mess, and they need to support effective solutions.  

References

Broad, M. C. (2012, May 190. Letter to the Editor. New York Times, p. 18.

Choy, S. B, & Li, X. (2006). Dealing with debt: Bachelor’s degree recipients 10 years later.  Washington, DC: National Center for Education Statistics. http://nces.ed.gov/pubsearch/pubsinfo.asp?pubid=2006156

Fossey, R., & Cloud, R. C. (2011, November 24). From the cone of uncertainty to the dirty side of the storm:  A proposal  to provide student-loan debtors who attended for-profit colleges with reasonable access to bankruptcy court. West’s Education Law Reporter, 272, 1-18.

Martin, A., & Lehren, A. W. (2012, May 12). A generation hobbled by the soaring cost of college. New York Times, p. 1. http://www.nytimes.com/2012/05/13/business/student-loans-weighing-down-a-generation-with-heavy-debt.html?pagewanted=print

Warren, D. L. (2012, May 19). Letter to the Editor. New York Times, p. A18.

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.