The Panhandler on Siegen Lane: The Student Loan Crisis and Reflections on Dorothy Day

Dorothy Day

I took the Siegen Lane exit off of Interstate 10 a few days ago and saw a panhandler standing at the end of the exit ramp. He was holding a sign that read: "Hungry, Need Food, Please Help."

He was young, clean, and apparently well fed. As I watched from my car, I saw him take a long, luxuriant drag from his cigarette.

I couldn't help but smile and think of my late mother. My mother hated panhandlers, and she especially hated panhandlers who smoke.

There are plenty of jobs available, she would say. That Siegen Lane panhandler could be working at McDonald's instead of standing on the street begging for money. And a smoking panhandler, she would point out, obviously has money for cigarettes--money he should be spending on food.

My mother was especially infuriated by panhandlers who promised to work for food. She often threatened to call their bluff by offering them a job raking leaves or some other menial chore. She didn't think anyone would accept her offer.

No--in my Mom's view--actually working is anathema to a panhandler. Panhandlers would rather loaf around on a street corner waiting for a handout than rake leaves for a meal.

I disagree with my mother. In my opinion, anyone who stands on street corner on a hot Louisiana day is working--there's nothing easy about that.

Moreover, I discovered through experience that most panhandlers will thank me graciously if I give them a couple of bucks, and many said "God bless you." In my opinion, two bucks for a sincere "God bless you" is a fair transaction.

How about those smoking panhandlers? Should we boycott them?


Dorothy Day would say no. I recall reading that Dorothy once gave a homeless woman an expensive ring that had been donated to the Catholic Worker, and she was criticized for it. People said the homeless woman would pawn the ring and spend the money on drink--that it would have been better for Dorothy to have sold the ring and used the proceeds to pay the woman's rent.

The woman can sell the ring herself, Dorothy replied, and use the money however she likes. She might pay the rent or she might decide to spend the money on a Caribbean vacation! That would be her choice.

If we insist on categorizing the needy into the deserving and the undeserving, we will wind up helping no one. Congress doesn't want to help overstressed student-loan debtors because some of them borrowed too much money to attend college and some made poor choices in choosing their majors--art history instead of business, for example.

I say, so what? Millions of former college students are burdened by crushing student loans they will never pay back. Why not provide them some assistance instead of stewing over whether or not they deserve help?

I confess, I don't always follow my own advice. I don't help every panhandler who approaches me. I definitely don't like being accosted at night by a panhandler in the Walgreen's parking lot. But that guy standing on a hot street corner waiting for a motorist to roll down the car window and give him fifty cents--I say let's help him out a bit.

And so--when I saw that clean, young, and apparently well fed panhandler standing at the roadside on Siegen Lane, I gave him two dollars.

I admit, however, that my mother's spirit came welling up within me as I handed over the money. "Those cigarettes,"I chided, "will kill you."

Let's face reality: The federal student loan program is not a problem; it is a catastrophe.

We reached those last days when we could endure neither our vices nor their remedies.

 

                                                                                    Titus Livy, on the decline of Rome

 

 

 

If Congress does not act, interest rates for the federal student loan program will rise to 6.8percent in July of this year. 

 

Last week, three Republican senators published an op ed essay in the New York Times suggesting what they think is a better way for setting student loan rates than the current system.  Senators Lamar Alexander, Tom Coburn and Richard Burr proposed that student-loan interest rates be set at the fluctuating 10-year Treasury rate plus 3 percent.

 

Keeping interest rates low for student loans is obviously a good thing for students. But let's face it, the student loan program is a catastrophe, and low interest rates for student loans won't fix this enormous problem.

 

First of all, although the federal government has never revealed the true default rate on student loans, evidence from many sources shows that it quite high. For students who attend for-profit institutions, the default rate over the lifetime of the repayment period is probably 40 to 50 percent.  Lowering interest rates is not likely to shrink the default rates--especially in the for-profit sector.

 

Second, income-based repayment plans, which are being pushed as a way to ease the burden on overstressed student-loan debtors, are making the default problem worse.  Lowering default rates will provide some marginal relief to former students in IBRPs, but it won't solve their underlying problem, which is that they borrowed more money than they can pay back.

Under an IBRP, students pay back their loans over a long period of time--20 to 25 years--based on a percentage of their income.  Any unpaid amount at the end of the repayment period is forgiven.

 

This may sound like a great idea, but this is the harsh reality:  A lot of student-loan debtors who participate in IBRPs, probably a majority of them, will never pay back their total loan obligations even if they make every loan payment on time.

Why? Because under an IBRP, the monthly loan payment will not be enough to cover accruing interest for many student-loan debtors. Thus, their debt will continue to grow even if they faithfully make their monthly payments.

 

A recent New York Times story illustrates this problem. The Times reported on a veterinary school graduate who borrowed $300,000 to attend a for-profit veterinary school in the Caribbean.  She obtained a job as a veterinarian--which is a good thing, and she is paying back her loans under an income-based repayment plan.

 

Unfortunately, her loan payments are not enough to pay back the accruing interest on her loans.  The New York Times estimated that the total amount of her debt will grow to $600,000 by the time her loan repayment obligations end even if she makes every payment on time!

 

Back when I was practicing law, my senior law partner told me I should admit my mistakes as soon as I realized I had made an error.  The longer I went without acknowledging my mistakes, my partner stressed, the bigger my problems would become. 

 

Over the years, I have found my former law partner's observation to be true 100 percent of the time.  The whole premise of the federal student loan program is flawed.  Over time it has grown into a $100 billion a year industry that has benefited colleges and universities but has hurt a lot of students. Total outstanding indebtedness is now over $1 trillion--making student loan debt the second biggest consumer-debt sector in  the American economy after home mortgages.

 

Fixing this mess won't be easy, and it will be painful.  But if we don't take drastic action, the federal student loan program (and the accompanying private student loan industry) will destroy American higher education. Indeed, it has already seriously undermined legal education.

 

What must we do? 

 

First, we must allow overstressed student-loan debtors reasonable access to the bankruptcy courts.  Let's face facts: most defaulting student-loan debtors are never going to pay back their loans, even if they are denied bankruptcy relief.  It would be far better both for debtors and the national economy if these unfortunate people were permitted to clear their debts in bankruptcy and go on with their lives.

 

Second, we must stop allowing for-profit colleges and universities to participate in the student loan program.  Even if all for-profit institutions were acting in good faith--and some of them are not--the default rate in this sector is simply too high to justify for-profit participation in the student loan program.

 

Furthermore, the U.S. has plenty of non-profit and public institutions to serve the needs of postsecondary students. In my opinion, postsecondary students would have plenty of good options for obtaining a college degree even if the University of Phoenix, Kaplan University and Capella University did not exist.

 

Finally, every college and university in the United States must be obligated to freeze tuition and fees at the current level as a condition of participating in the federal student loan program: and they must be further obligated to freeze salaries and benefits of their top executives.

 

President Obama, Congress, and the higher-education industry want to tinker with the student-loan problem, which is growing bigger every day. But lowering interest rates and encouraging students to go into income-based repayment programs will not fix this problem.  The solutions must be drastic, and they must be painful.

References

Lamar Alexander, Tom Coburn and Richard Burr. Playing Politics With Student Debt. New York Times, June 5, 2013, p. A21.

David Segal, High Debt and Falling Demand Trap Vets. New York Times, February 23, 2013, p. A1.

 

For whom the bell tolls: Law schools are in touble and so is the rest of higher education

Last week, the New York Times carried a front-page story on the decline in law school applications. In 2004, there were 100,000 applicants to law schools, the Times reported. This year that number will decline by about half.

As one law professor put it, "Thirty years ago if you were looking to get on the escalator to upward mobility, you went to business or law school. Today, the law school escalator is broken" (Bronner, 2013, p. 1.)

The gravy days are coming to an end for college professors

One law school dean admitted that law school costs too much. "Most law schools are too expensive,the debt coming out is too high and the prospect of obtaining a six-figure-income job is limited" (as quoted in the Times).

What happened? As the Times article reported, law school has gotten very expensive.  As I wrote in a past post, tuition at the University of Texas School of Law was $1,000 per year when I attended in the late 1970s.  With a little savings and working part time, most students could graduate from law school with no debt. Today, it costs a Texas resident $32,000 a year to attend UT Law School.

Second, we don't need as many lawyers as we once did. Electronic legal research has made it possible for legal researchers to be ten times more efficient than they were before Westlaw and Lexis-Nexis were introduced.

Third (and I admit this is a totally subjective view), I suspect that law school faculty are not as focused on training legal professionals as they used to be. Consequently, a law school education is not as useful as it once was in getting graduates ready for the workforce.  Too many law professors are writing postmodern law review articles that no one reads instead of striving to relate law-school education with the real world. 

Fourth, I think the blog critics have done their part to discourage potential applicants from going to law school.  There are some terrific online writers who use data and savagely effective writing skills to describe what is going on in legal education, and the picture they paint isn't pretty.  I feel sure a great many young people decide not to go to law school after reading those blogs.  I applaud those writers, by the way. They have provided a real service by alerting people that law school may not be a good investment.

Non law-school academics may be thinking, "Thank God I teach in another profession." But they need to realize that the shakeup in legal education is coming to the whole field of higher education.  The colleges of education, for example, are vulnerable to declining enrollments.  There are too many colleges of education, for one thing; and online for-profit competitors are cutting into the market share of the colleges of education at public universities.

And the social sciences and liberal arts will probably see a further decline in student enrollments. If a potential law student can do some research and conclude that law school is a bad economic bargain, the potential history major and philosophy major can come to the same conclusion.

According to a report prepared by the Center for College Affordability and Productivity, nearly half of all  employed college graduates who held a job in 2010 were employed in a job that did not require a college education (Bidwell, 2013). A high percentage of these underemployed college graduates borrowed money to attend school, and they must pay back their loans whether or not their post-college income justified the investment. 

More and more, we are going to see young people calculate the odds when they make decisions about higher education.  And many will conclude that the odds aren't good.

Private liberal arts colleges are likely to suffer the most from the new economic reality. Fewer and fewer young people are going to seek a a liberal arts degree from an expensive private college--particularly the nonprestigious liberal arts schools that were founded years ago by religious denominations.

In other words, in the world of higher education, it is not only the law schools that are in trouble. We can tell the college professors in nearly every discipline: "Ask not for whom the bell tolls." It tolls for a lot of us working as college and university professors.

References

Bidwell, Allie (2013, Januatry 28). Millions of Graduates Hold Jobs That Don't Require a College Degree Report Says. Chronicle of Higher Education.

Bronner, Ethan. (2013, January 31). Law Schools' Applications Fall As Costs Rise and Jobs Are Cut. New York Times.

Baloney From a Law School Dean About the Value of Attending Law School

Lawrence E. Mitchell, Dean of Case Western Reserve's Law School, published an op ed essay in the New York Times in late November, seeking to assure the public that attending law school is still a sensible investment.  Mitchell described the criticism of American law schools as "hysteria."

In my opinion, Mitchell's essay is a bunch of baloney. The reality of the law-graduate job market is that salaries are going down and the job market for well-paying attorney jobs is shrinking while the cost of going to law school has become unreasonably expensive. 

Dean Lawerence E. Mitchell:
Nothing to see here, folks: just move along

At least this is the view of Federal Bankruptcy Judge Ann Aiken as expressed in the recent bankruptcy court opinion of In re Hedlund (2012). The judge pointed out that law school tuition rose more than three hundred percent between 1989 and 2009, which is twice the rate of inflation for that period and four times the rate of job growth. “Accordingly,” Judge Aiken observed, “with the exception of the independently wealthy, students must take out loans in order to finance their [law] degrees” (p. 907).

Meanwhile, as tuition costs keep going up, wages for beginning attorney are going down. Citing a report by the National Association for Law Placement, Judge Aiken pointed out that annual compensation for first-year associate attorneys in private practice went down in 2010. In addition, the demand for new attorneys is shrinking. According to Judge Aiken, “The most recent statistics indicate that, through the year 2018, there will only be 25,000 openings for the law schools’ 45,000 new graduates each year” (p. 907). (This discussion of Judge Aiken's Hedlund opinion comes from one of my earlier blog postings.)

I won't comment further on Dean Mitchell's op ed essay, which was criticized by several people on the web.  A very able critique was posted on the   "Behind the Law School Scam" blog at http://insidethelawschoolscam.blogspot.com/2012/11/response-to-larry-mitchells-new-york.html
In fact, this robust, feisty and fact-packed blog, which is written by a law professor, is must reading for anyone contemplating law school.

References

Hedlund v. Educational Resources Institute, Inc., 468 B.R. 901 (D. Or. 2012).

Lawrence E.Mitchell. Law School is Worth the Money. New York Times, November 29, 2012, p. A23.

Arne Duncan Did Such A Great Job Managing the Student Loan Crisis, Let's Make Him Secretary of State!

Secretary of Education Arne Duncan
After Arne, the deluge
credit(Wikipedia)

In a recent New York Times editorial, Thomas Friedman endorsed Secretary of Education Arne Duncan as the next Secretary of State. Right.  Duncan has done such a great job managing the nation's student loan crisis, let's put him in charge of the Middle East.

Without a doubt, the federal student loan program is DOE's biggest challenge. As everyone knows, the program has about $1 trillion in outstanding student loans and about 6 million people are either behind on their loan payments or in programs designed to help people who can't make their regular payments.

What has DOE done about the federal student loan program under Secretary Duncan's watch?

First, DOE has increased the measurement period for computing default rates from two years after the loan repayment period begins to three years. This is a good thing, because it moves us closer to determining what the real default rate is.

But research shows that most student-loan debtors default after three years,and we know that some For-Profits have encouraged their former students to apply for economic hardship deferments to keep those students from showing up as defaulters. We still don't know what the default rate is over the life of students' repayment period, but it is much higher than DOE reports. The default rate for students attending for-profit schools is quite high--maybe 50percent.

Second, the Obama administration has eased the repayment terms for borrowers who elect to enter the Income-Based Repayment Program, which is also a good thing. But we are not solving the student-loan crisis by putting borrowers in 20 year repayment plans.  In fact, we may be creating a new class of indentured servants, people who pay a percentage of their income to the federal loan program for the majority of their working lives.

I realize the federal student loan program has enormous economic and political dimensions, with many powerful players wedded to the status quo.  I would not expect Arne Duncan to solve all the problems associated with the program without broad political support.

Nevertheless, these are the things that President Obama and Secretary Duncan could have done and should have done, whether or not there was Congressional support.

Number One: DOE needs to report an accurate student-loan default rate, which it has not done. Instead, the public has had to rely on outside agencies to provide some clues as to what is going on. The Federal Reserve Bank of New York's recent report is enormously informative, but the Reserve Bank relied on a credit agency, not DOE, to get data to assess the student loan program.

Number Two: The Obama administration and DOE could stop the garnishment of elderly student-loan debtors' Social Security checks. Social Security income is exempt from garnishment for a wide variety of debt, but not student loans.  This year, the government garnished Social Security checks of 119,000 elderly people (Lewin, 2012). This practice is a scandal and undermines President Obama's image as a person who truly cares about Americans suffering economic hardship.

Number Three:  I know I am repeating myself, but we must provide reasonable avenues for people to discharge their student loans in bankruptcy. Presently, a significant percentage of people make bad choices when borrowing money to attend college. Instead of enhancing their economic future, they have sealed their economic fate--basically casting themselves out of the middle class because they are saddled by unmanageable student-loan debt.  For these people, the student-loan mess is not just an economic crisis, it is a crisis of human suffering.

In years to come, when Arne Duncan's tenure as DOE Secretary is assessed, historians will say he did an admirable job of managing the student-loan crisis, which grows bigger every day. But we don't need a problem manager to head DOE right now, we need a problem solver.  Arne Duncan has not been a problem solver, and for someone of Thomas Friedman's status to suggest that Duncan should run the State Department is difficult for me to understand.  (Fortunately, Duncan said no to Friedman's suggestion (Fabian, 2012).

References

Meta Brown, Andrew Haughwout, Donghoon Lee, Maricar Mabutas, and Wilbert van der Klaauw. (2012). Grading Student Loans. Federal Reserve Bank of New York. http://libertystreeteconomics.newyorkfed.org/2012/03/grading-student-loans.html

Fabian, Jordan (November 28, 2012). Education Secretary Says No to Secretary of State. ABC News. http://abcnews.go.com/ABC_Univision/Politics/education-secretary-arne-duncan-secretary-state/story?id=17826816#.ULd-4Ky5Plg

Thomas L. Friedman (November 27, 2012). My Secretary of State, New York Times.

Tamar Lewin (November 12, 2012). Child's Education, but Parents' Crushing Loans. New York Times.

 

Borrowing money at interest: The root cause of the student loan crisis

Many people underestimate the magnitude of the student loan crisis because they forget that student-loan debtors are borrowing money at interest and that this interest gets added to the amount borrowed if the borrowers get behind on their payments.

Thus, when we read the published bankruptcy court opinions, we see debtor after debtor who is trying to discharge a debt that is two times or even three times the amount they orginially borrowed. For example, in In re Bene (2012), Donna Bene borrowed about $17,000 in the 1980s to finance an education that she never completed due to the fact she had to leave school to care for her aging parents. She was unable to make her loan payments, and by the time she filed for bankruptcy, the amount of her debt, including fees and accrued interest, was $56,000--three times the amount she originally borrowed!

The York Times, the Obama administration, and other fuzzy-minded liberals think that economic hardship deferments and income-based repayment plans (IBRPs) provide meaningful relief for overburdened student-loan borrowers, but they  are apparently ignoring the fact that interest accrues while people participate in these programs. People who obtain economic hardship deferments for a period of even three or four years will find the amount they owe has grown substantially. 

The case of In re Halverson illustrates this phenomenon. Mr. Halvserson obtained economic hardship deferments on his student loans for many years and was never in default. Nevertheless, by the time he filed for bankruptcy, when he was in his 60s, his $132,000 debt and grown to almost $300,000.

Likewise, people who participate in IBRPs and whose adjusted payments are less than the accruing interest on their loans will discover the amount they owe will grow over the years--not shrink--because the interest is piling up even though they are making regular payments.

The student-loan guarantee agencies, which are the creditors in student-loan bankruptcy cases, have been asking the bankruptcy courts to put debtors on 25-year IBRPs, which is just crazy.  Ms. Bene and Mr. Halverson would have both been in their 90s before completing their IBRPS had they been required to do so. Fortunately, the bankruptcy courts discharged their debts and did not make these unfortunate people go through such a heartless and fruitless exercise.

There was a time--in pre-Reformation Europe--when loaning money at interest was considered sinful. And not so long ago, the states had enforceable usury laws that put limits on the amount of interest that could be charged on a debt.   In the jurisdiction where I practiced law, a creditor could charge no more than 10.5 percent on most debts.  Today, however, banks and credit card agencies are virtually unrestricted in the amount of interest they can charge.

Dorothy Day, the greatest American Catholic of the 20th century and co-founder of the Catholic Worker movement, subscribed to the ancient Catholic doctrine on usury, and she refused to accept interest on money owed to the Catholic Worker.  In 1960, she famously returned interest on money owed the Catholic Worker by the City of New York. The City had bought a piece of property from the Catholic Worker for $68,700, but there was some delay in making payment. When the check arrived, it included an additional $3,579.39 in accrued interest.

Dorothy sent the interest money back to the City of New York with this explanation (Day, 1963, p. 191):

We are returning interest on the money we have recently received because we do not believe in "money-lending at interest." As Catholics we are acquainted with the early teaching of the Church. All the early Councils forbade it, declaring it reprehensible to make money by lending it out at interest . . . .

Today, unfortunately, American society runs on borrowed money.  Presently, our government is keeping interest rates low for the expressed purpose of encouraging people to buy and borrow more. And where has all this borrowing gotten us? Americans now owe trillions of dollars in debt, including $1 trillion in student-loan debt alone.  College tuition is now so high at both public and private colleges that students are forced to borrow in order to get an education.

There is no easy way back from the abyss, but we can start by easing the burdens being borne by overstressed student-loan borrowers and by putting firm caps on college tuition costs.

References

Dorothy Day. Loaves and Fishes. Maryknoll, NY: Orbis Books, 1963.

In re Bene, 474 B.R. 56 (Bankr. W.D.N.Y. 2012).

In re Halverson, 401 B.R. 378 (Bankr. D. Minn. 2009).

 

 

10,000 law review articles are pubished each year--most of them useless. Meanwhile law school tuition has gone through the roof.

Let's write more law review articles!

John G. Browning published an essay in today's Inside Higher Education (www.insidehighered.com) criticizing law reviews. Browning points out that 600 law journals publish 10,000 law review articles each year, and 43 percent don't get cited by anyone.  And these articles are not cheap. Browning estimates that the cost of a law review article written by a tenured professor at a top-tiered law school is around $100,000!

I have written a few law review articles myself, and I have been cited more than 100 times in the law reviews, including Harvard Law Review. I admit, however, that most citations to my work are in law students' articles, not articles written by law professors. I suspect the law students cite me to demonstrate that they did a superhumanly exhaustive review of the literature: "See, I even cited an obscure article by some nobody College of Education professor from Texas!"

Professor Browning cites one article as an example of how esoteric most legal research is: "Historic injustice and the Non-identity Problem: The Limitations of the Subsequent-Wrong Solution and Towards a New Solution." But there are many law articles with similarly obscure titles. How about this 2004 essay: "Sarbanes-Oxley, Jurisprudence, Game Theory, Insurance, and Kant: Toward a Moral Theory of Good Governance."

It is shocking that law professors churn out articles at the rate of 200 a week, most of which have little or no value, while law-school tuition is going through the roof; and the market for law graduates has shrunk.  As a bankruptcy judge pointed out in a recent opinion, the law schools will turn out around 45,000 graduates a year in the coming years for a job market that only needs 25,000 jobs.

Meanwhile, so far this year, the federal government has garnished the Social Security checks  of 120,000 elderly student-loan debtors who defaulted on their loans. One might hope that at least one of the 10,000 law review articles that will published in 2012 will recommend that this practice be stopped. But don't count on it.

References

John G. Browning (2012, November 19). Essay criticizing law reviews and offering some reform ideas. Inside Higher Education, www.insidehighered.com